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NFTs are plunging in popularity? Yeah, that makes sense.

Blockchain-backed avatars of the Bored Ape variety appear to be going the way of Beanie Babies.
Illustration: A pixellated coin with the letters,\"NFT\" dispersing into smaller pixels.
MSNBC / Getty Images

As far as shocking news goes, if this week’s leaked draft from the Supreme Court was a 10, then The Wall Street Journal declaring that “the NFT market is collapsing” is maybe — maybe! — a three.

The idea behind nonfungible tokens is both simple and revolutionary: Their purchase history is permanently logged in the blockchain. (Please just watch this video explaining the blockchain, also embedded below, instead of making me have to do it, thank you.) Each link in the chain is uniquely generated, requiring a sizable amount of energy for the computations involved and offering a near tamper-proof chain of custody. It’s easy to see how useful that technology could be if it were widely used in transferring deeds to assets such as cars or homes.

What is blockchain?

May 29, 201903:00

But NFTs are mostly used in connection with digital goods, such as avatars and other collectibles. And in the same way cryptocurrency has become something to hoard as prices increase, and not spend like an actual currency, NFTs instead of being a mere declaration of ownership have become an investment asset of their own. And as I’ve said before, NFTs and cryptocurrency depend on two things to keep their valuations high: increasing demand and perceived scarcity.

Which leads us to two problems the market is facing. First, the number of active traders has plummeted from almost a million accounts at the start of the year to about 491,000, NBC News reported Thursday. A lack of new interest or sustained interest in an asset is rarely a good sign for its longevity.

NFTs and cryptocurrency depend on two things to keep their valuations high: increasing demand and perceived scarcity.

Second, there’s been a flood of supply. “There are about five NFTs for every buyer, according to data from analytics firm Chainalysis,” the Journal reported. “As of the end of April, there have been 9.2 million NFTs sold, which were bought by 1.8 million people, the firm said.”

That excess supply makes sense when you consider that everyone and their mother have been rushing to pump out an NFT in a bid to get in on the trend. Need to raise awareness for a cause? Auction off an NFT. Need a horrendous way to show your membership in the A-list crowd? Use the image you purchased via NFT as your Twitter avatar.

Even Starbucks is reportedly planning “a new digital collectible,” one that “also serves as your access pass to a global Starbucks community, one with engaging content experiences and collaboration all centered around coffee.” (I understand each of those words separately but have no idea what they mean in that order, and anyone who’s honest would tell you the same.)

The surge of products alone doesn’t deflate the value of NFTs as a whole, especially not for art and other highly prized assets. But there’s a cap on how many people are willing to shell out millions for something like an NFT. That’s part of why there’s been such an aggressive push from cryptocurrency markets to find new rubes — er, investors — to grow the pool of potential purchasers. But while bitcoins can be bought in absurdly small slices, the same can’t be said for NFTs whose value arises from their being tied to a singular, supposedly unique, piece of ephemera.

That limited number of potential buyers is already playing out in the resale market, where NFTs that were purchased for astronomical prices are struggling to sell for anything close to the original value. An NFT of the first tweet posted by Twitter founder Jack Dorsey was bought for $2.9 million. When the owner put it up for sale earlier this year, he failed to get any bids over $14,000.

NFTs that were purchased for astronomical prices are struggling to sell for anything close to the original value.

Meanwhile, cryptocurrency is going through a comparative slump, as economic conditions lead investors to pull out of bitcoin and ethereum. The Federal Reserve’s hike in interest rates means that pouring money into crypto is no longer as sure a bet as more traditional investment vehicles.

The main reason the loss of interest in NFTs is unsurprising, though, is that we’ve seen the same sort of thing happen time and again with fad investments. There’s a reason there have been so many comparisons to the 1990s’ rise and fall of Beanie Babies and the seeming belief among buyers that NFTs will continue to rise in value forever.

A personal example: The year I turned 13, the only thing I wanted for my birthday — much to my father’s confusion and chagrin — was Pokémon cards, as many packs of the things as he could buy me. Like so many kids my age, I kept them stored safely in a binder, tucked away in little plastic sleeves to protect them from wear and tear.

I can’t for the life of me remember when I finally got rid of that binder after years of hoarding its contents. For a time, I imagined that they might be worth something someday. That bubble popped in 2001, leaving collectors reeling.

But the market in Pokémon cards has had a renaissance lately, with vintage cards skyrocketing in value again last year. Who knows, maybe NFTs will have a similar rebound? But for now, I can’t say that I’m upset that interest in these carbon-producing wastes of bandwidth are waning in popularity.