The NFT, or non-fungible token, is admittedly one of those hot venture sectors I never really got. But I don’t write the checks or do the diligence. So, when well-known VCs started financing big NFT-related rounds last year and early this year, it seemed like a space to watch.
So watch we have. And after months of data-tracking, this is what we can conclude: The NFT space is no longer nearly as hot as it was earlier this year. Fewer deals are getting done, and much less money is going into them.
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For a sense of how far things have gone down, below we charted seed and venture investment to NFT-related startups for the past seven-and-a-half quarters:
As you can see, funding to all things NFT reached its zenith in the first quarter of this year, when investors poured $2.1 billion into the space. Nearly a quarter of this went to a single deal: $450 million for Yuga Labs, of Bored Ape Yacht Club fame. Two others — metaverse digital property play Animoca Brands and NFT marketplace OpenSea — raised $659 million between them.
The fourth quarter of 2021, a record-setting period for global venture funding across all industries, was also a hot time for NFTs. Startups in the space raised over $1.5 billion, with $725 million of that going to Forte, a blockchain gaming platform.
When markets were up, big NFT rounds accumulated. Between Q3 2021 and Q2 2022, at least a dozen companies raised rounds of $100 million and up, per Crunchbase data.
Those days are done. In the latter half of this year, NFT-related funding has slowed considerably, with the current quarter on track to show the sharpest contrast.
Case in point: Halfway through this fourth quarter, the three biggest NFT-related deals with known backers are $10 million rounds. If Q4 funding continues at its current pace, the quarterly total will be down over 80% from the Q1 peak.
The cost of NFTs and related assets also appears on the decline. Overall NFT sales volume and the total number of NFT sold fell in October, setting monthly lows for 2022, according to a Decrypt report.
Not all digital assets are faring equally, with some collapsing while others are holding up, albeit mostly below their peak. On the collapse side, one high-profile example was the NFT of the first-ever tweet, which initially sold for $2.9 million but drew bids of just a few hundred dollars when its owner attempted to resell.
Meanwhile, the cost of the lowest-priced Bored Ape, perhaps the most iconic digital collectible, has also fallen, and is down over 60% since its peak in April. However, it still costs around $70,000, so this is far from a dumpster fire.
Believers, nonbelievers and markets
Prognostications about where NFT startup investment will go from here varies widely depending on one’s affinity for the space in the first place.
For boosters of blockchain, crypto, decentralized finance and metaverse living, it’s conventional wisdom the rise of Web3 will only bring broader adoption for NFTs.
For nonbelievers, it seems bewildering that billions ever went into this asset class.
In the startup sphere, it’s pretty common for nonbelievers to be proven wrong over time, as a technology that once seemed fringe or out there gains mainstream adoption. In the case of NFT startups, however, market dynamics offer some support for the nonbeliever case, with funding sharply down.
Still, it isn’t game over yet. The past couple quarters of declining investment could be more of a pause than an exodus of NFT startup backers. And the enduring appeal of some collectibles — such as those hipster apes — indicates some real staying power.
Illustration: Dom Guzman
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Author: Joanna Glasner