NFTs Are Retaining Value, Researchers Say

If you listen to headlines, the non-fungible token market seems like a flash in the pan. The asset class peaked at $21 billion in May 2022 before crashing back down to Earth. Over 95% of NFTs created in the 2021-2022 NFT craze are now worthless, according to dappGambl researchers.

However, upon closer inspection, the picture looks a bit different. The NFT market cap today is a robust $10 billion, driven by the 5% of NFTs that have retained their value. The top ten artist collections are worth a combined $2.5 billion, having retained 73% of their value from one year ago.

Compare this to sales of modern art, which last year sat at $3.1 billion, 67% of its all-time high. In the last decade, total sales dropped 12% in 2022, 31% in 2022, 31% in 2019, and a whopping 43% in 2016. This kind of volatility is a feature of the broader art market, which is sensitive to swings in the wealth of high-net worth individuals. Sales often fall precipitously one year only to bounce back the next, like the stock market.

The reality is that despite the current market cap drawdown, NFTs continue to rapidly take their place in the art industry. Headline sales continue, like CryptoPunk 5066, which recently sold for $1.5 million. Sotheby’s and Christie’s have both built specialist digital asset teams and hosted NFT sales. Meanwhile, many museums are acquiring NFTs into their permanent collections, including the Pompidou, LACMA, and MoMa. ICA Miami exhibited CryptoPunk #305 alongside Andy Warhol’s Kay Fortson (an American Lady).

Perhaps the best measure of the NFT market's durability comes from the art-secured lending market.

Outstanding loans collateralized by traditional art totaled between $27 and $31 billion in 2022. Private banks such as Goldman Sachs and Morgan Stanley MS , auction houses like Sotheby’s, and specialty firms like Borro and Athena all offer loans. Lenders typically offer up to 60% of fair market value and charge interest rates of 6-10%, according to Deloitte. These are multi-year loans, which implies financiers are confident that the art will retain its value over time.

The NFT lending market mirrors these terms. Loans against top NFT collections are available for up to 75% of fair market value with interest rates from 8% to 10%, as listed on Gondi.xyz. More importantly, the durations are extending, implying that investors are betting NFT value will endure. Last week, investors extended a three-year NFT-backed loan on a Chromie Squiggle, the longest loan on record.

Rather than fading away, the NFT debate “has shifted to the longer-term impact of blockchain applications in the art market,” according to the annual Art Basel & UBS Art Market Report.

The NFT market has dropped substantially since its peak in 2022, but the bottom seems to have passed. Recent sales indicate the market is stabilizing, with works from top artists consolidating value in the billions. This dynamic is common in new markets, like the dot-com boom of the 1990s and the crypto initial coin offering craze of 2017. While most entrants wash out, the highest quality projects survive and flourish. The NFT market is following a similar path. Serious artists continue producing thoughtful NFTs while the medium solidifies its place in the global art market. As that trend continues, expect mainstream interest in NFTs to grow.