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Are we in an NFT bubble?

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Written by   10
4 months ago

Source: https://dune.xyz/rantum/NFT-Collection-Dashboard

"How long can the NFT bull market last?"

"It'll be interesting to see what happens to NFTs during a bear market."

These are comments I get from my readers every so often whenever I talk about the NFTs. And they are genuine, preemptive questions. Investors want to be prepared whenever there's talk of an upcoming recession. They want to have that extra liquidity to buy the dip. Smart.

People are making thousands, if not millions, on digital items. But the industry hasn't even taken its first steps yet; The NFT market is still crawling like a toddler. It's tried to stand up and walk, but its legs just give out. What's the ordeal?

Although I'm an avid supporter of NFTs, I'm also a realist. NFTs don't really offer utility at the moment. Or, if they do, it's a primitive form of utility. It comes from companion NFTs, merch, meetups, free coins, etc. We'll call this V1 utility (a term coined by Giancarlo buys tokens).

There's nothing wrong with V1 utility. It's just that it doesn't offer much in terms of human needs. It doesn't drastically amplify the human experience. We can already obtain V1 utility through other means.

I like talking about this theme through Maslow's hierarchy of needs:

Source: https://www.simplypsychology.org/maslow.html

When you generally think of a need, you think of it as a tool for survival.

But when I, and marketers, talk about needs, we're talking about social needs. We're talking about the need to fulfill one's true desires. We're talking about showing off our wealth to others.

And at the moment, owning an NFT fulfills the two middle categories on the pyramid. Belongingness comes from the NFT community. We say GM and GN to each other, and we applaud each other when we flip an NFT for 10x value. We're also there for each other when the floor drops to 0.

NFTs are also currently providing esteem needs. So you own a BAYC worth a whole lotta ETH? Put that sh*t on your profile. We love to see you succeed. You're showing us that you know what you're doing, or at least that you got lucky 😉.

But what is absent is our self-actualization needs in the NFT sphere. At the moment, we can't hop in a game and put on our Tronwars outfit. And even if we could do that, we haven't reached a point that the metaverse experience actually feels like a metaverse experience.

What I mean by this is that we have yet to reach a point where our virtual environments are interoperable. As a result, we, as users, cannot go dive into an open and seamless virtual universe with millions of other players. Instead, we are fragmented among different servers, and we only get to see a handful of the true daily active user (DAU) base.

So not only can you not show off your NFT skin among "metaverse" experiences like Decentraland and Sandbox, but you also can't traverse an open virtual space with thousands of environments with your NFT avatar.

V2 utility will push the human experience, but it won't be anything we've ever seen before. Yes, you'll be able to hop in Decentraland with your sick Psychedelic Anonymous NFT and talk to fellow community members. Don't get me wrong, that'll be a turning point in the NFT industry.

And yes, you'll be a part of NFT-project DAO's. We'll have a say in the future of our beloved NFT.

But V2 utility will not offer that new, never-seen-before utility that the NFT sphere promises.

Because of this question of utility and its crucial role in NFTs, I believe the NFT industry is propped up. What project creators, community members, and influencers really offer is hype. Hype about what's to come next. Hype about the V2 utility holders will get in the future.

So is the NFT market in a bubble?

Yes, I believe so.

Because of the lack of new-and-improved utility, it is in a bubble. Let's face it; most people are buying for the hype.

Don't get me wrong though. Some people are collectors and genuinely appreciate the art. They could care less about what utility the project offers.

But let's be real—most people are here for the money.

Also, we could be in a bubble because people have more disposable income to spend on NFTs. The NFT market

"reached $22bn in 2021, compared with just $100m in 2020."

That's a parabolic amount of growth. Such a rapid increase in market size is unhealthy for the NFT industry, let alone any sector of the economy.

As you can also see from the chart at the very top, sales volume has followed through over the past year; albeit, aggregate volatility is present within the market. This shows that the market is not stable and is built on hype.

Instability + rapid growth + no real utility = a recipe for disaster.

OMG. I should sell!

I wouldn't recommend you do that. NFTs are here to stay since the potential utility is game-changing.

Just follow the steps you would be taking when you fear a market pullback is around the corner. For example, you wouldn't go balls deep in OTM $TSLA calls. Instead, you would keep some extra cash on you so you can buy the dip on your favourite stocks. They do say that the dip is a fire sale!

The same applies to NFTs. Don't pour your entire life savings into a flipped version of BAYC. Instead, look for blue-chip projects with A-list devs, S-tier artwork, and a comprehensive and developed roadmap. Even if the NFT market fell by half tomorrow, these projects will still succeed.

And if you're a short-term flipper like myself, look for the strongest of communities when researching NFT collections.

The market always bounces. We've seen it in 2008, and more recently, with COVID-19. Sometimes it takes years. Other times, not even months.

Don't fret, friend. Be patient!

I am not a financial advisor. Please do your own due diligence before making a decision based on my article, as I am not responsible or liable for your investment decisions.

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