The Epic Crash Of NFTs

Well, it finally happened. 

Just two years after a wave of buzz sent NFT prices soaring, a new report indicates that the vast majority of these digital assets have now lost their value entirely. 

To be clear, we at Farmfolio have nothing against digital assets. Blockchain technology is undeniably powerful, and the prospect of decentralized digital currencies is enticing to a great many people. We’re not here to disparage crypto, blockchain, or digital assets.

But it wasn’t hard to see this coming. The notion that a digitally encrypted JPEG of a monkey wearing a sailing cap could be worth millions of dollars never seemed especially sound. The financial world’s response to the whole debacle has been a sort of exasperated “I told you so.” 

To be fair, people really did make money trading NFTs. Those who entered and exited at the right times managed to come away with boatloads of cash. 

But, as so often happens with hype-centric phenomena of this kind, the whole thing came crashing down in spectacular fashion. In this article, we’ll take a look at the origins of NFTs, their epic flameout, and how they demonstrate the value of real, tangible assets like farmland. 

The Rise Of NFTs

The basic concept of an NFT, or Non-Fungible Token is simple. An artist or other creator uses blockchain technology to digitally encrypt a unique certificate recognizing their piece of art as belonging to one specific owner. In this way, people can purchase digital rights to images, videos, and even Tweets. 

In a basic sense, you can think of NFTs as blockchain-secured digital trading cards. And their existence is inherently tied to blockchain technology itself.

Since the birth of blockchain there has been no shortage of ideas about different things that could be minted. In fact, the first NFT was created before the birth of the technology that would eventually bring it into the spotlight. 

In 2014, Kevin McCoy released the world’s first NFT, called Quantum, to little fanfare or press coverage. It was only later, in 2017, when the Ethereum blockchain made NFT trading more secure, that these digital assets rose to prominence. 

One of the major milestones in the history of NFTs occurred in 2021, when a previously-unknown digital artist called Beeple sold an NFT entitled “Everydays - The First 5000 Days” for a massive $69 million, instantly propelling him onto the shortlist of world’s most lucrative artists and triggering a tidal wave of interest.

It wasn’t long before celebrities, tech gurus, and everyday investors were getting in on the craze. Notable NFT promoters include Justin Beiber, Donald Trump, Grimes, and a host of others. Bored Ape Yacht Club, one of the most prominent series of NFTs, has totalled over $1 billion in sales since its launch in April 2021. 

It wasn’t long before euphoria set in. The peak of the NFT craze arrived in 2022, when weekly trading volumes surpassed $1 billion and new NFT millionaires were popping up left and right. 

Back To Reality 

How quickly things change. According to a new study by crypto platform dappGambl, over 95% of NFT collections are now trading at 0 Ether (ETH), which is to say that these collections are now completely worthless. The platform assessed over 73,000 NFT collections and found that roughly 69,000 are currently at zero dollar value.

The company estimates that around 23 million people hold these worthless assets, meaning that the ripple effect on the broader market could be noticeable. Needless to say, the euphoria that was predominant at the outset of the NFT craze has certainly cooled off. 

Of course, some say that these swings are part and parcel of the natural development of a market. As a new type of asset, NFTs are still in the very early stages of price discovery, leaving them vulnerable to dramatic swings. But others contend that there was never any underlying value to NFTs, and that their meteoric rise was nothing but hype.

"It becomes clear that a significant portion of the NFT market is characterized by speculative and hopeful pricing strategies that are far removed from the actual trading history of these assets," said researchers from dappGambl, who compiled the report.

In many cases, NFTs were ust digital tokens with no inherent value beyond their scarcity and perceived uniqueness. The crash revealed the need for a reality check – a reminder that just because something is trendy and digital doesn't mean it's a sound investment.

It remains to be seen whether or not NFTs will witness another bull run like they did in 2021. It’s certainly possible, but many analysts don’t think it’s likely. However, even if NFTs never rise again, there are some serious lessons to be learned from the whole episode.

Real Assets Like Farmland Win Out Once Again

As we’ve said before, there’s nothing inherently wrong with digital assets. We’re not anti-crypto or anti-token or even anti-NFT. 

What we are is pro-real assets. History has shown time and again that a well-diversified portfolio requires a healthy amount of real, tangible assets, which can vary from traditional real estate to precious metals to - you guessed it - farmland.

The beauty of farmland is that its value, while still affected by market forces, is based on its ability to produce goods that are useful to people and assigned a real value by the market. Although speculation can certainly be a factor - often an extremely positive one - the underlying value is much less susceptible to hype and market euphoria. 

The crash of the NFT market has highlighted this, and people are beginning to take notice. More and more, savvy investors are weighting their portfolios heavily towards real assets, especially farmland. 

To learn more about how farmland can help you build a more resilient portfolio, get in touch with our team. We’ll guide you through the process and start you on the path to farmland success.

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