how to overcome the crisis?

The fall of cryptocurrencies has also led to that of the market for non-volatile tokens (NFT). These digital objects associated with a certificate that functions as a property title have been fascinating since 2021, so much so that some of them have sold for tens of millions of dollars. This has brought joy to creators who have been able to generate huge incomes, but also to investors who have discovered a new art market in which they can speculate.

However, it is considered as one of the emerging technologies At the beginning of the decade, this market has declined significantly. Inevitably, investors are now left with small value NFTs. In an effort to limit losses, recover lost money or even make a profit, they try their best to find a solution. For creators, the situation is the same: while some had specialized in these digital assets, they are selling less than a few months ago. They are now trying to get back to the real world…

Cryptocurrency market crash…

At the beginning of 2022, most cryptocurrency rates are doing well. Bitcoin is then worth more than 42,000 euros and ether it is about 3000 euros. Many people decide to sell their assets in order to receive their earnings in fiat currency. Indeed, central banks have been revising their key rates upwards, which has caused many investors to turn to more traditional currencies.

This massive selloff as well as the global geopolitical context caused by the war in Ukraine will lead to the loss of several players in the cryptocurrency sector. First, in May 2022, bitcoin has fallen drastically. After that, it will be Terra stablecoin which will collapse. These cryptos which were originally designed to provide some stability in price volatility, for some it will not have survived the severe fall of ether and bitcoin.

The collapse of cryptocurrencies will inevitably lead to the collapse of everything that revolves around them. This is the case of the NFT market which will also sink throughout 2022. According to blockchain analyst firm Chainalysis, between January and March 2022, over $19 billion was spent on buying NFTs. This corresponds to more than half of the sales made this year in this market. Since April, that spending has dropped 87%, reaching just $442 million spent in November.

Chart showing the number of NFT sales made during 2022.

This chart corresponds to NFT sales made throughout 2022 on the OpenSea platform, in millions of dollars. The peak in early May is when the cryptocurrency market started to fall. Graphic: Hildobby / Dune Analytics.

Over the summer, several popular platforms for processing cryptocurrency exchanges go bankrupt or are forced to freeze their operations. This is the case of centigradebut also from the second largest platform in the world, FTX, directed by Sam Bankman-Fried. Overnight, hundreds of thousands of customers find themselves unable to withdraw their funds or exchange them.

…dragging the NFT market down

At the same time, the crypto-asset market is becoming less and less secure. Market players have suffered a series of disappointments and scandals that have only tarnished an already derided image. In June 2022, the famous collection Bored Ape Yacht Club was hacked, with its attackers successfully recovering 133 NFTs worth over $3 million at the time.

The case of the Binance platform also highlights some of these abuses. The company announces that it has been a victim of a computer attack causing him to lose $100 million. At the same time, she is accused to have allowed money laundering nearly $2 billion between 2017 and 2021.

for Financial Times, Devin Finzer, CEO of OpenSea, a leader in the NFT markets, spoke about this situation which he considers unprecedented. ” NFTs cannot exist without an ecosystem that guides them and around which they gravitate. The macroclimate that existed around them changed drastically, which affected the way investors and creators behave “.

In order to generate the digital certificate to prove that a person is the sole owner of the non-fungible token, the transaction that led to the purchase of the NFT must go through the blockchain. This technology is the very foundation of how cryptocurrencies work, which makes them the preferred means of payment for purchasing NFTs.

It would be possible to obtain these digital objects without going through cryptocurrencies, but this would require the development of a blockchain that would not revolve around these assets. This is what China did by creating in early 2023, own NFT platform based on a custom-designed blockchain since then the country has banned it any transaction made using crypto.

Investors seek to recoup their losses… thanks to taxes

As NFTs find it harder to sell, one company decided to come to the aid of investors. ” While every type of investment has its losers, many of the NFTs we invested in weren’t just down; now they were completely worthless… Unsuccessful… unmarketable the company says on its website.

Literally translating to “Unsellable”, this service launched by Skyler Hallgren a month ago now has 5,000 NFT and its founder, Skyler Hallgren, hopes to reach 15,000 tokens by the end of January 2023. He realized that we we could compensate for certain losses of investors by offering them to buy back their invalid NFTs and thus allow them to recover part of these losses”, specifies the founder of the service for Guardian.

In many countries, including France or the United States, it is possible to declare losses in relation to NFTs. To do this, it must sell its immutable tokens, even at a ridiculous price compared to its initial price. The purchase price minus the sale price is the amount that can be deducted for tax purposes. Of course, the investor will have to try his own buying and selling. Note that these NFTs must have been received during 2022 to benefit from this discount starting this year.

Creators seek to diversify into other sectors

This NFT crisis is hitting creators who were focused on the digital market and non-fungible tokens to offer their products. Instead of complaining about their lot, they don’t hesitate to invest or try to intervene in better performing markets. ” If sales are not predictable, stable and your income is not recurring, then you need to figure out how you will diversify your income streams and grow. says Drew Austin, co-founder of Knights of Degen, a collection of NFTs related to sports and the medieval world.

As the Financial Times points out, this is the path taken by Doodles, a series of child-like NFTs that has had some success. Its director has decided to collaborate with the singer Pharrell Williams to produce animations and clips that will accompany his musical works. ” We’re going into an economic environment that’s expected to be a little bit slower over the next couple of years, and what’s going to allow us to bounce back is entertainment. “, specifies Julian Holguin, general manager of Doodles.

In another twist, Pudgy Penguins, an NFT collection about penguins, took advantage of the craze around its digital artwork to land some merchandising deals. NFTs owned by some investors will be used to produce soft toys and children’s books. A portion of the profits generated will be provided to the owners of these non-tradable tokens. An agreement to give and take.

Series of stuffed animals representing masked penguins.

Here is the range of cuddly toys that will be available in supermarkets and toy stores from Pudgy Penguins. Initially, their design is related to an NFT held by someone who bought it using cryptocurrency. Photo: Pudgy Penguins.

Finally, the Knights of Degen decided to take a more evasive approach to their initial offer. It has just invested in a minor league American football team, a brewery that makes IPA beer, or a company that makes vodka-based sauces.

According to Drew Austin, the group was inspired by the economic model of one of the entertainment giants, ” Disney started by creating Mickey Mouse, and from there you have the theme park, the shows, the movies, the merchandising, the toys, and all these different things. We want to follow that similar trajectory “.

In 2023, investors and creators will have to continue to look for new opportunities. For the OpenSea leader, the NFT crisis should last throughout this year.

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