Crypto

NFTs Fail to Regain Appeal as Sales Drop 6% and Investors Shift to Ether ETFs

NFT sales drop over 6% to $8.5B as investors shift $69M into Ether ETFs.

By Barry Stearns

6/11, 13:28 EDT
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Key Takeaway

  • NFT sales dropped over 6% to $8.5 billion in the first five months of 2023, with Google searches at their lowest since 2021.
  • Investors are shifting from NFTs to Ether ETFs, anticipating SEC approval and causing significant price drops in popular NFT collections.
  • Despite the downturn, some NFT art collections and marketplaces like Magic Eden are still seeing positive returns and increased trading activity.

NFT Market Decline

The nonfungible token (NFT) market is experiencing a significant downturn, with investor interest waning and sales plummeting. According to Google Trends, searches for NFTs have hit their lowest level since 2021, a stark contrast to the peak interest seen in January 2022. Data from DappRadar reveals that NFT sales in the first five months of this year have dropped by more than 6% to $8.5 billion, compared to the same period last year. This is a dramatic fall from the $17.2 billion in sales recorded in just one month at the height of the NFT craze in January 2022.

The decline in NFT sales is further evidenced by the year-to-date price drops for many popular NFT collections. According to NFT Price Floor, prices for collections like CryptoPunks, Bored Ape Yacht Club, and Chromie Squiggle have fallen by 40% to 50%. The floor price for CryptoPunks, for instance, is down 29% from its lowest point last year, returning to 2021 levels. Daniel Maegaard, a prominent NFT collector, noted in an email that "we’re still seeing a majority of NFT collections continue to sell off or remain flat after peak euphoria in 2021."

Ether ETF Approval Impact

The recent decision by the U.S. Securities and Exchange Commission (SEC) to advance the approval process for Ether exchange-traded funds (ETFs) has had a notable impact on the NFT market. The approval has led to a shift in investor focus towards Ether, resulting in significant inflows into Ether investment products. CoinShares International Ltd. reported that investment products holding Ether saw $69 million in inflows in the week ending Friday, the highest since March. This shift has caused some investors to move away from NFTs and into Ether, as noted by Nicolas Lallement, co-founder of NFT Price Floor: "Crypto markets are all about capital rotation. It is foreseeable that Ethereum will continue attracting and absorbing market capital, and causing price drops in other assets."

The approval of Ether ETFs is seen as a historic milestone for the second-largest cryptocurrency, with the SEC approving documents for eight ETFs from major players like VanEck, Fidelity, Franklin, Grayscale, Bitwise, ARK Invest 21Shares, Invesco Galaxy, and BlackRock. This regulatory green light is expected to channel significant capital into Ether products, potentially fueling a rally towards the end of the year.

Bitcoin and Ether Inflows

The broader cryptocurrency market has seen substantial inflows, particularly into Bitcoin and Ether products. CoinShares reported that crypto investment products took on nearly $2 billion in inflows last week, extending a five-week run to over $4.3 billion. Bitcoin led the investment activity with $1.97 billion in inflows, while Ether saw its best week of inflows since March at nearly $70 million. Trading volumes in exchange-traded products (ETPs) rose to $12.8 billion for the week, up 55% from the previous week.

James Butterfill, an analyst at CoinShares, highlighted the unusual trend of inflows across almost all providers, with a slowdown in outflows from incumbents. "Positive price action saw total assets under management (AuM) rise above the $100 billion mark for the first time since March this year," Butterfill noted. The inflows into Ether products are expected to continue, with Ed Hindi, Chief Investment Officer at Tyr Capital, predicting that "$5-10 billion of fresh capital could be channeled through ether products in the short to medium term," potentially driving ETH to new record highs.

Street Views

  • Nicolas Lallement, NFT Price Floor (Bearish on NFTs):

    "Crypto markets are all about capital rotation. It is foreseeable that Ethereum will continue attracting and absorbing market capital, and causing price drops in other assets."

  • Daniel Maegaard, NFT Collector (Bearish on NFTs):

    "We’re still seeing a majority of NFT collections continue to sell off or remain flat after peak euphoria in 2021."

  • Sara Gherghelas, DappRadar (Neutral on Magic Eden):

    "Magic Eden has been gaining market share as trading of tokens on its platform has picked up... In April, it posted record volume, though it’s since decreased."