Non-fungible tokens have been swept up in the cryptocurrency crash as sales reached a 12-month low in June.
NFTs confer ownership of a unique digital item – often a piece of virtual art – upon someone, even if that item can be easily copied. Ownership is recorded on a digital, decentralised ledger known as a blockchain.
Sales of NFTs totalled just over $1bn (£830m) in June, according to the crypto research firm Chainalysis, their worst performance since the same month last year when sales were $648m. Sales reached a peak of $12.6bn in January.
“This decline is definitely linked to the broader slowdown in crypto markets,” said Ethan McMahon, a Chainalysis economist.
“Times like this inevitably lead to consolidation within the affected markets, and for NFTs we will likely see a pullback in terms of the collections and types of NFTs that reach prominence.”
The cryptocurrency market, worth about $3tn last November, is now worth less than $1tn.
NFTs rely on a blockchain – the decentralised ledger first used by bitcoin to track ownership of the cryptocurrency – to a record who owns them and allow them to be traded. Most are based on the Ethereum blockchain, which is maintained through a carbon-intensive system called proof of work.
At its peak, the NFT market was attracting vaulting sums including $2.9m for a token of the first tweet by Twitter’s cofounder Jack Dorsey. A digital collage by the visual artist Beeple sold for $69m; the main token for the “play to earn” video game Axie Infinity hit a total value of $9.75bn; and Coca-Cola raised more than $575,000 from selling digital items such as a customized jacket to be worn in the metaverse.
According to the Chainalysis data, NFT sales peaked in January. In April an attempt to sell on the Dorsey NFT was abandoned when bids topped out at $14,000.
However, demand for so-called blue chip NFT collections has held up, according to DappRadar, a firm that tracks NFTs and blockchain-based video games.
The price of the cheapest NFT in the Bored Ape Yacht Club has declined by only 1%, to $90.00o, over the last month, according to DappRadar’s head of research, Pedro Herrera. “Blue chip collections are performing vastly better than the vast majority of NFTs,” he said.
NFT sales reached $40bn last year and the 2022 total has already exceeded that, at more than $42bn, according to Chainalysis. Sales in January and February accounted for more than half of the 2022 total so far.
The cryptocurrency market has come under pressure amid volatility in the wider stock markets, amid fears over rising inflation and higher interest rates, which have dampened appetite for riskier assets including tech stocks and digital assets.
Faith in crypto assets has also been shaken by the collapse of Terra, a so-called stablecoin whose value was supposed to be pegged to the US dollar, and troubles at crypto-related financial institutions such as the Celsius Network, a lender that has paused withdrawals.