The NFT market experienced a roller-coaster ride from January to May 2022, from a bull run in January to a market stabilization and consolidation phase from March to May. The current market lull suggests that the NFT market heavily depends on fresh demand to match up with the ever-increasing supply of NFT collections and projects, notes a new report from Huobi Research Institute.
The report further noted that without consistently high demand, newly-released NFT collections dilute the market and pull capital away from older collections. Furthermore, tools and platforms should be developed to protect buyers from cash-grab projects and wallet scams for the market to remain sustainable and attractive to investors, the report suggests.
Titled “2022 NFT Market Trends (Jan to May)”, the report examines the ups and downs of the NFT market this year and notes how new, popular NFT collections successfully spark public interest in NFTs. Such new projects attract high volumes of new and returning buyers into the market, akin to market activity in January when PhantaBear and other Asia-lead NFT projects heralded a swarm of NFT buyers from affluent Chinese-speaking markets in Asia. The sudden influx of buyers had caused market demand to exceed supply, therefore raising the floor price of almost every NFT collection.
However, opportunistic project teams viewed this phenomenon as a profit-making chance and launched low-effort, low-quality projects for quick money grab schemes that preyed on buyers’ naivete. Such actions on the part of creators resulted in a vast amount of capital and liquidity outflow; buyers also lost money from scams, hacks, and low-quality collections that depreciated in value. As a result, NFT demand plunged, and public confidence was shaken.
From March to May this year, new collections continued to appear, but these projects did not attract new buyers into the market and public interest in NFTs remained low. However, new collections remain in demand from existing NFT traders who hold other NFT collections. The current state of the market is one where traders are selling off outdated NFT collections in order to raise capital to purchase new collections. These new collections have diluted the current market and increased the selling pressure on older NFTs.
The NFT market is still filled with hacks and money-grabbing projects, and consumer confidence and public interest in NFTs will not improve if the masses continue to view NFTs as scams and highly risky assets. The report predicts that the trend of selling lower quality projects will continue, and the market will see a rotational shift between inferior projects and top-quality ones. A period of market consolidation and reform is needed for the public to regain interest and trust in NFTs.
“We hope to see the NFT market become a healthier and safer space, with responsible projects that deliver on their promises to its NFT holders, standardized UX designs for smart contracts, and screening platforms to protect NFT buyers from unethical project developers,” said Hanson Chan, a Researcher at Huobi Research Institute and author of the report. “Traders and collectors need to assess the state of the current NFT market in order to make informed decisions moving forward.”
To download the full report, click here.
