NFT: how to notice if a bubble is bursting silently

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(Edited)

NFT. Non-fungible tokens. Collectible touchdowns, pictures of cats, digital paintings of Michael Jacksons, etc., etc.

Just a few months ago no one had heard of them. Now everyone has one, including your pharmacist and the salumiere under your house (maybe not in Italy, but in other countries it's like that...).

Non-fungible tokens (or NFTs) are like cryptographic coins that declare ownership of things that - mind you - can't really be owned: like a meme or a tweet.

The purchase of an NFT is recorded on the blockchain, so no one can ever question that you technically own a picture of a cat or one of the Superbowl touchdowns.

For that reason, this form of cryptocurrency is touted as an innovative way for artists and creators to monetize the more intangible aspects of their work.

But, and this is the problem, the NFT does not match the object itself. Nor does it come with the rights to reproduce or monetize that object.

To understand, the NFT recently purchased for $69 million that reproduces a Michael Jackson painting does not give you any ownership or rights to the original painting. The artist continues to retain all copyrights to it.

This is perhaps one of the reasons why this fad may soon show that it's running out of breath...and indeed, if we do the math right, perhaps it's a bubble that's already bursting, even if we're not realizing it....

The question, to an analyst, is intriguing because collectibles, such as baseball cards or comic books, unlike traditional handbags, can create bubbles that burst quietly, so to speak.

While stock exchanges are in fact continuously monitored by hundreds of indicators that allow you to anticipate the bursting of a bubble, these more opaque markets can evaporate overnight, but it may take weeks, months or even years before people can look back and pinpoint the exact moment when this happened.

In these particular markets, a useful metric for determining the end of a bubble is the minimum price: in our case, the lowest price at which a particular NFT is purchased.

We can analyze this metric by making use of the data provided by CryptoPunks, one of the most popular NFT projects dating back to 2017 that sells NFTs tied to the ethereum blockchain for tens of thousands of dollars.

Analyzing the data from this platform, CoinTelegraph found that CryptoPunks is showing a 40% decrease in base prices, with many users reselling their NFTs realizing huge losses.

One speculator for example sold a CyptoPunk NFT this week for 27.99 ETH ($56,000 at today's prices) after buying it at 42 ETH ($87,000 at today's prices).

According to CoinTelegraph, sales volume in several price categories has declined precipitously since the February peak.

It is therefore possible that we are already at the end of this speculative bubble.

And when this fact becomes public knowledge, and the specialized media will wallow in it, ether prices may have a retrenchment.

To what extent? For how long? Unfortunately, it is impossible to say in advance, because a lot depends on the state of the other factors that are supporting ether's trend.

Factors such as Defi, technological developments in the ethereum blockchain itself, and usage by many major institutions, such as VISA, are admittedly infinitely more concrete, solid, and influential than the NFT bubble. Therefore, it can be expected that even if there is a temporary speculative downsizing, the long-term trend will not be affected.

Thanks for reading.

Posted Using LeoFinance Beta



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