Wednesday, December 6, 2023

Have We Reached the End for NFTs?

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We speak with Andy Stief, director of Product Marketing at Kraken, about the performance of NFTs in 2023 and why investors should still care about them. Stief also shares how understanding their importance and the underlying technology can lead to potential future investment opportunities.  
How have NFTs performed in 2023? How does it compare to 2022?

The NFT trading volume has declined in concert with the rest of the crypto market. However, trading volume isn’t the only measure of performance. For example, there are more web2/legacy brand names leveraging and integrating NFTs into their business and customer-engagement strategies than ever before. 
Since 2021, more and more big-name brands like Visa, Nike, Starbucks, Red Bull, Disney, Amazon and dozens more have entered the space or announced plans to do so. So as an industry and ecosystem, NFTs continue to expand and touch more people around the world in a variety of different ways – because all these brands see the potential the technology offers and the impact it can have on their respective businesses. 
Why have NFT trading volumes collapsed?
Like other asset classes over the same time period, NFT trading volume has sharply declined in response to changing marketing conditions and sentiment. 
What most people don’t realize is that NFTs have been around since 2014. Between then and early 2021, most observers would have needed a magnifying glass to see the trading volume. Yet over the last month, even in the depths of a bear market and global geopolitical and macroeconomic instability, we’re seeing over several hundred million dollars in monthly trading volume across over half a million trades, with tens of thousands of traders each week. Historically, that is a massive increase in activity across the board – though obviously down from the peak reached in 2022. Context here is really important. 

Have we reached the end for NFTs?
Have we reached the end of the internet? The end of a desire for transparency? The end of a need for provable ownership of digital assets? The end of the importance of provenance? The end of the demand for global and instant asset transferability? 
No, we have not reached the end of NFTs – the technology, its benefits and potential applications are too great to ignore, which is why investment dollars and legacy companies keep coming into the ecosystem. What we may have reached the end of, or at least significant diminishment of, is certain use cases of the technology that haven’t led to meaningful or sustainable value creation. 
2021-2023 was just the warm-up; use-case development, greater accessibility, better onboarding and clearer value-proposition messaging will lead NFTs into the future. 
Why should investors care about NFTs? What should they understand about them? 
Thinking about individual NFTs from an investment perspective is an incredibly narrow use-case of the technology and digital assets it produces. However, like the art and collectibles markets, NFTs attract both speculators and investors who believe a digital asset will appreciate in value over time. For that reason, investors may be interested in acquiring specific NFTs from particular collections that have one or more desirable attributes, such as historical provenance, cultural significance, a reputable team or artist or desirable ongoing benefits. 

Investors should understand why NFTs and the underlying technology is a significant and important development – as that knowledge can lead to a better understanding of potential future investment opportunities: 
NFT technology allows us to buy, sell and trade digital assets effectively for the first time in history because of four primary attributes, all enabled by the blockchain: provenance (exact origin and ownership history is verifiable by anyone), provable scarcity (authenticity and rarity is public information), global transferability (anyone in the world can send anyone else in the world digital assets without an intermediary), and indivisibility (cannot be split into smaller denominations).
Could NFTs evolve? If so, how?
The use cases for NFT technology are in constant evolution and are being adopted across the globe in new and important ways. One of the most promising applications involves the use of a specialized NFT called a Soulbound Token (SBT). SBTs are NFTs that are non-transferable, making them ideal for managing permanent records (versus storing documents in a filing cabinet). 
Think medical records, employment histories, criminal records, credit scores, academic credentials – all of this data can be created as SBTs and associated with a single person in a way that is immutable and non-transferable – giving individuals full control and access to their personal data, while also utilizing their data selectively for validation when needed.  
This year, Kraken announced its partnership with Williams Racing. As part of the fan experience, we have created a special digital collectible called Grid Pass which anyone can get for free, and that provides access to special perks and engagements enabled by NFTs.  

How are NFTs projects/companies trying to reach investors today? 

The majority of NFT projects will never have a need to connect with investors. Those that do, as well as ecosystem service providers, are leveraging their networks to access venture capital funding. The majority of projects and companies turn to crowdfunding, offering NFTs as products that people can purchase in order to receive a variety of different benefits.
This interview originally appeared in our TradeTalks newsletter. Sign up here to access exclusive market analysis by a new industry expert each week. We also spotlight must-see TradeTalks videos from the past week.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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