Recently, gains of bitcoin (BTC) and cryptocurrencies based on non-fungible tokens (NFT) stand out on the crypto market. Even on the currently stagnant market, coins in the NFT family are seeing 20-300% growth and catching the attention of investors. Notable NFT coins include Theta (THETA), Enjin (ENJ), Chiliz (CHZ), Flow (FLOW), and Decentraland (MANA). Compared to early last month, Theta gained 308%, Enjin 284%, Flow 50%, and Decentraland 330%, showing far stronger growth than other coins. Particularly Theta pushed past USD Coin (USDC) and bitcoin cash (BCH) to rank no. 12 in market capitalization. The Pica project (PICA), which was developed to use NFT for art distribution and auctions, saw around 200% price growth vs. last week and caught the market’s attention.
NFT are traded based on their uniqueness and scarcity
Recently, the scale of non-fungible tokens (NFT) is growing day by day. NFT is a blockchain technology where tokens are issued with a unique value for each object that is mainly applied to in-game items or artwork. If existing cryptocurrencies like Ethereum (ETH) can be compared to a one-dollar bill, then NFT are like pearls that each have a different size and shape. If an artist creates a work of art or in-game item in NFT form, then this item becomes a worldwide unique. This is because NFT assigns tokens a specific logic so that each token can be distinguished.
The number of persons trading NFT products or items for profit is constantly increasing. According to specialist NFT analysis website NonFungible.com, the NFT trading value more than quadrupled compared to last year, recording over $250M just early this year. Especially for rare works sold on the NFT market, prices can soar sky high. The pixel art ‘Alien’, produced by CryptoPunk, caused a stir when it sold for 605 ETH. Last month, Grimes, wife of Tesla CEO Elon Musk, raised heads when she sold NFT digital paintings. Grimes auctioned off 10 of her artworks within 20 minutes for a total of 5.8 million dollars. Industry analysts point out that NFT’s inherent scarcity mechanism will further expand the uses for blockchain.
Soaring NFT has great potential and great volatility – caution is needed
As the NFT market takes off and user numbers increase, the price of Enjin and other coins issued for NFT projects is soaring. If the area of NFT keeps growing, experts believe that the value of NFT coins is highly likely to grow in tandem. Yet while they recognize NFT’s great potential, the consensus is that rather than a stable increase, prices are likely to grow more volatile going forward.
On March 29, cryptocurrency analyst Joseph Young remarked: “The demand for NFTs is continuing to surge and the NFT market is showing no signs of slowing down. Year-to-date, within less than three months, the combined market cap of major NFT projects has increased by 1,785%”. He added that “this explosive trend involving NFTs have led the sales volume of NFT marketplaces to skyrocket, alongside the valuations of NFT-related tokens”.
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Pointing to specific coins, he noted that “Theta Network’s THETA, Enjin’s ENJ, Sandbox’s SAND, and Axie Infinity’s AXS are some of many major NFT or blockchain gaming-focused projects that have seen a rerating in recent months”. This explains why the value of recently depreciated Theta, Enjin and other major NFT coins has lately gained renewed attention. According to Young’s analysis, the domain of NFT is expected to see a continued growth trend and the NFT market itself also has remaining growth momentum.
On the other hand, cryptocurrency media outlet Decrypt noted on April 1 that the daily NFT trading volume decreased from $10 million to $5 million and called for caution. To be precise, the daily trading volume on the NFT market decreased from around $10 million in mid-March to $4,750,000 as of April 1. Especially considering there was no particularly bad news on the crypto market over the past two days, the fact that the trade volume on major NFT platforms such as NBA Top Shot decreased by around 27% shows that volatility is high. If volatility grows on the NFT market, it could enter a bear market regardless of the direction of bitcoin prices, meaning that caution is needed.
According to Decrypt, “looking at all three crypto collectibles [NBA Top Shot, CryptoPunks, Sorare], while they have all seen record growth since the start of the year, there are some indications that NFT mania may be running out of momentum”. The outlet thus put the sustainability of the NFT market into question. According to this analysis, the phenomenon of decreasing trade volume on the major NFT trading platforms could be a sign that the bubble is about to burst.
However, some do not share the concern of great volatility exposure and instead consider NFT coin prices to have stabilized following the rapid price increase. They point out that NFT coins are currently trending flat with no large up- or downswing. While currently both upward and downward projections for the price of NFT coins are competing, the majority view is that they still have room for further growth.
D.STREET-affiliated cryptocurrency analyst Ho Joon Moon points out that “The crypto market is currently moving centered on coins featuring both financial technology ready for commercialization and NFT technology. With the right selection and focus, good returns can be had even in a stagnating market regardless of how bitcoin is trending”, adding “it is necessary to keep paying attention to NFT and also to newly emerging NFT coins”. In his view, both the NFT market and related technologies are constantly evolving and NFT coins could see additional gains anytime.
Blockchain industry still bullish on NFT’s great development potential
In fact, there are currently many attempts within the blockchain industry to improve the user experience (UX) of NFT collectors. One example is improved crypto wallet technology, which is being further developed to allow NFT collectors and users to easily trade and store NFT items. Another planned update is enabling businesses to pay for users’ token transmission fees to increase usability. Allowing businesses to pay NFT network registration fees on behalf of their users is expected to further simplify NFT utilization for users.
As some users point out that the high fees on the Ethereum platform make it difficult to trade NFT items in bulk, attempts are being made to create another infrastructure. For instance, Ethereum co-founder Joseph Lubin recently announced the imminent launch of dedicated NFT network Palm. Further, Enjin Project also soon plans the release of Efinity, the project’s own specialized mainnet that facilitates NFT trading. The goal is to enable mass volume NFT trading by developing a network with affordable fees.
However, some industry observers point out that caution is needed because NFT trading might cause tax issues. According to CNBC, the US Internal Revenue Service (IRS) recently released a requirement to declare NFT sales using blockchain and pay capital gains tax. Tax experts predict that given the strength of the recent NFT boom, the related capital gains tax could reach 10s or even 100s of millions of dollars.