Specialising in the analysis of the non-fungible tokens (NFTs) market, NonFungible.com releases a detailed report every year on the main trends in the sector. Here is a look back at a record year in 2021, which saw the explosion and democratisation of this industry. For those who don’t have the time to go through the report, here are the main lessons to be learnt from it.
Key moments for the NFT market in 2021
In its latest report, NonFungible.com identifies four pivotal periods for the NFT market in 2021
Early 2021
In early 2021, the NFTs market has been in the spotlight, particularly through collaborations with sports brands. The report mentions the success of NBA Top Shot, for example, and highlights Sorare’s fundraising. The French company, which offers collectible footballer cards, raised $50 million in February, and $680 million in September.
Spring 2021
This is when we see the first major sales. This marks the advent of CryptoPunks or Bored Ape Yacht Club collectibles, as well as some artistic NFTs like Beeple’s, whose sale of “Everydays – The First 5000 Days” for $69 million made headlines in March. At the same time, this is not surprising, as it is the 3rd most expensive work of art of all time.
Summer 2021
In the summer of 2021, the market continued to boom, with many NFTs of famous memes appearing. In August, nearly $400 million worth of NFTs were traded in just one week.
End of 2021
By the end of this banner year, NFTs have become a must-have, so much so that Collins Dictionary named the term “NFT” as the word of the year.
A record year for the NFT market
Staggering growth
Compared to other disruptive technologies, such as the electric car, whose market has doubled by 2021, NFTs are growing at an insane rate. The sector grew by 21,350% last year, a 213.5-fold increase. Yes, you read that correctly: the NFT market performed 100 times better last year than the electric car market, which is considered to be very buoyant.
Of the 71 million active Ethereum wallets, more than 2.5 million traded NFTs in 2021, compared to 89,000 in 2020. This represents an impressive increase of 1,822%.
Logically, in this nascent market, there are currently more buyers than sellers. Buyers have increased from 75,144 in 2020 to 2.3 million in 2021. Sellers were 1.2 million last year, compared to 31,774 in 2020.
Supply not keeping up with demand
You’ve probably noticed that the prices of the most famous NFT collections have exploded in 2021. One example is CryptoPunks, which saw some staggering transactions last year:
- 600 ETH for Punk 2890 in January ($751,692);
- $11.8 million in June for Punk 7523;
- 2,250 ETH in July for Punk 5217 ($5.50 million);
- 2,000 ETH for Punk 8857 ($6.64 million);
- 2,500 ETH in December for Punk 4156 ($10.26 million).
One of the reasons for this increase in the value of the most famous NFT collections is that demand has outstripped supply. As NonFungible.com found, the trading volume, average price and market size have increased exponentially, while at the same time the number of active smart contracts, which is an indicator of the number of active projects over the year, has grown moderately.
NFTs are becoming increasingly useful
While the first NFTs were more of a collector’s item in the eyes of investors, such as CryptoPunks or Bored Apes, the year 2021 has seen the emergence of many projects giving a real use to non-fungible tokens.
This can be seen in particular with the emergence of numerous metaverses, in which NFTs play a considerable role. They can be used as avatars in these new virtual territories, but not only. They are also used to certify the digital ownership of most of the elements that make up the metaverses, whether it be land, avatars’ clothing, tickets to a virtual concert…
Juicy profits, but poorly distributed
The report notes that the purchase and resale of NFTs generated $5.4 billion in profits in 2021. Losses amounted to $667 million.
NonFungible.com also points out that profits are still poorly distributed in this nascent market. Indeed, there are 473 portfolios that generated at least $1 million over the year.
If you want to see the big picture, NonFungible.com has put together a table summarising the market’s growth between 2019 and 2021 in figures:
The growth in figures of the NFTs market between 2019 and 2021 (Source: NonFungible.com)
Focus in figures on the main types of NFTs
In its report, NonFungible.com provides a numerical summary of the performance of the main types of NFTs. It shows that collectibles dominated the market in 2021.
The ranking of the different types of NFTs according to their total dollar sales volume:
- Collectibles: 8.47 billion ;
- Video games: 5.18 billion;
- Works of art: 2.80 billion;
- NFTs dedicated to the metaverse: 513.87 million;
- Utility and finance NFTs: 503.84 million.
The report also provides a very informative table summarising all the data collected for each type of NFT:
Numerical analysis of the markets for different types of NFTs (Source: NonFungible.com)
The 6 key challenges for the future of the NFT sector
Despite a record-breaking 2021, NonFungible.com is keen to emphasise the immaturity of the NFT market in its report. In particular, the company has identified the main challenges it still needs to overcome for mass adoption by the general public:
Improving the user experience
Buying an NFT in a decentralised way remains complex. You have to download a cryptocurrency wallet, save your private keys and load your wallet with cryptos before you can proceed with the purchase.
Some platforms are proving easier to use, such as Crypto.com or Binance NFT, but this comes at the expense of the owner’s control over their NFT, as they cannot sell it on another platform.
Clear legal framework and taxation
In the absence of a clear legal framework, and harmonization of rules across different countries, it remains complicated to declare income from the sale of NFTs.
Regulate the market to combat scams and protect buyers
Legislative vagueness surrounding NFTs makes it difficult to protect users. For the moment, market players are self-regulating, as we have seen with certain platforms that do not hesitate to reimburse scam victims out of their own pockets
Reducing the environmental impact of NFTs
Environmental issues affect every industry in the world, and cryptos like NFTs are no exception.
While blockchains based on the Proof of Work try to reduce their carbon impact, notably by using renewable energy, we are seeing more and more NFT projects opt for less energy-intensive blockchains, such as those built on the Proof of Stake. Not only are the costs lower, but they are also distinguished by their very low energy consumption compared to the current version of Ethereum.
Staying authentic despite speculation and inflation
The excitement in the NFT market in 2021, which has seen many stars and big brands land, has led to heavy speculation. The prices of some collections have skyrocketed, leading to scams and rampant inflation. The challenge for the market will be to maintain the authenticity that made it so successful in the first place
Educating newcomers on best practice and risks
The large increase in the number of active portfolios in the NFT market in 2021 does not mean that these newcomers have mastered the codes of the sector. The community will therefore have to mobilise to share best practices and help them reduce the risk of being ripped off. The democratisation of NFTs depends on it
