Thread by @NeBB399

1/Non-Fungible Tokens (NFTs) are on the rage these days, leading many to believe that it is a repeat of the ICO bubble. I've decided to dive a little deeper and attempt to answer that very question. Check it out here @coingecko! coingecko.com/buzz/understan…

2/And for those too lazy to read, here is a quick summary of my findings.

3/The general market trends indicate that there are numerous reasons for the hype behind NFTs. Some are sociological, while others are changing consumer habits. One of the main drivers behind the recent explosive growth appears to be driven by social commentary.

4/Does this mean that NFTs are overhyped? Is there a giant bubble waiting to be popped?

To some extent, that may be true. The data show that there has been a massive influx of attention and spending in recent months, likely fuelled by the media and celebrities alike.

5/However, this does not mean that the ‘value’ within the industry is overinflated. Besides, there are many different NFT sectors – it would be unfair to characterize the entire industry as a bubble, especially when most ‘hype’ is concentrated around the art segment.

6/According to Investopedia:

‘During a bubble, assets typically trade at a price, or within a price range, that greatly exceeds the asset's intrinsic value (the price does not align with the fundamentals of the asset).’

7/While there are many types of characteristics that make NFTs valuable, there is no reliable benchmark. NFT’s may be unique or part of a series. Different NFT categories have divergent market forces. It doesn’t help either that the industry is still very much in its infancy.

8/Due to the speculative nature of NFTs, it is almost impossible to provide quantitative metrics - they cannot be treated like stocks, currencies, or tokens because there are no fundamentals. As the saying goes, beauty is in the eye of the beholder.

9/The real question is whether the current demand is led by genuine collectors/users or by NFT traders who artificially inflate the price to make a profit? If it is the latter, then a bubble is likely because the industry would be primarily supported by profiteers.

10/Eventually, the bubble will pop when NFT traders cannot sell their purchases at a higher profit, exit the industry, or move on to the next NFT.

11/On the one hand, there is evidence that NFT traders are fuelling the recent hype. Explosive market growth on NFT marketplace platforms is one indicator. Other indicators include growing P2P sales. Both factors suggest there is a strong reselling community

12/On the other hand, the NFT industry has been preparing for exponential growth after its 2019 consolidation. Throughout 2020, DApp contract interaction grossly exceeded the total sales volume between buyers and sellers by 4:1.

13/This suggests that more NFTs are utilized for their intended purpose (e.g., game interaction) rather than being kept as speculative assets. Changing consumer habits and global market trends are also making NFTs more attractive to a broader audience.

14/Rather than a bubble, the NFT industry appears to be in active price discovery mode. Retail users are being introduced to new forms of use cases that have never been seen before. Some aspects may feel ‘bubbly’, but there is still too little data to justify that conviction.

15/And that's it! All my references and links can be found in the article which substantiates my points. Looking forward to your shared thoughts and feedback! Special shoutout to @nonfungibles for their extensive NFT Report (2020) which provided key information and insights.