DeFi, NFT revived by positive sentiments, J.P. Morgan reports

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Decentralized finance (DeFi) and non-fungible token (NFT) activities have been revived recently by improved sentiments in the crypto markets. J.P. Morgan emphasized that the anticipation of a U.S.-listed spot Bitcoin (BTC) exchange-traded fund (ETF) had contributed to this revival.

NFT sales volume and DeFi total value locked have risen in recent months after nearly two years of decline. This recovery has sparked some optimism that the worst might be over for DeFi and NFTs.

J.P. Morgan expects DeFi to recover due to increased trading activity, with some transactions occurring on decentralized exchanges. However, analysts caution that it is too early to be overly optimistic.

Some DeFi recovery is ‘natural’ due to increased crypto trading activity, particularly through decentralized exchanges. Liquid staking, led by Lido since early 2023, has also played a significant role in DeFi improvement, preceding the hype around spot bitcoin ETF approval, as per analysts.

Moreover, because ether (ETH) has not performed as well as other cryptocurrencies, measuring the total value locked (TVL) in ETH terms would automatically indicate some improvement. These other digital assets have seen greater gains in recent months.

The past year has seen the emergence of new chains and DeFi protocols like Aptos, SUI, Pulsechain, Tenet, SEI and Celestia. NFTs have also seen advantages from the rise of Bitcoin ordinals.

The Ethereum blockchain seems to have missed out on the recent revival in DeFi and NFT activities. It encounters challenges with network scalability, slow transaction speeds and higher fees and faces increased competition from other layer-1 chains.

Crypto nears bull market, NFTs lag behind

The crypto market is nearing bull-market territory, yet NFTs have not reaped the rewards of the market’s excitement.

ETH has surged around 70 percent year-to-date, but NFT valuations have not seen similar gains. Nansen’s NFT-500 index, tracking the top 500 NFT valuations, has decreased by 50 percent in ether value and 16 percent in dollar value since the start of the year.

The Blue-Chip 10 index, assessing the values of major NFTs like CryptoPunks and the Bored Ape Yacht Club, has declined by 44 percent in ETH value and 1.7 percent in dollars.

OpenSea, the biggest NFT marketplace, has seen a decline as well. During the peak of the NFT craze in January 2022, the platform was earning $387.48 million in fees monthly and generating $120.45 million in revenue, as per DeFiLlama data. Presently, fees have dropped to $6 million per month, and revenue has decreased to $1.39 million.

“NFTs have survived their first market cycle and have yet to take on a new jumping point in technology to usher in more user interest, like DeFi had with Uniswap’s AMM,” Nick Ruck, COO of ContentFi, said. “Many new innovations are still being built to increase the use cases of NFTs, but it’s also partly due to the fact that NFT prices are generally negatively correlated with the USD price of ether.”

Despite this, there are indications of market growth, notably in the rising market of utility-based NFTs. These NFTs are used for applications such as ticketing and loyalty programs.

Bitcoin ordinals are gaining popularity, and miners are benefiting from the fees. Sora Ventures CEO Jason Fang credited their success to serving as a hub for the expanding development of a layer-2 solution for the Bitcoin blockchain.

“Bitcoin ordinals is not only a breakthrough for bitcoin utility, but also a hub that brings communities together,” Fang said. “Communities like Stacks, BSV, Rootstock, and even Starkware, which don’t usually interact with each other, are all exploring ways to get involved and build on Ordinals Protocol – everyone found a common ground and wants a piece of it.”

David Mirzadeh, Ecosystem Finance Lead of Taiko, said Bitcoin ordinals’ utility is also the narrative driving the NFT rebound.

“I see NFTs recovering some of the ground they have lost once they move beyond just speculative JPEGs to assets with utilities in areas such as games, music, and social,” he said. “Until then, their price performance will largely depend on speculative hype and mania.”