NBA Top Shot achieved mainstream recognition in the second half of Q1 2021 (see: CBS Sunday Morning segment), helping to drive parent company Dapper Labs’ valuation up to $2.6 billion. But since then, the officially licensed digital collectibles marketplace has experienced a precipitous fall in monthly sales volume (-76%, to $53.1 million), traders on the platform (-39%, to 246,000) and total market cap (think: value of all moments), leading many to declare that NFTs are dead.
Decrypt editor-in-chief Dan Roberts isn’t ready to write the obituary on non-fungible tokens just yet. “Like most things, the death of NFTs—[and NBA Top Shot more specifically]—has been greatly exaggerated,” he said. “[The craze] was never going to last at the same level of mania it [reached in February and March]. A fall-off was inevitable, but that is not the same as saying it is over.” Crypto as an industry has also suffered through a tough second quarter, and “we still don’t know what the cool, interesting use cases will be for NFTs,” he said. “I am very hesitant to dismiss an entire form of technology just because there was a peak that has since waned.”
Our Take: The decline in NBA Top Shot’s sales volume, traders and market cap should not be analyzed in a vacuum. NFT collections are akin to cryptocurrencies, and crypto as a whole got slaughtered last quarter. “It’s all part and parcel of the same industry,” Roberts said. “It’s a headline-driven, narrative-driven space, and the [headlines and narratives] have all been bad. Bad news out of China cracking down on mining. Bad news out of Elon Musk tweeting about Bitcoin’s environmental impact. So, of course there was pullback [within the Top Shot market].” For reference purposes, Q2 2021 was Bitcoin's worst quarter since 2018.
2018 was known as crypto winter because “after the big run-up of 2017, everything crashed,” Roberts explained. The Decrypt EIC was quick to say there are few similarities between that downturn and the current dip in crypto prices from early April’s highs. “There is more interest, institutional investment and support [in the ecosystem] than ever,” he said. “It feels like everything is still chugging forward.” It’s worth noting that despite a decline of more than 40%, $BTC is still up 275% over the last 12 months.
While the decline in crypto prices has negatively affected Top Shot, a drop-off in the larger NFT space has certainly played a part, too. “NFTs had a peak moment of frenzied interest, and it has since [largely] quieted,” Roberts said.
Santiago Jaramillo (former head of sports at Dapper Labs, currently chief product officer at GameOn) wasn’t surprised to see the dip occur as the great reopening began to take hold. “The last couple months of lockdown, people had more money [to spend] and not as many things to do,” he said. “So, that created more demand for these types of [digital products]. It was never going to be sustainable. The trend downward is just a correction we should have expected.”
Some of the air coming out of the bubble is not necessarily a bad thing—at least not for the long-term health of the NFT ecosystem. “When you have a craze, you are going to have a lot of things being created that are not fully thought through and are just kind of capitalizing on the momentum (see: Taco Bell NFTs),” Jaramillo said. “It’s healthy for those things to come down from the highs and leave just the winning ideas and winning products.”
Top Shot metrics have declined five months running. But the bottom—or perhaps a normalization of the market—may be near. Over the last 30 days, sales volume (+13.09%, to $34.38 million) and transactions are up (12.79%, to 1.3 million) and the number of traders on the platform is down by just 6.7%. The data would indicate the platform’s remaining supporters are actively engaged, buying up moments they perceive to be available on the cheap.
One metric still declining over the last 30 days is the value of Top Shot moments. The MomentsRank 100 (a handpicked basket designed to reflect the overall state of NBA Top Shot’s NFT market) is down 14.5% over that period. And Roberts has his doubts a turnaround is imminent. “If valuations have been dipping [during the NBA Playoffs], what will happen in the dog days of summer when the league isn’t in season?” he asked.
Jaramillo agreed it is likely to take some time before Top Shot prices climb again. “The reason you’re not going to see it [happen] right away is because products take time to develop,” he said. While the Q1 peak pushed many to try building engaging experiences and use-cases capable of driving value (think: daily fantasy sports, video games applications and products that tie collections to real world experiences), they’re probably still 6-12 months from completion.
Of course, like the crypto markets, NFT marketplaces are unpredictable. Roberts pointed out that a single unexpected event, “some moment where a major celebrity, entity or company shows they are buying into NFTs” could spark a resurgence for the entire industry (see: Tesla and Bitcoin).
As more leagues (see: MLS), teams (see: Capitals, Wizards and Celtics recent announcements) and athletes (including college athletes) looking to take advantage of their name, image and likeness introduce NFTs, it is fair to wonder if the digital collectibles ecosystem will become watered down. Roberts, for one, doesn’t foresee that being an issue. “There will be some stupid examples [of collections] that are cash grabs, but that shouldn’t hurt the examples that are uniquely interesting, cool and have been deemed valuable,” he said. Jaramillo suggested products tied to “top-tier IP (like NBA Top Shot) or that have utility to the user” would be the ones that hold their value.