Digital 2023 Deep-Dive: Blockchain’s roadblocks
Blockchain tech has been at the heart of some of digital’s hottest trends over the past few years, with cryptocurrencies and NFTs alike capturing the attention of both investors and the media.
Overall, there’s little doubt that blockchain tech is here to stay, and there’s also every chance that it will underpin the next phase of digital evolution.
But as the world faces mounting economic challenges, what does the 2023 outlook hold for some of last year’s top digital stories?
Let’s dive in…
Ownership of cryptocurrencies falls
First up, the share of working-age internet users who report owning at least one form of cryptocurrency fell by more than 3 percent between July and October 2022.
Research conducted by GWI reveals that overall ownership is still up compared with this time last year, but it seems that the ongoing “crypto winter” has taken its toll on a number of previous investors.
Despite these overall trends however, GWI’s data reveals that people in various countries continue to be bullish on crypto opportunities.
For example, internet users in Turkey continued to buy into digital currencies during Q3 2022, with ownership increasing from 25.8 percent in July, to 27.1 percent in October.
Similarly, Brazil, Australia, and Vietnam also saw an increase in ownership of assets like Bitcoin during the penultimate quarter of last year.
How much do people spend on crypto?
However, research from Statista suggests that most people are still just dipping their toes into the crypto market.
The company’s analysis shows that the average retail trader spent just USD $135 dollars to acquire cryptocurrencies in 2022, although this figure does vary meaningfully from country to country.
For example, the typical crypto investor in Switzerland spent more than USD $960 on crypto during 2022, while the typical American spent roughly USD $635.
But retail traders in Turkey – where crypto appears to be most popular – spent just under USD $120 on crypto purchases in 2022, while Nigerians spent less than USD $15 across the course of the full year.
Meanwhile, crypto’s ongoing bear market appears to have forced millions of investors around the world to abandon their stakes over recent months.
This is perhaps unsurprising, especially when we consider that the equivalent price of Bitcoin in USD fell by more than 75 percent between 08 November 2021 and 09 November 2022.
Things have improved over the first month of 2023 though, and at the time of writing, the value of Bitcoin is up by more than 35 percent since the start of this year alone.
However, these ongoing fluctuations highlight the fact that cryptocurrencies are still largely a means of financial speculation, and that they have yet to take on the role of true “currencies”.
As recent research from Morning Consult concluded:
“Most people view cryptocurrency as an investment asset rather than a means of exchange”.
In other words, despite roughly 1 in 8 working-age internet users now owning one of these currencies, it seems unlikely that we’ll see many more mainstream merchants accepting Bitcoin or Ether over the coming months.
Meanwhile, last year’s precipitous decline in the value of cryptocurrencies may have had a knock-on effect on another digital asset.
NFTs: it’s complicated
NFTs were one of the hottest topics in digital at the start of 2022, following big jumps in awareness, ownership, and valuation towards the end of 2021.
Cut to the start of 2023, however, and much of that enthusiasm appears to have evaporated.
Research conducted by Statista suggests that more than 44 million people around the world bought an NFT of some description in 2022, although it’s important to stress that this figure includes NFTs used in games and virtual worlds like Axie Infinity and Sandbox.
However, the company’s data also reveals that the typical NFT “user” only spent the equivalent of USD $56.89 on NFTs in 2022, so it’s clear that purchases of multi-million-dollar monkeys are not the norm.
Moreover, data published by NonFungible.com suggests that there has been a precipitous drop in the number of wallets trading NFTs each day since the start of last year.
The company reports that more than 100,000 individual wallets engaged in NFT trades on 19 January 2022 alone, but that figure had fallen to just over 8,500 by 24 December.
As you can see in the chart below, activity fluctuates meaningfully from day to day, but the 30-day average fell from just below 65,800 in January 2022, to barely 11,400 in December 2022.
For context, that equates to an 83 percent drop in the average number of wallets engaging in NFT trades each month over the course of 2022.
However, the decline in trading value has been even sharper.
NonFungible’s data shows that the value of NFT purchases peaked on 12 February 2022.
At that time, traders had paid the equivalent of more than USD $4 billion for NFT purchases over the preceding 30 days.
Activity then dropped sharply until March, but rebounded to almost the same peak in May.
However, the rolling monthly total of NFT purchases hasn’t risen above USD $500 million since the start of October, and while activity showed a modest uptick towards the end of December, the gap between 2022’s highest value on 12 February and its lowest point on 08 December was a hefty 92 percent.
However, fluctuations in the value of Ether may have played an important role in shaping these valuations.
Data published by Google Finance shows that the exchange rate between Ether and the US dollar fell by as much as 80 percent between its high on 08 November 2021 and its most recent low on 18 June 2022.
The value of Ether has increased since then, but by the end of 2022, 1 ETH was equivalent to just $1,200 USD – a figure that remained 75 percent below its November 2021 peak.
As we saw above for Bitcoin, NonFungible’s data does indicate that there has been a modest uptick in NFT trading at the start of 2023, but volumes and sales values are still well below their peaks.
Looking ahead
Despite these challenges, however, there’s nothing to suggest that either crypto or NFTs are “dead”.
We certainly saw a lot of the “froth” removed from blockchain markets during 2022, but this is more likely due to declining financial speculation than it is to signal the demise of the underlying technology.
So, while we’re not going to get involved in predicting where the values of Bitcoin or BAYC might be headed, we’re still confident that blockchain tech is here to stay.
Disclosure: Simon Kemp is a brand ambassador for GWI.
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