NFTs lag amid crypto surge: Hope to revive interest lies in tokenisation?

Cryptocurrency and NFTs, connected through blockchain, once scaled their peaks hand in hand

In 2021, actor Amitabh Bachchan recorded his father Harivansh Rai’s poem, Madhushala, in his voice and launched it in the form of a non-fungible token, or NFT. Auctioned in November that year on the website, Beyondlife club, it was sold for $756,000.

NFTs, launched in 2014, are digital assets that are “non-fungible”, meaning unique. These may be photos, videos, audio files (such as Bachchan’s rendition of Madhushala) or any other collectibles in digital form. Unlike physical currency and cryptocurrency, these tokens have a digital signature that makes each of them unique. Put simply, it is a collectible in digital format that belongs to a unique owner. Another person may have a similar collectible, but it will have a different signature.
 

NFTs were all the rage around the time Madhushala became a token with a record price. That was also the time cryptocurrency was booming: Bitcoin touched an all-time high of $68,900 in November 2021.
 

Several corporations and celebrities jumped on the NFT bandwagon. Indeed, Bachchan is not the only Indian mega movie star in this realm; Rajinikanth partnered with Singapore-based Diginoor.io to launch his collectibles based on his 2007 action thriller, Sivaji: The Boss. Kamal Haasan joined hands with Lotus Media Entertainment to launch his own NFT series.
 

NFTs touched their peak on December 3, 2021, when “The Merge” NFT, created by digital artist PAK, was sold for $91 million, the priciest ever. On February 9, 2022, another NFT, “Clock”, by the same artist was sold for $52 million. (Clock counted Julian Assange's days in prison).
 

That proved to be the high noon before darkness arrived.

 

Crash, revival, and non-revival
 

In 2022, the crypto market unravelled. In June 2022, a major cryptocurrency lending company in the United States, Celsius Network, froze withdrawals and transfers, citing “extreme” conditions. Five months later, FTX, valued at $32 billion at its peak, filed for bankruptcy. It led to a huge selloff in crypto. Bitcoin fell to $16,550 in January 2023.
 

In December 2021, NFTsales had touched $6 billion. Eleven months later, the figure slipped 87 per cent to $767 million. In December 2021, the number of unique buyers and sellers was 1.4 million and 1 million, respectively. In November 2022, they had fallen to 655,403 and 556,620, according to data from Crypto Slam.
 

Lately, though, crypto has begun to boom again. Bitcoin touched a new all-time high of $73,835 on March 14 this year. In 2023, Bitcoin gained 153 per cent. Ethereum, the second- largest crypto token, jumped 80 per cent.
 

Crypto’s resurgence raised hopes for NFTs as well. Both are based on the blockchain technology, which is akin to a digital ledger that presents a way to store data without having to trust any one entity. Secondly, reports say many NFTs were being stored on the Ethereum blockchain, and Ethereum is also a cryptocurrency leader.
 

But, despite the recent surge in crypto, NFTs are showing no signs of perking up. In fact, the opposite is becoming more visible. In all the months of 2023, barring January and December, monthly sales of NFTs were below the $1 billion mark. And some marquee names are turning away.
 

Earlier this month, coffee giant Starbucks announced it was rolling back its Odyssey NFT programme from March 31. Launched in September 2022, Odyssey was an extension of the Starbucks Rewards programme, allowing members to earn points. These points enabled users to buy merchandise, attend exclusive events, and, in some cases, get a trip to Starbucks coffee farms in Costa Rica.
 

The decision to end Odyssey came close on the heels of gaming retailer GameStop announcing in January that it would phase out its NFT marketplace from the following month. Around this time last year, Meta had pulled the plug on NFT features across its platforms, Facebook and Instagram, within 10 months of launching them.

What revived crypto
 

Edul Patel, chief executive officer and co-founder at Mudrex, an Indian crypto investment platform, says the crypto industry has recovered owing to the increasing regulatory clarity and a surge in institutional interest. “The recent approval of all 11 spot Bitcoin ETFs by the US SEC further fuelled this momentum, coinciding with the anticipation surrounding the Bitcoin Halving event, a significant event in Bitcoin’s calendar,” he says. ETFs are exchange traded funds. The SEC      (Securities Exchange Commission) is the markets regulator in the US. Patel further says there has also been an increase in the number of investors holding more than 1,000 Bitcoins, often referred to as whales, reflecting the growing confidence in crypto. “Moreover, the decision by the US central bank to maintain the repo rate has contributed to a favourable investment sentiment surrounding Bitcoin,” he says.
 

What ails NFTs
 

Experts say the mismatch between expectation and utility was NFT’s undoing.
 

“It became evident that many high-value NFTs did not offer practical utility aligned with customer expectations,” says Yashaswi Rao, vice-president of Products at Okto, a product from CoinDCX.
 

Jyotsna Hirdyani, South Asia Head at Bitget, a cryptocurrency exchange, the fall of NFTs can be attributed to market saturation, fluctuating investor sentiment, and concerns over sustainability of certain promises by NFT projects.
 

Sharat Chandra, founder at EmpowerEdge Ventures, says events such as Starbucks pulling the plug on its NFT programme “underscores the struggle of NFT initiatives to align with market demands and sustain momentum, highlighting the need for clearer value propositions and strategic evolution”. He adds: “NFT projects have faced challenges in finding purpose and adoption.”
 

Tokenisation of hope
 

Some experts remain optimistic about the future of NFTs. They say it is unlikely that these tokens will witness a bull run like cryptocurrency’s, but they may become more integrated into various industries in the coming years.
 

“The possibility and the potential for a future NFT bull run requires caution and discernment,” says Hirdyani, but adds that the future of NFTs looks promising due to new blockchain technology applications such as tokenisation.
 

The Reserve Bank of India has also been experimenting with tokenisation of cards, which allows replacement of actual card details with a code called the “token”.
 

“Tokenisation has a lot of potential in financial services and capital markets,” says Chandra. He adds that NFTs are shifting towards a more value-driven model, focusing on utility and practical applications, rather than pure speculation.
 

“This shift indicates a more stable and sustainable growth trajectory for NFTs, with a focus on real-world use cases and long-term value creation, rather than short-term market speculation”. According to Rao, concepts such as credit scores, social media profiles, and identities, are expected to gradually transition on to the blockchain, evolving into different forms of NFTs.
 

“As builders develop practical applications and major brands embrace NFT technology, there is potential for sustained momentum and increased market participation, albeit with fluctuations along the way,” he says.