Non-fungible token (NFT) sales in October fell for the sixth straight month, failing to break US$500 million in sales for the first time since July 2021, according to NFT aggregation site CryptoSlam.

Sales reached only US$460 million for the month, representing a roughly 90% drop from the record US$4.7 billion in sales posted in January 2022, as the market continues to be rocked by the simultaneous slump in the broader crypto market.

Yehudah Petscher, NFT relations strategist for CryptoSlam, told Forkast in an interview the extended downturn is partly due to market uncertainty around the nascent asset class as it experiences its first significant bear market.

“Buyers and investors are trying to feel out two things still — where’s the floor and what do those long-term speculators actually value?” he said. “Is it the utility? Is it rewards? What we are learning, though, is only in rare cases is it just the JPEG they value. The market’s proving that only a few of those JPEG-only projects will actually survive.” 

Regarded as a crucial component of the reimagined internet of Web3 — in which gaming, social media and financial services are run through decentralized applications controlled by users’ wallets — a lagging NFT market could stifle adoption of this burgeoning field. 

Petscher told Forkast that many projects within the space are taking the down time afforded by the bear market to consolidate around building and developing these projects further. 

The NFT market, of course, does not operate within a vacuum. Hong Qi Yu, chief executive officer of the cryptocurrency Tokenize Xchange in Singapore that operates the NFT marketplace Elemint, told Forkast via email that the same conditions battering the broader crypto market apply to the NFT market as well, adding to downward pressure.

“The current macro economy, where the U.S. Federal Reserve continues to raise interest rates and leads most of the central banks to follow suit, is leading to a decreased appetite for risk on the part of the NFT investor,” Hong said. “We believe, however, that this will bottom out once the situation stabilizes again.” 

The Fed lifted interest rates from near zero in March to the current 3.25% as inflation reached a near 40-year high of 8.2% in September, and has indicated it will continue this policy until inflation comes back to a target range of 2%. It is expected to raise rates by a further 75 basis points at the Federal Open Markets Committee meeting this week.

Despite the continued downturn, there were also plenty of positive developments for the market this month. 

Giant social media platform Reddit, which boasted roughly 430 million active monthly users in 2020, saw a surge of activity around its Polygon-based NFTs in the late half of the month, as it recorded US$2.6 million in sales on Oct. 25 alone, reaching US$9.2 million in sales over the past 30 days, according to CryptoSlam.

Launched in July, Reddit’s integration with NFT allows personalized avatars based on the company logo to decorate users’ personal page. However, this recent surge can be attributed to a Halloween-focused “spooky season” collection, which drove the majority of these sales, and was beaten only by the collection Bored Ape Yacht Club (BAYC) in sales on those days.

October also saw NFT marketplaces of all sizes begin to make paying creator royalty fees optional — something that had long been seen as pivotal to the industry. 

“It’s actually been quite an enlightened policy during the current NFT downturn and was done to counter the bear market and incentivize the creation of more NFT-related activities and motivate NFT investors to get out there and purchase and spend on NFT,” Hong said. 

Finding it was losing market share to smaller competitors, leading Solana-based marketplace Magic Eden made the move in mid-October meaning effectively the entire Solana ecosystem now pays no royalty fees by default.

Ethereum marketplace LooksRare was quick to follow suit; however, they made the concession of offering creators a percentage of the platform fees it charges users to transact on the network.

Petscher had a different view, describing the trend as a “race to the bottom,” telling Forkast it was at least sparking debate about the typical business model in the industry. 

“How do we still make sure the projects that we love and the artists that we love still are able to make a living?” he said. “If it’s not with royalties, which I would suggest it shouldn’t be based on royalties, they should probably have a sustainable business model.”

“Maybe a different conversation for artists too,” he added. “But again, it’s on all of us to come up with the correct solution to keep them making money so they can keep giving us the things we want, which is just more NFTs and more access and more of these fun things.”

U.S. investors were also given additional guidance in late October by the Internal Revenue Service which said NFTs would be taxed just like any other digital asset, such as cryptocurrencies or stablecoins. While Petscher said he was obviously no big fan of paying tax, he said the clarity was certainly welcome in the space.

In a last-minute addition to October’s sales figures, a collection by Justin Roiland, co-creator of popular cartoon series Rick and Morty, called Art Gobblers released on Oct. 31, already racked up US$31.1 million in sales, placing it just behind leading collection BAYC for the month.

Petscher said the excitement around collections like Art Gobblers and the Reddit NFTs shows there is still life in the market despite the downturn, and he wouldn’t be surprised if a few of these collections triggered a wider market surge.

However, that’s still just wishful thinking at this stage, he said.

“My gut feeling is we’re still years away from a true turnaround, something like we saw earlier this year.”