The NFT bubble may have burst, but the NFT space is still preparing for expansion

In March and April of this year, non-fungible tokens (NFTs) took the world by storm, with record-breaking sales making daily headlines and well-known companies launching their own one-of-a-kind digital works of art that attracted the attention of mainstream media.

Months later, people began talking about the bursting of the “NFT bubble” and doom and gloom, with pessimists warning that NFT investors were about to lose all their money.

The rapid decline in prices and activity on top NFT markets has prompted many to speculate on the death of the non-fungible token sector, although crypto markets are known to have a cyclical nature and can bounce back after sudden plunges.

You knew this was going to happen, right?

NFTs are dead

— Jonathan Mann (@songadaymann) June 4, 2021

Active users "job hopping"

Active users are the lifeblood of the NFT market, but due to volatility in the cryptocurrency market over the past two months, including the May 19 sell-off that caused the cryptocurrency market value to plummet by $1.2 trillion, user activity has dropped sharply.

As shown in the above chart, the number of active wallets on the NFT marketplace peaked in late March and has since fallen by more than 40% as falling value combined with high transaction fees on the Ethereum network have kept traders away.

The drop in active wallets is consistent with falling sales across the space, as a rapid drop in token prices exacerbated losses for holders and collectors, with artworks losing up to 90% of their value overnight.

The decline in active users has led to a 60% drop in daily sales, from $325 million on May 7 to $110 million currently.

NFTs fell, but they didn’t disappear

However, all is not lost for the NFT space, as entrepreneurs and traditional businesses have taken notice and embraced NFTs’ many solid value propositions and use cases.

The blockchain ecosystem has proposed a variety of viable solutions to the problems faced in the NFT field, such as Enjin’s Efinity chain and JumpNet protocol, which help reduce transaction fees and allow interoperability between different networks.

Another popular solution is Polygon, an Ethereum sidechain that allows projects to stay on Ethereum while also having access to a fast transaction and low-fee environment. In the past three months, a large number of NFT-oriented gaming projects have migrated to Polygon, and as the cryptocurrency and NFT markets mature, these low-fee environments should help boost activity on the Polygon network.

While current statistics may look bad compared to recent all-time highs, looking at the longer term, we can see that the average NFT sales volume increased by nearly 300% between January and the end of May. This shows that despite the NFT market crash that began on May 12, there is still strength in the space.

The NFT ecosystem may have experienced a significant decline in activity and token value over the past month, but it is too early to declare the death of NFTs as the world is only scratching the surface of the possibilities of this emerging smart contract technology.