The NFT Crash Was Predictable

According to DappRadar's analysis, NFT trading volume crashed 93% from its 2021 peak. The $2.9 billion monthly market shrank to $23.8 million. Jack Dorsey's first tweet NFT, purchased for $2.9 million, couldn't sell for more than $14,000. None of this was surprising. The crash was built into the model from day one.

I've watched the NFT bubble with the same feeling I had during the dot-com crash and every crypto cycle since. After 30 years in tech, the pattern was textbook: artificial scarcity of infinitely reproducible digital files. Greater fool dynamics dressed up in technology jargon.

The Greater Fool Theory in Action

I've seen this movie before - multiple times. The reality is every bubble has the same underlying mechanics. Assets get bought not because of intrinsic value but because buyers expect to sell to someone else at a higher price. This works until you run out of new buyers. Then it collapses.

NFTs were a pure expression of this dynamic. As Gamma Law's analysis noted, "You pay for the first one so you can sell it for more to the next guy, who will sell it for more to the next guy. This only works for so long, because at some point there's nobody left willing to buy."

Bill Gates put it bluntly: NFTs are "100% based on greater fool theory." He wasn't being dismissive - he was describing the mechanism accurately. The value came entirely from the expectation of finding a future buyer, not from any underlying utility or cash flow.

This is the same pattern I saw during the dot-com crash. Companies with no revenue traded at billions in market cap because everyone assumed someone else would buy higher. The music stopped, and the people left holding the assets lost everything.

Artificial Scarcity of Infinite Goods

The core promise of NFTs was creating scarcity for digital goods. But this misunderstands what scarcity means and why it creates value.

Real scarcity creates value because the thing itself is limited. There's one Mona Lisa. Only so many beachfront properties. Limited supply of certain rare minerals. The scarcity is inherent to the physical object.

NFT scarcity is artificial and arbitrary. You own a token that points to a URL. The image can be copied infinitely. Anyone can view it, download it, print it. The "ownership" exists only as a database entry. One that confers no real-world rights except the right to sell that entry.

It's like selling certificates of ownership for stars. The certificate exists, someone printed it, you can transfer it. But you don't actually own the star in any meaningful sense. Unlike stars, JPEGs don't even have the romance of being far away.

The Jack Dorsey Tweet Case Study

The collapse of Jack Dorsey's first tweet NFT tells the whole story in one transaction.

In March 2021, crypto entrepreneur Sina Estavi paid $2.9 million for an NFT of Dorsey's first tweet: "just setting up my twttr." At the peak of NFT mania, this seemed like a reasonable bet on digital history.

In April 2022, Estavi tried to resell it. He listed it for $48 million. The highest offer he received was $14,000 - a 99.5% decline from his purchase price. Eventually he couldn't sell it at all.

This wasn't an exception. It was the norm. According to DappRadar's market report, NFT trading volume peaked at $2.9 billion in August 2021 and crashed to $23.8 million by September 2023. A 93% decline. Most collections became worthless. Even "blue chip" collections dropped 80-90% from peaks.

The Wash Trading Problem

Much of the NFT trading volume wasn't even real. Research showed that wash trading - people trading assets with themselves to create the illusion of activity - represented a substantial portion of volume.

This is a well-known pattern in markets with limited regulation and incentives to appear active. Exchanges benefited from high volume. Sellers benefited from appearing liquid. Buyers were deceived into thinking demand existed when it didn't.

The same pattern appeared in the broader crypto ecosystem. When you can't verify whether trades are real, you can't trust volume numbers. When you can't trust volume, you can't trust prices. When you can't trust prices, you're gambling, not investing.

The Liquidity Illusion

NFT collectors learned a painful lesson about liquidity: assets are only worth what someone will pay for them right now, not what the last sale says.

Illiquid markets create price mirages. An NFT that "sold" for $100,000 might have no buyers at $10,000. The last price is not the current value - it's historical information. In a thin market, the gap between perceived worth and actual selling price can be 99%.

Real estate has similar dynamics but with key differences: intrinsic utility (you can live in it), cash flow (rental income), and regulated markets with professional appraisers. NFTs have none of these stabilizing factors.

The people who got hurt worst were those who bought near the peak based on recent "comparable sales." Those comparables were meaningless in a market where liquidity was evaporating.

Who Made Money

The NFT boom wasn't profitable for everyone, but it was very profitable for some:

Platforms took fees on every transaction. OpenSea, the largest NFT marketplace, charged 2.5% on every sale. They profited whether prices went up or down, as long as trading continued.

Creators got paid upfront. Artists who minted and sold NFTs during the boom collected real money. Whether the buyers ever recouped their investment was someone else's problem.

Early adopters sold to late adopters. The classic bubble pattern. Those who bought in 2020 and sold in 2021 made fortunes. Those who bought in 2021 and tried to sell in 2023 learned about holding worthless assets.

Influencers promoted projects for payments. Celebrities and crypto influencers received money or tokens to promote NFT projects to their followers. When those projects collapsed, the promoters had already cashed out.

This distribution of gains and losses is not random. It's the designed outcome of a greater fool economy. Here's what actually happened: the lessons from earlier blockchain hype cycles were available to anyone who looked, but looking wasn't incentivized. I learned the hard way during the dot-com crash that this pattern always ends the same way.

The Art Argument Was Always Weak

Defenders of NFTs often argued that they were a new way to support digital artists. This was technically true but practically misleading.

Most NFT profits went to a tiny fraction of creators. Studies showed that the top 1% of artists captured the vast majority of NFT revenue. For most artists, minting and selling NFTs was money-losing when you factored in gas fees and time spent.

Artists didn't need blockchain to sell digital art. Platforms like Patreon, Gumroad, and Etsy already let artists sell digital work and build direct relationships with collectors. Blockchain added complexity without proportionate value for most creators.

The royalty promise was broken. NFT platforms initially promised artists would receive royalties on secondary sales - ongoing compensation for appreciating work. But marketplace competition made royalty enforcement optional, then largely abandoned. The killer feature evaporated.

Why Smart People Got Fooled

The NFT bubble wasn't driven only by naive retail buyers. Sophisticated investors, major brands, and serious institutions participated. Why?

Social proof overwhelmed analysis. When everyone around you is buying, when celebrities are promoting, when prices are rising, the social pressure to participate is enormous. Skepticism means potentially missing out and definitely being excluded from the conversation.

FOMO is a real psychological force. Fear of missing out bypasses rational analysis. People bought not because they had a clear investment thesis but because they were afraid of being left behind.

Complexity hid simplicity. Blockchain technology, smart contracts, the decentralization narrative - all this jargon obscured a simple question: why would this JPEG be worth money later? The technology was real. The value proposition wasn't.

Incentives aligned toward belief. Once you owned NFTs, you were incentivized to promote them. Admitting the emperor had no clothes meant admitting your mistake. People don't like doing that.

Use this to evaluate any speculative asset before buying:

What Survives

NFTs aren't completely dead. They've found niches where they might have sustainable value:

Utility NFTs for gaming. In-game items that confer real functionality within specific games. The value is tied to the game's popularity and the item's usefulness, not speculation on future prices.

Authentication and provenance. Using NFTs to verify ownership of physical goods or prove authenticity. Here the blockchain serves as a registry, which is a legitimate use case.

Community membership tokens. NFTs that grant access to exclusive communities or experiences. The value is in the access, not in resale potential.

What's dead is the speculation machine - the idea that JPEGs would appreciate forever, that digital scarcity alone creates value. You can't buy art you don't like and sell it for more later just because blockchain was involved.

Speculative Bubble Warning Signs Scorecard

"Artificial scarcity of infinitely reproducible files. Value based on finding greater fools. Illiquid markets masquerading as liquid ones. We've seen this before. We'll see it again."