NFT rug pull
Illustration: Christopher T. Fong/Protocol

NFTs could be next to crash

Protocol Fintech

Good morning, and welcome to Protocol Fintech. This Wednesday: The NFT frenzy fades, tether takes a hit and Gary Gensler reminds everyone what he thinks about crypto.

Off the chain

Is this 2000 or 2008? It’s an increasingly critical question as we assess the shape of this broad market retreat from risk. Easy money is dead in the VC world, as my colleague Biz Carson wrote. SoftBank and Tiger Global are massively pulling back, and fintech, a heavily funded sector, won’t be immune. As the superbubble deflates into a frothy mess, the challenge becomes finding the value in the sticky residue. There must be a pony in here somewhere.

— Owen Thomas (email | twitter)

The NFT question

Cryptocurrencies have collectively taken a tumble over the past few weeks, but some sections of the economy have been hit harder than others. Stablecoins, in particular, are looking awfully unstable.

Are NFT markets next? That’s what some are wondering, after trade volume and NFT prices have declined significantly on average since their peak last year. If the NFT market crashes, the consequences could be huge: Lots of new buyers entered the crypto economy last year via NFTs, which insiders pitched as a fun way to experiment with crypto. If they feel burned by a serious decline, it could take a long time to bring them back into the fold.

The NFT market looks vastly different now. Last year’s NFT boom was one of the biggest crypto stories. The snapback could be one of 2022’s cautionary tales.

  • OpenSea reached a $13.3 billion valuation in January thanks to its early position as the top NFT marketplace. Visa bought a CryptoPunk. Jimmy Fallon and Paris Hilton chatted about their Bored Apes on the “Tonight Show.” Competitors rushed in: Coinbase, and FTX unveiled NFT marketplaces.
  • Now those corporate NFT announcements seem few and far between. Weekly NFT trading volume has cratered from $1.07 billion in August 2021 to $23.6 million in mid-May, according to data from CryptoSlam.
  • It’s not all down and to the right. OpenSea transaction volume has increased about 8% in the last 30 days, according to DappRadar. Trading volume on Rarible is also up about 18%. But there’s nothing like last August’s NFT frenzy.

Morgan Stanley is predicting an NFT crash. A recent report said bitcoin’s fall can’t be blamed just on tumbling tech stocks, and other parts of the crypto market are being tested too.

  • The market is treating crypto like any other risky, speculative investment.
  • The Morgan Stanley report argues NFTs will crash following the UST rout because they’re the next most speculative and leveraged sector.
  • NFTs are mostly owned by entities that plan to resell them for a higher price — not HODLers, the report says.
  • Some of the more famous NFTs have declined dramatically in price. The buyer of an NFT of Jack Dorsey’s first tweet, who paid $2.9 million for it, is now struggling to unload it, with the highest bid around $21,000 now. Bored Ape Yacht Club prices have slumped recently.

NFTs made it from the fringes of the internet to the front page of The New York Times last year. That brought a lot of normies into the fold.

  • Programs ranging from the online Discord community BFF to Visa’s immersive program for teaching creators about NFTs now serve as illustrations of how the boom was used to draw new participants into the crypto economy.
  • When the dot-com bubble burst, it took nearly a decade for private tech investment to recover because investors were scared off by the instability. Retail investors likewise shied away from tech stocks. A crash in NFT prices could turn off buyers over the long term.

That’s still a big “if”: The NFT market, though wobbly, hasn’t evaporated like, say, luna. It helps that NFTs aren’t, well, fungible: Projects that center around well-executed artwork, a thriving online community, a fun game or an existing fandom like sports could survive a broader shakeout. Eddy Lazzarin, head of Protocol Design and Engineering at a16z Crypto, observes that “volatility has been the norm for NFTs from the beginning.” But even that, he noted, could change. Maybe a shakeout will lead to stability.

— Veronica Irwin (email | twitter)


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On the money

On Protocol: The world’s largest stablecoin, tether, took a hit Tuesday after investors pulled out $7 billion amid the crypto crisis. The company behind it, Tether Operations Limited, maintained that it wasn’t a “run on the bank” scenario.

Terraform Labs’ in-house legal team resigned. At a challenging time for the blockchain developer behind the all-but-defunct UST and luna coins, outside counsel is now handling legal operations after all members of its in-house legal team resigned.

Also on Protocol: The competition between Plaid and Stripe is only heating up.

Coinbase announced it is slowing hiring, pulling back from a plan to triple the size of its workforce. Executives had defended its hiring spree on an earnings call just a week ago.

China is again a bitcoin mining hub despite a crypto ban. According to a study by Cambridge University, China is the second-largest bitcoin-mining hub, after the United States, attributing the reemergence to “covert mining operations” defying last year’s crypto ban.

The Australian Taxation Office is cashing in on crypto. The regulator outlined its four priorities for Tax Time 2022, one of which included “capital gains from crypto assets, property, and shares,” citing the growing popularity of digital assets.

Robinhood is giving users a self-custody wallet. The investing app maker announced it will let users hold on to their cryptocurrencies and NFTs in a standalone app, putting it in direct competition with other popular wallets from Coinbase and MetaMask.


Dogecoin co-founder Billy Markussays that “the reason why people think crypto is 95% scams and garbage and most crypto people are assholes is because crypto is 95% scams and garbage and most crypto people are assholes.” He then pulled a Michael Jackson and told the crypto community to start looking at the man in the mirror and asking him to make a change. Well, sort of.

SEC Chair Gary Gensler couldn’t miss an opportunity to remind everyone that he thinks cryptocurrencies are securities, saying that they have “the hallmark of an investment contract or a security under our jurisdiction” at a NASAA symposium, where he spoke about investor protection in a digital age.

Ethereum co-founder Vitalik Buterinthinks people who hold UST, have smaller wallets and “got told something dumb about ‘20% interest rates on the U.S. dollar’ by an influencer” deserve sympathy and relief. To the wealthy, he said, “SFYL” (sorry for your loss).


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Thanks for reading — see you tomorrow!

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