NFT market dynamics: why do some collections grow while others lose value?

Analyzing why some NFT collections sell like hotcakes while others "die" in obscurity will be helpful for any crypto-enthusiast. At the very least, it will provide insight into what to look for when considering new collections.

It is worth remembering that all of the following applies to NFTs that are "digital art." Using non-interchangeable tokens to tokenize real-world assets and processes is a separate topic that requires special consideration and has nothing to do with the "NFT market".

The general situation in the NFT market

The market for non-fungible tokens is currently in a difficult position. This is unsurprising, with a 97% drop in 2022 and more than 50% in 2023. However, the end of 2024 is encouraging — following Donald Trump's victory in the US presidential election, activity in the market has surged. According to a report by Galaxy Research, November saw trading volume surpass $100 million for the first time since May, reaching $172 million. The leading NFT trading platforms were Blur (60% of the market) and OpenSea (27%).

What kind of NFT project can be considered successful?

The criteria for evaluating a particular NFT project is not idle: a collection can bring excellent money to its creators, but it turns out to be a real trap for investors.

A vivid example is the collections released in 2024 by the Pudgy Penguins team. On the one hand, the company's performance this year is more than impressive — its share of the NFT market tripled (to 9.5%), and the minimum token price of two collections — Pudgy Penguins and Lil Pudgys — rose by 206% and 265% respectively in November. On the other hand, investors who bought tokens from collections related to Pudgy Penguins between January and September lost 97% of their investment.

The latter figure comes from a study by NFTevening and agency Storible published in November. The companies analyzed more than 29,000 NFT collections issued between January and September 2024 — the findings are noteworthy.

The vast majority of NFT collections fail

The first figure from the NFTevening report is shocking: 98% of collections of non-interchangeable tokens issued in 2024 are dead — there was no single transaction between early September and early November.

The investment prospects for fresh NFTs look even bleaker — only 0.2% brought any profit to investors. Even among 2% of live collections, the share of profitable ones does not exceed 11.9%. Moreover, short-term speculations with NFT look questionable: the minimum price of tokens of 98% of collections fell by more than 50% within 3 days, and 84% have a historical maximum price equal to the cost of mint.

The report's authors consider the main problem to be the market oversaturation — in 2024, an average of 3635 NFT collections were released monthly — and, consequently, the lack of audience interest. Thus, 64% of collections had less than 10 tokens issued, and 98% of the secondary market had less than 10 transactions in the first week.

At the same time, it should be noted that the interest in the "old" collections remains. Thus, the most profitable for investors was the Azuki collection, issued in the distant year 2022 — this year, the ROI amounted to x2.4.

What's ruining new collections?

Among the main reasons that lead to the "death" or, at least, to the investment futility of collections, we can emphasize the following:

• Lack of initial interest. The vast majority of collections are useless to anyone from the beginning. They have no unique idea, no cohesive and active community, and no clear promotion strategy. As a consequence, they die unnoticed.
• Lack of practical applicability. While most NFTs are still positioned solely as "digital art," audiences are already actively wondering if they can use their tokens somehow.
• The dilution of value. This is especially true for collections released by big players like Yuga Labs (creators of CryptoPunks) and Pudgy Penguins. They release all new collections to keep their business going. Still, the audience doesn't see their value over existing collections and even sees them as a threat to the value of previously released tokens. A prime example is the failure of the "Super Punk World" collection from Yuga Labs in Spring 2024. The main complaint about the collection was precisely the dilution of the value of older collections.
• Misguided marketing techniques. Another negative trend launched by Yuga Labs is overly generous giveaways of tokens from new collections. When out of 10 thousand tokens of a collection, a thousand are given away for free - the audience's interest in buying "paid" tokens is reliably killed.

What leads to an increase in the price of collections?

Identifying the "recipe for success" of NFT collections is much more challenging. The above figures show that, so far, the key components of this "recipe" have not been found. However, some factors that increase the chances of a collection's success can still be identified:

• Having a stable and active community. This is the main factor behind the success of Yuga Labs and Pudgy Penguins. Even if the price of collection tokens sags over time, the community can ensure its growth, at least initially.
• Rarity and uniqueness. The lack of similar collections ensures exclusivity and "elitism". This can also include a steady demand for tokens from "old" collections at least a couple of years old — the audience considers them more valuable than "new consumer goods".
• Famous artist. "NFTs from celebrities" have long been out of business, but tokens whose images are created by famous artists are still capable of generating interest.
• Practical applicability. The ability to benefit from owning an NFT significantly increases its value in the eyes of the audience. For example, tokens from the aforementioned Azuki collection give access to The Garden, a platform for artists, designers, and Web3 developers to socialize.

Investing in NFT will always be risky

The above data makes it clear that investing in NFTs is characterized by the highest degree of risk, with low potential returns. The most sensible thing to do is probably to consider NFT as a fun souvenir (or a helpful tool, if the token allows it) and see the potential profit as a nice bonus that you should not count on.