NFT has experienced a long bear market for the first time, with projects continuously failing. Where do we go from here?

Original Title: "The First Long Deep Bear Market for NFTs, Projects Dying One After Another, We Asked Practitioners and Diamond Hands Where the Future Lies"

Written by: Nancy, PANews

Two years ago, celebrity giants entered the scene, high-priced transactions were frequent, and NFTs were all the rage. With the continued rise in popularity and the flourishing development of a diversified ecosystem, the overall scale of NFTs also entered a period of rapid growth. However, as NFTs face their first deep bear market, projects are collapsing one after another, blue-chip NFTs are encountering setbacks, trust crises are intensifying, and players are fleeing…

In this harsh and desolate winter, what survival rules do NFT projects have? Is it still worth investing in NFTs? When will the market turning point appear? With these questions in mind, PANews interviewed multiple NFT practitioners and diamond hands to hear their views on the way out of the bear market and future development.

The NFT Market Shrinks Significantly, But Is It Time to Buy the Dip?

NFTs are facing a significant shrinkage in ecosystem scale, along with a continuous loss of popularity and funds. Even the most recognized blue-chip NFTs have not escaped the ongoing decline. Data from the analytics platform Nansen tracking the 10 famous NFT indices, Blue-Chip-10, shows that as of August 29, the index has dropped about 50% year-to-date, and from its peak, it has fallen approximately 74.8%.

Moreover, as the market enters a freezing point, trading enthusiasm has also significantly cooled. NFTGO data indicates that over the past year, while the number of holders has increased by 56.4%, the number of NFT traders has dropped by over 32.7%, and the number of buyers has decreased by about 48.4%. Compared to the peak, the number of traders has fallen by over 86.2%, and the number of buyers has decreased by 84.4%.

"The market shows no signs of a rebound in the short term, and more and more startups will struggle to survive. The challenges for NFTs are still in the early stages, including difficulties in Web3 business, tough investment conditions, and a poor Web2 economic situation," said Sleepy, founder of Weirdo Ghost Gang, candidly in an interview with PANews.

Faced with the significant depreciation of NFT assets, some choose to clear out at any cost, while others seize the opportunity to buy the dip. Unlike paper hands who engage in short-term rapid buying and selling, diamond hands tend to provide strong confidence to the NFT market. They are seen as the most strategic NFT investors, who, after being optimistic about and firmly holding certain NFTs for the long term, can withstand risks during fluctuations and ultimately achieve higher returns.

Crypto KOL JZ (Twitter @jzinvest_xyz) provided his buy-the-dip strategy, suggesting that when assessing a project, one can look at factors such as capital reserves, primary market public sales, secondary market models, and other empowering aspects for analysis. Additionally, one can evaluate whether price support can be sustained based on factors like project-issued tokens, innovative gameplay launches, and whale buying activity. Regarding the timing for buying the dip, aside from considering potential gains, observing whale entry strategies is also important. Some data indicates that these whales typically choose a time range rather than an exact price, and this price range must align with market sentiment to determine the "timing." For instance, the SEC's recent enforcement actions suggesting that NFTs may be unregistered securities have also posed regulatory risks for NFTs. However, blue-chip projects are priced relatively high for ordinary retail investors, making the buy-the-dip strategy less suitable.

"The volatility of the NFT market is normal. The best time to buy is when blood is flowing in the streets, which is now. However, considering the volatility of the NFT market, one should still be cautious to avoid high-risk speculative NFTs and focus on the long-term value of investments. Only purchase projects you trust and communities you like, and identify those with a historical track record based on your past observations. As investors, you should also adjust your understanding based on market dynamics, be wary of path dependence, and avoid over-reliance on blue-chip historical performance, focusing instead on future paths and objectives. At the same time, risk management is crucial," pointed out crypto KOL Annie (Twitter @Annie所长).

Additionally, Annie noted in the interview that for NFTs to achieve blue-chip status, they must have the potential for sustained appreciation. Sales must be substantial, and the market will prove its high demand. After the current market reshuffle, blue-chip NFTs have also developed new evaluation criteria, such as whether they possess long-term sustainable collectible value. This value may manifest in dimensions such as historical trading activity, cultural attributes, collector demand, artistic rarity, and strong fundamentals.

How Are Projects Rescuing Themselves Amidst the Reshuffle Crisis?

The bear market has brought not only price crashes but also a collapse of confidence. While many old blue-chip prices remain sluggish, leading projects like Doodles, Azuki, and DeGods are damaging community trust with their lackadaisical "operations," even raising doubts about PFP narratives and value. Compared to financial losses, the widespread loss of confidence is fatal for market development.

Market performance of different categories of NFTs from 2022 to present. Source: Nansen

In addition to project parties being inactive, the overall economic downturn and poor business models have led to a "shutdown wave" in NFTs in recent months. Projects like Recur, Cardinal, Rentable, and Tessera, despite raising hundreds of millions of dollars, have failed to withstand the bear market and have chosen to shut down one after another.

Facing the bear market challenge, NFT project MaoDao has focused on community engagement. KK, founder of its acquirer Hash Global, told PANews that MaoDao aims to be a spiritual home for global Web3 Chinese people. The term "spiritual home" may sound a bit "soft" and "empty," requiring tangible support. Therefore, MaoDao hopes to build a mutually supportive, healthy, and happy community by providing good content and quality entertainment activities (both online and offline).

In contrast to other projects that introduce common mechanisms like staking to achieve low turnover rates, MaoDao plans to realize this through identity recognition and high-quality content output, along with a self-circulating economy, encouraging holders to value community. KK revealed that the MaoDao community will periodically interview cat owners to discuss entrepreneurship, life, preferences, and ideals, making the MaoDao community a true "home" for global Web3 Chinese people. Additionally, MaoDao will launch fan club products based on Web3 technology in China to support community development.

Meanwhile, Weirdo Ghost Gang has chosen to tackle the issue from a business model perspective. This domestic NFT project secured $1.8 million in seed funding earlier this year. Sleepy told PANews that the bear market has had a minimal impact on them because, aside from the funding received at the beginning of the year, they have consistently focused on Web2 business models, including IP and streetwear industries. Therefore, the bear market has not severely disrupted their business progress, but they have further reduced their focus on Web3 development in the current bear market environment.

"NFT projects need to be prepared for a protracted battle, focus on survival, and stop thinking about burning funds to scale and inflate valuations. First, do business. The business aspect of Weirdo Ghost Gang has always been in a postponed state; we hope to unleash our potential during the bull market for maximum benefit, while using this bear market period to reflect, summarize, and adjust our gameplay and mechanisms based on our latest understanding and the overall development of ManesLAB's ecosystem," Sleepy further pointed out in the interview.

Sakuragi, founder of the multi-chain NFT trading platform AlienSwap, admitted that the bear market has brought more positive than negative impacts to the platform. "To achieve counter-cyclical growth, it mainly hinges on two points: (1) not being eliminated, waiting for the cycle to warm up, and becoming a 'survivor' of counter-cyclical continuous growth. The bear market is brutal; cutting costs and increasing efficiency to survive until the next bull market is crucial; (2) solidly building infrastructure and enhancing user experience, continuously exploring more NFT breakout counter-cyclical growth. Therefore, in terms of infrastructure development, AlienSwap has launched a no-gas trading system, a creator platform, NFT minting, and launchpad products, creating a complete closed loop for multi-chain NFT creation, issuance, and trading."

Annie also provided very practical advice from a user perspective, stating that NFT projects need to address the loss of community consensus and maintain competitiveness from five aspects:

1. Community Communication: Project parties should maintain transparency with the community, promptly conveying the latest project updates, development plans, and goals. Actively respond to community questions and concerns to establish good communication.
2. Reward Mechanism: Design reward mechanisms to encourage community members to continue participating and contributing. This can include airdrops, token rewards, 1-1 NFTs, etc.
3. Community Activities: Host various community activities, such as online Spaces, AMAs, competitions, etc., to enhance community interaction and participation.
4. Partnerships: Seek partnerships with other projects, Web2 brands, or creators to expand the project's influence and audience.
5. Expand Use Cases: Explore more use cases for project NFTs, such as applications in virtual worlds, in-game items, real-world peripherals, IP derivatives, etc., to provide more practical value.

Additionally, although the prospects for PFP NFTs are highly questioned, Annie believes that the consensus around such projects will not change, as it relates to core social needs. "Everyone uses PFPs; it has become our habit, and PFPs as avatars are the easiest to form emotional bonds."

The Bear Market Will Continue, Next Cycle Requires Diverse Narratives

While multiple data points for NFTs have severely shrunk, investors are facing significant losses. NFTGO data shows that as of August 29, nearly 455,000 investors have incurred losses in the past 30 days, which is 11.5 times the number of profit-makers, highlighting the market's severity. It can be said that NFTs are struggling in a deep bear environment. Several interviewees also stated that the bear market will not end easily; it requires new users and funds, as well as diverse narratives to initiate the next cycle, with investors placing greater emphasis on the long-term value of projects.

"Historically, after economic recovery, liquidity will eventually flow into the NFT sector, but I believe that economic recovery itself will not occur within a year, so NFTs will likely struggle to warm up at least this year. Recently, Starbucks and McDonald's have issued their own NFTs, and many users have participated, but these new users have not driven an overall price recovery for NFTs, which somewhat contradicts expectations. Clearly, McDonald's NFT holders do not necessarily mean they will be interested in or participate in NFT investment transactions. However, these attempts have a positive effect on the adoption of NFTs and blockchain technology, serving as the first step in user education. Only by clearing the demonized impressions of NFTs, Web3, and blockchain can we encourage people to join Web3 in the more distant future," Sleepy stated.

In this regard, Sakuragi expressed a similar viewpoint, stating, "The prosperity of any market is driven by incremental users and incremental funds, and the NFT ecosystem is no exception." However, he also noted that in the early stages, NFTs were on the periphery of cryptocurrency but not entirely, as the NFT ecosystem can accommodate a much larger number of incremental users than the TOKEN ecosystem. Although the current market is bearish, there are still many persistent NFT builders in the industry, and infrastructure development and gameplay innovation are building pipelines. A new round of NFT bull markets will still come. The exploration of RWA and large real-world IPs in NFTs will drive the next NFT bull market.

From Annie's perspective, the next cycle requires new diverse narratives, such as gaming, music, and education, with different types of NFT projects potentially becoming the focus at different times, triggering wave narratives. New technologies and standards will also drive changes in the NFT market, rediscovering value on the asset side and providing better interoperability, scalability, and security, thus sparking new trends.

The key to the next narrative explosion may lie in the community's ability for secondary creation. Project parties urgently need to demonstrate their exceptional ability to build a diverse cultural universe, shaping a unique community ideology through products, sales, culture, and other aspects, thereby solidifying the brand foundation. As the market matures, investors and project parties may view NFT projects more rationally, focusing on quality, practical use, and long-term value, potentially ushering in the NFT 2.0 era of RWA, rights, and IP derivatives.

"Only when market participants, whether suppliers or demanders, truly understand the value of NFTs can the NFT market recover and move towards the next peak," KK pointed out in the interview.