Nothing in this article constitutes or should be taken as financial advice and should be treated as for illustrative and educational purposes only. Always do your own research.
Last week I wrote about feeling overwhelmed by the state of the NFT market. This week, as the dust starts to settle, I want to discuss what this means going forward. But let’s start from the beginning…
Ten days is a long time in the world of crypto. If you, my fellow newbies, are finding it hard to navigate what happened, or just don’t have the time to delve into the conspiracy theories, I am here to give you the brief run down. Two major events unfolded in the crypto space.
One is related to a stablecoin called terraUSD (a.k.a UST) and its sister token Luna. In layman’s terms a lot of investors (both people and institutions) have lost a lot of money, on what they thought was a relatively “stable” cryptocurrency (pun intended). US$45 billion (yep you read it right) was wiped from the market caps of UST and LUNA within the week, according to CoinGecko. This led to a wider crypto sell-off, as the crypto investors’ confidence faltered against a backdrop of rising inflation, interest rates and general economic uncertainty. In other words – the perfect storm. Leaving UST debacle aside, cryptocurrencies in general are, and have always been, incredibly volatile but this time it hits different, as the recession alarm bells are getting louder.
Meanwhile, over in the NFT bubble, the golden child of NFT projects – Azuki, got mixed up in a major scandal. Azuki, with its anime-inspired art, shot up to the top of the NFT charts shortly after its launch in January this year. Since then, the anonymous team continued to surprise and delight the project holders with, amongst other things, airdrops of virtual piles of dirt… from which blue beans eventually grew (and yes, I am completely sober as I write this). The floor price* reached 30ETH at one point, until the anonymous founder admitted that before Azuki he had been involved in several other NFT projects which ended up being rug pulls*. This started a major debate about integrity in the NFT space, need for better protection of the community that funds these projects and a long list of other grievances.
Although these events were unfolding in parallel, we eventually reached a common boiling point - luna died, eth dropped and NFTs took a beating. For a moment there, it felt like the music stopped. For many of us newbies, this is the first crypto dip and first big learnings.
But I am a ‘silver linings’kinda person. What I am hoping for in the NFT space going forward is a major correction, whereby the hype will subside and the two main pillars of NFTs will get more airtime - namely utility and building the right type of a community (meaning a community driven by things other than price). As liquidity dries up, buyers will become more conscious about what they spend their eth on. And that’s when projects with strong utility will get their moment in the sun. A fun discord alone will no longer cut it and projects will have to find innovative ways to attract new members into their communities and deliver real value.
Those who can afford to keep building during the dip, will emerge stronger and will lay the foundations of new web3 business models. Those who were lucky enough to come out unscathed by the Luna disaster are counting their blessings. And those lucky tortoises who were late to the crypto party altogether (and have the nerve to buy the dip)… are now staring at what I would I call an “NFT mid-season sale” (not financial advice! Do Your Own Research!).
However, it is important to remember that NFTs are non-fungible (says so on the tin) and hence are not as easy to sell as you would with normal cryptocurrency. So, at a time when already illiquid tokens become even less so, it is important to exercise caution and do even more research.
If I were to venture into the world of NFTs at this volatile and, arguably, opportune time, I would be asking myself the following questions (on top of normal research):
- What am I getting for my eth and is this valuable to me?
- How long am I prepared to hold this NFT for?
- Will I be ok if I am not able to sell this NFT for an extended period of time?
- Am I happy to hold it if the price drops below what I paid for it (or to zero)?
- Am I comfortable with the overall level of risk involved?
And finally, as always may I remind you of my NFT mantra - this could all go to zero tomorrow. But NFT experiments in technology, utility and community I still find exciting as ever.
Have NFT questions? Tweet us @liyadashkina and @WeAreAllbright
*floor price – lowest selling price, driven by demand for the project
*rug pull – a scam project that sells NFTs but never delivers anything
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