OpenSea is by far the most popular platform dedicated almost exclusively to NFT trading. With over 1 million active users, and holding some of the most well-known NFT collections, including Bored Ape Yacht Club and Cryptopunks, OpenSea remains miles ahead of any competing platforms.
It is no wonder why it has come as a massively shocking surprise that, in the span of about 4 months, the trading volume of all the NFTs traded in OpenSea has gone down over 99%, from $405.7 million total worth to just $5 million throughout the month of August, according to a recent report by DappRadar.
This sudden massive drop in people’s willingness to trade NFTs on OpenSea has experts and industry enthusiasts wondering about its causes and possible effects on the wider NFT market, and the crypto market as a whole.
We will explain what it means for OpenSea to be down 99% of its NFT trading volume, some of the possible reasons for it, and how it could impact the market going forward.
State of the NFT Market
It is no secret that the cryptocurrency market recently saw a massive crash, which not only led to a significant reduction in the value of all assets bound to them, such as an NFT, but also to an important loss of investor trust in the market in general.
In this sense, OpenSea’s trading volume downfall isn’t so much a problem of the platform itself, as much as it is a problem with NFTs as a whole.
The relatively recent downfall of the crypto market isn’t enough to explain the massive loss in the trade volume of NFTs, as the crypto market has seen a relatively swift recovery since June, while the NFT market just barely started to recover by the end of August.
Are NFTs a Bursted Bubble?
Critics of the NFT market have long claimed that NFTs are a bubble waiting to burst, and the recent reduction in trade volumes has given us plenty of reason to believe that they were correct.
A lot of the high prices in the most popular NFT collections have been the result of monetary speculation rather than demand from the end buyer of the products.
In a study conducted recently by Japanese experts from the Blockchain Innovation organization, Ito, Shibano, and Mogi, the application of a model known as the logarithmic periodic power law showed that the NFT market was in a small bubble as of march of this year.
Based on this conclusion, the study predicted that the prices in the market would go down in the near future, but not by an extremely large degree. However, the amount by which the NFT market fell exceeded even the experts’ most pessimistic predictions by far.
Furthermore, the researchers that conducted the study pointed out the difficulty of assessing whether and to what extent the NFT market was in a financial bubble due to the heterogeneity of NFTs.
Whereas some NFTs are indeed used for almost purely speculative purposes, others are sought for their utility or for collecting.
Thus, while the thesis that NFTs are a bursting bubble cannot be discarded and might still be convincing, there might be other reasons for their downfall beyond the result of failed speculations.
The Global Economy
The NFT market unfolds within the context of a global economy and thus, it’s unavoidably affected by what happens on a global scale.
Having recently recovered from COVID19, one of the most devastating pandemics in history, the world is now facing what’s arguably the biggest and most dangerous armed struggle seen since World War II, as Russia keeps its invasion of Ukraine.
Because Russia plays a key role in the global economy as one of Europe’s biggest gas suppliers, gas prices and, by extension, all energy prices have seen a massive increase, not just in Europe but in the entire world, which increased general costs of living.
While this may not appear to have anything to do with the NFT market at first glance, when such economic crises occur, the first markets to be affected are luxury ones, such as NFTs, especially on the higher price range.
This is coupled with a high level of uncertainty about the future of the economy, which also affect the demand for NFTs as an investment asset.
OpenSea’s Recent Lawsuit
While the drastic reduction in OpenSea’s NFT trading volumes isn’t solely a problem of the platform, as we’ve pointed out, there are some factors that particularly affected it, making it lose a lot more in terms of not just trade volume but also stock prices compared to other NFT marketplaces.
Namely, the company faced a lawsuit by an attorney specializing in blockchain technologies called Jesse Halfton, representing the owner of a Bored Ape worth $1 million, in regards to the platform’s stolen NFTs policy.
According to the claimant, this policy prevents any NFTs previously reported as stolen from being sold, regardless of whether the seller acquired the NFT in an honest manner.
Although this policy seems sensible on a surface level, it’s implemented in a way that results in many users who did not partake in any NFT theft or have anything to do with them whatsoever being blocked from selling their NFTs.
This problem is so reiterated within the platform that there are multiple users who wish to join the process in an effort to turn it into a class action lawsuit.
This has not been easy, as OpenSea’s terms contain a section seemingly written with the purpose of preventing class action lawsuits, stating that “all claims and disputes within the scope of the arbitration agreement must be arbitrated on an individual basis and not on a representative or collective class basis.”
Regardless, there is still a chance that the lawsuit could turn into a class action, which severely hampers the investors’ trust in the company, while the claims about the sloppy stolen NFT policy affects the trust of potential and existing customers.
Have NFTs Lost their Mainstream Appeal?
Another hypothesis on why NFT trades have been significantly reduced can be made beyond the purely financial realm. That is, people might’ve simply lost interest in NFTs as a concept and, maybe, they were just a passing fad after all.
Although this is a conclusion that may be derived from looking uncritically at the data that shows the lower NFT trade volume, there is no real reason to believe that people’s interest would’ve declined so dramatically in the span of just a few months, at least to the level where it’s the sole cause of the downfall.
That there has been a loss of interest in NFTs is undoubtable, but such a rapid and sudden fall in NFT sales after years of continuous growth couldn’t be explained without attributing it to a specific event that would make people suddenly not care anymore.
Likely, the fast shrinkage of NFT trade volumes is owed to a combination of multiple factors.
NFTs could have been in a financial bubble during the last few months or even years, and when situations such as global economic uncertainty, an important lawsuit on OpenSea and a general loss of interest in the Novelty of NFTs are summed up, this led to a massive loss in NFT trading volumes.
It remains to be seen when and whether NFTs will recover from this downfall, and what the future holds for them. However, given the fact that major companies and investors still have great faith in NFTs as a technology, the recent crash is probably situational and not definitive.
One possible consequence of this downfall is that the NFT market will start leaning more towards utility NFTs and NFT-based platforms and less towards speculatory and aesthetic items.
The potential of NFTs is still largely unexplored, and their capabilities as a world-changing technology are still there, waiting to be exploited by ingenious entrepreneurs.
If you wish to learn more about NFTs and other blockchain technologies, and the impact they will have on our everyday lives in the near future, you may visit the Expoverse website, and learn how to attend the world’s largest mass adoption blockchain event in the world.