Let's be blunt: the recent NFT market downturn, punctuated by stories like the $10 million loss on that Alien CryptoPunk, isn't a market failure. As far as we’re concerned, this is a wake-up call. It’s a blaring siren for anyone looking to get rich quick by randomly investing in JPEGs. Well, that’s a very expensive lesson in personal responsibility.

Is Blaming The Market Easy?

It’s easy to point fingers. To shriek about obfuscated market manipulation, or the built-in downfall of digital scarcity. It’s easier to accept knowing that you weren’t a victim of your own hubris, but rather a victim of circumstance. That's a cop-out. The NFT space, like all new markets, is speculative and highly volatile. Volatility, in short, is not a bug; it’s a feature. Expecting anything else is naive.

Think of it like this: Remember the dot-com bubble? Now everyone was rushing into the Pets.com/Webvan class of investments, believing that the internet was a sure-fire express lane to fortune. That crash that followed wasn’t a condemnation of the internet. Instead, it was a perfect storm of brutal correction driven not only by that irrational exuberance, but a complete misunderstanding of business fundamentals. The NFT market mirrors this perfectly.

Did Greed Cloud Your Judgement?

The intoxicating lure of easy fortune is a seductive opiate. The tales of CryptoPunks selling for millions dollars helped stoke a FOMO that instead overrode clear-headed thinking. Suddenly, those on the outside saw dollar signs, not the intrinsic art, technology and community. They were duped by the marketing without actually listening to the product. They disregarded the obvious risks of putting money into a shiny, brand-new asset class.

And let’s face it, much of the NFT space was fueled by hype. Even worse, influencers hype up projects they don’t understand. At the same time, creators over-promise and under-deliver, and investors follow the hot market flavor of the day rather than focus on enduring value. Wash trading remains a key challenge, particularly with ETH leading the way. This practice includes people purchasing and selling NFTs to their own accounts, artificially boosting their market value. This skews the picture of actual demand and misleads prospective buyers.

The reality that despite NFT sales volume being down, the number of NFT buyers has grown indicates that the tide is changing. A lot more people are getting in the water, but they are swimming with lower budgets. They’re getting more careful, and quite frankly, they need to be.

Due Diligence: A Forgotten Art?

The NFT crash should not be interpreted as proof that this technology is without value. That’s good news indeed, but a signal that the need for due diligence has become an imperative. Before investing hundreds of billions into any new asset, approach the transaction with due diligence. That’s true for stocks, houses, and yes, digital collectibles too.

  • Understand the project: What is the art style? Who are the creators? What is the community like?
  • Analyze the market: What is the trading volume? How has the price performed over time? What are the potential risks and rewards?
  • Assess your own risk tolerance: How much money are you willing to lose? Are you comfortable with the volatility of the market?

These aren’t revolutionary investment principles, but they were practically overshadowed by the chaos of the NFT bubble. Many folks viewed NFTs as a lottery ticket, trying their luck to become an instant millionaire. That's not investing; that's gambling.

And while the Bitcoin NFT ecosystem is smaller than Ethereum’s, it has already shown itself to be more resilient. While sales plummeted by a smaller percentage, buyers have pleasantly surged. This is likely due to the fact that Bitcoin’s investors have historically been more long-term oriented and less emotionally driven by hype. Alternately, maybe the Bitcoin community is just less naive.

Because losing $10 million on that Alien CryptoPunk hurts. It should be an equally cruel reminder that simply making an NFT investment does not ensure riches. It’s an expensive lesson, but it is a lesson learned, we hope. The bad news is that the market didn’t fail you, you failed to play the game and do your due diligence. Now, let's see who actually learned something.