It isn’t just crypto prices that have suffered as a result of last week’s FTX implosion – NFT prices have taken a hit as well. Right across the board, NFT projects are suffering from the fallout, as fears grow that projects were holding funds on the exchange and holders are forced to sell in order to fill gaps in their portfolios left by FTX. Bored Apes are down 30% since doubts about FTX first began two weeks ago, while Mutant Apes are down 17%. Azuki NFTs are down almost 14% in the same period. NFT activity in general has taken a massive hit too, with sales volume down over 30% in the last week alone.
NFT Holders Not Insulated From FTX Collapse
If NFT holders were hopeful that the lack of exposure of the NFT market to FTX would insulate them from the fallout they have been sadly mistaken. As data from Nonfungible.com shows, the volume and value of NFT trading, in general, has fallen since FTX’s issues were made public:
There was in fact no metric that looked good for NFTs in the wake of FTX’s collapse:
Naturally, this has had an impact on NFT collections themselves, with very few collections escaping unscathed by the downturn. The Bored Ape franchise dropped by an average of 15%, with Bored Ap Yacht Club NFTs falling to levels not seen for almost a year, down 67% from their May 2022 highs. Doodles are down 13% in the past week in the same period, while Moonbirds are down 11.5%.
Multiple Reasons Why NFTs are Dropping
A few theories have been suggested as to why NFTs have suffered as a result of the FTX affair along with cryptocurrencies, although not as severely.
Protection of Capital
The first is that the overriding fear that a further industry-wide collapse is on the cards, aided by the larger economic issues at play, and they want to get out while they can. Allied to this, holders may have lost through the FTX crisis and so are selling their NFTs for much needed liquidity. This sell pressure has had the obvious effect of driving down prices.
FTX Customers Withdrew Funds Through NFTs
It also emerged in the wake of the FTX collapse that some users were getting creative with finding ways to get their funds off the platform. Believing that there was an edict from the Securities Commission of The Bahamas that allowed Bahamian citizens to withdraw their funds, they began listing NFTs on the platform at huge markups. Foreign users with crypto trapped on FTX began buying the NFTs with the stuck funds, allowing the NFT sellers to withdraw and then send the funds to the NFT ‘buyer’.
This had the opposite effect to the general market, in that the ‘value’ of some NFTs shot up, but these spikes soon reversed and were replaced by crashes.
This ingenious way of getting funds off the platform was both creative and, it turned out, perfectly valid – the Securities Commission of The Bahamas never issued such an edict. FTX’s NFT marketplace, which up until that point had never been overly popular, saw around $20 million in sales volume in the hours and days since FTX re-enabled withdrawals last Thursday.
Scammers Tried to Take Advantage
There are some, unfortunately, who tried to take advantage of the FTX crash to profit themselves, putting out spurious claims that certain projects held their treasuries on FTX and urging NFT holders to get out while they could in an attempt to artificially drop the price:
This claim, which was proved to be a lie, helped precipitate a fortunately small depreciation in the Sappy Seals floor price (2.4%), but it shows the impact that stoking fears can have and shows how personal research is critical to avoid NFT holders falling for tricks such as this.
What Next for NFTs?
With NFTs clearly suffering along with the wider crypto market, what do the next few weeks and months hold for the sector? The chances are that, barring further revelations, the worst is almost over. The drop in NFT valuations was no reflection on the intrinsic value of the collections, with fear of further drops being the biggest driver. This means that as the crypto space recovers, NFT valuations of quality projects will too. This will likely take years rather than months, but this gives buyers a chance to pick up some more of their favorites at a reduced price.
However, there are two ongoing risks to NFT valuations connected with the FTX collapse. The first is the ‘crypto contagion’ effect – i.e., how many other platforms has FTX’s implosion impacted? If other, bigger exchanges fall victim then we could see a further depreciation of trust in the entire sector, and more people needing or wanting to sell up.
More pertinently however is the concern that some NFT creators kept their funds on FTX. This obviously would have a direct impact on those collections, and may even bankrupt them completely, rendering their NFTs worthless. So far there don’t seem to be any reports of such incidents, but we are only days into the fallout, and it’s almost certain that there are NFT projects alongside crypto projects that are very worried right now about how they can survive.