According to the so-called Gartner hype cycle, a new technology goes through several phases. During the hype phase, expectations are high. This is followed by a phase of sobering up. Only later does the market enter a phase of realistic growth. As an investor in crypto, it is good to be aware of this cycle. Take the NFT market as an example. Where are we now in the cycle?
About the Gartner hype cycle
Gartner's hype cycle kicks off with a technological breakthrough. In the beginning, it is the early adopters who get excited by the first, still difficult to use, products. Then there is a breakthrough of a few viable projects and the media takes notice.
Near the 'peak of inflated expectations', scammers jump into the market. Negative stories begin to circulate. Many projects fail and it appears that the technology is not yet ripe for the promised disruption of existing markets.
The NFT hype
NFTs are potentially revolutionary but critics will object: what has come of it in practice? And yet. In the barrage of "overpriced jpegs," it's easy to forget that NFTs are indeed going to enable a new global market for digital assets.
Capturing property on the blockchain makes it possible for the first time to actually own and trade something in the digital world. A photographer can now, for the first time, sell photos from his digital collection to anyone in the world with access to the Internet! Suddenly, a market of intellectual property is opened up. Just because that market didn't get off the ground within a year doesn't mean it never will.
A few facts
Where are we in the cycle? In that phase of correction and slight disillusionment. So probably somewhere on the way down from the peak to the trough. Maybe already close to the valley.
A few examples of the weaker sentiment in the NFT market:
- The largest NFT marketplace OpenSea recently announced it had to lay off 20% of its staff.
- The aggregate trading volume in the largest profile picture collections on OpenSea (Apes, Punks, Moonbirds, etcetera) dropped to the lowest point since November 2021, when some of those collections didn't even exist.
- There was recently, for the first time, a day with no trading in Punks.
Toward mass-market applications
So market sentiment is not fantastic. But just because the critics have a point about the lack of breakthroughs in the short term doesn't mean they'll be right in the long term. People overestimate what new technology can achieve in, say, a year. And they underestimate what technology can achieve in the long term of say ten years.
In 2000, there was a stock market crash that came to be called the internet bubble. In the years that followed, it turned out that the overvaluation of the first internet stocks said nothing about the future of the internet itself. The valuation had only shot up too fast. A correction was needed. What followed was the "slope of enlightenment": a new generation of Internet applications was more user-friendly. The infrastructure and bandwidth for applications like YouTube and Netflix made mass usage possible.
Taking into account the hype cycle, there is good reason to be optimistic about the future of NFT's and thus the projects that make the infrastructure of NFT's possible (Ethereum, Solana, Cardano, to name a few important ones).