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This year will be a record even though the pace of demand has fallen from its peak, research finds.
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NFT boom slows but on track for growth
10 May 2022
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9 minute read
Growth in the NFT market has been patchy after a series of demand spikes and will stabilise this year, according to blockchain data expert Chainalysis.
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Its research found collectors had sent over $37 billion to NFT marketplaces year-to-date, leaving them on track to easily surpass the $40 billion sent in 2021.
But growth has been uneven and following a surge early in 2022 NFT transactions began to fall in mid-February, decreasing from a hefty $3.9 billion in one week to $964 million the next, the lowest weekly figure since August 2021.
Chainalysis laid out its findings in its inaugural State of Web3 Report.
“NFTs saw explosive growth in 2021, but this growth hasn’t been consistent and has levelled off so far in 2022,” says Chainalysis in the report.
But it found the NFT market revived in mid-April and now approaches volumes seen earlier in 2022 after the recent launch of Bored Ape Yacht Club's metaverse initiative, an avatar collection of cartoon apes that has seen several purchases by celebrities ranging from Jimmy Fallon to Justin Bieber.
“Volatility is particularly pronounced in NFTs because the market is less mature and therefore more susceptible to shifts in user sentiment," said Chainalysis economist Ethan McMahon. "We are also in the midst of a slowdown in the broader crypto markets, so it stands to reason that NFT markets have also been hampered by plunging prices.”
Regardless of transaction volume changes, the number of active NFT buyers and sellers continued to rise.
Nearly 1 million unique addresses purchased or sold an NFT in the first quarter of 2022, up from over half a million in the fourth quarter of 2021. Since early 2020, the number of active NFT buyers and sellers has risen every quarter.
Almost half a million addresses have transacted with NFTs in the second quarter of 2022, indicating that the NFT market is on track to maintain its quarterly growth pattern in terms of participants.
The number of active collections on popular NFT marketplace OpenSea has also steadily increased.
Most NFT transactions are small and involve less than $10,000 in cryptocurrency. Throughout 2021, the share of NFT collector-sized transactions between $10,000 and $100,000 increased dramatically but has since remained constant.
This indicates that, for the time being, new retail NFT investors are keeping up with the arrival of larger NFT investors, albeit at a steadier pace.
When considering transaction value rather than the number of transfers, the research finds that NFT collectors account for the majority of activity. This tracks with the growing amount of wealthy investors showing interest in including the digital asset class in investment portfolios.
Analysis of web traffic to popular NFT platforms also reveals that the asset class attracts users from all over the globe. The research found the highest share of web traffic to NFT marketplaces is in Central and Southern Asia, followed by North America and Western Europe. The lowest share of web traffic was in Africa.
Google searches for NFTs had previously reached record highs in 2021, but are now waning across the board this year.
NFTs are digital art pieces created by artists on a blockchain, representing a unique and scarce digital item. Unlike normal cryptocurrencies where one person’s bitcoin is equal to another person's bitcoin, NFTs are all unique.
It is uncertain whether NFTs can reclaim the widespread public attention that they enjoyed in late 2021, and whether this results in increased transaction activity or higher prices for popular NFT collections.
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