After the NFT Gold Rush: What Does the Crypto Crash Mean for Music?
With the value of cryptocurrencies like Ethereum tanking, the focus has quickly shifted from hyper-growth to defensive and heads-down building.
For a moment, it looked like the future of music had arrived. Crypto and Web3 dominated music culture over the last year with high-profile NFT drops from Snoop Dogg, Nas and Grimes.
But now crypto prices are plummeting. There’s panic in the air and mass layoffs across the industry. Is it all over? And what does it mean for the future of ‘Web3 music’? The consensus on the ground is that the hype cycle is over, but now is the time to rebuild and focus on real innovation. These crypto ‘winters’ as they are referred to in the space, are always tough, but they are also when the biggest breakthroughs are made.
First, let’s assess the damage.
The price of Ethereum has declined more than 75% since November, from a high of $4,800 to around $1,100 at the time of writing. The latest selloff was triggered by a seismic collapse in the Terra/Luna cryptocurrencies which wiped out a combined $60 billion. The domino effect spread through the sector, causing Celcius, a major lending firm, to freeze customer withdrawals. Now one of crypto’s biggest funds, Three Arrows Capital, is reportedly insolvent after facing $400 million in liquidations.
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Across the industry, Web3 companies are laying off staff and aggressively cutting costs. Leading cryptocurrency exchange platform Coinbase froze hiring, rescinded job offers, then abruptly cut headcount by 20% last week. Meanwhile, executives that chose to take their salary in crypto or digital tokens have seen their paychecks devalued.
It’s safe to say, the crypto mania has quickly come back down to reality.
We’re also seeing this slowdown reflected in NFTs, which mostly rely on Ethereum transactions. NFT trading volume on Opensea, the largest NFT marketplace, has shrunk from a record $5 billion in January to just $515 million so far in June. And it’s shaken the music NFT market, too — collections are no longer selling out in seconds and major platforms have reduced the number of releases.
Sound.xyz, a platform that hosted daily music drops from the likes of Snoop Dogg and Vic Mensa, has slowed down to two or three releases per week. Like many others in the space, however, founder and former A&R at Atlantic Records David Greenstein says the company is using the time to build out new features. “Whether the market’s up or down, we’re in the business of how do we help artists reach the most amount of people and how do we help artists make money from their music?” he says. “The mission transcends a bull or a bear market.”
For artists and companies planning an NFT release, however, the market’s biggest downturn since 2020 has many taking a wait-and-see approach. RELICS, the NFT platform tied to Monstercat Records, just delayed its latest drop after selling out its first collection of 1,100 music NFTs earlier this year. Writing on Twitter, the company explained, “Due to the current health of the market we will be moving the date of our upcoming IDOL drop.” In contrast, omgkirby, faceless music project run by a decentralized autonomous organization (DAO), plans to move ahead with its next generative music collection planned with acclaimed genre-bending artist Channel Tres in late June or early July. The project’s founder, who spoke anonymously, says that they believe their project can stand out and still be successful in a downturned market, because it includes “a real life value” with intellectual property rights tied in. “We need to be more dynamic now with this drop than ever,” they say. “This is the time that people now are looking for real value, so I think projects like us will be celebrated more.”
The market downturn will also affect any artist or entrepreneur that launched a successful project but held their earnings in Ethereum. For example, when Snoop Dogg released a collection of NFTs in March, he raised 100 ETH worth $260,000 on the day of the drop. That same 100 ETH is worth less than half today. We don’t know whether the hip-hop icon converted his earnings into dollars or held on to that Ethereum, but many of those who didn’t already could soon be scrambling out of crypto and back into dollars to keep their treasuries from being devalued. With the potential of continued instability looming, the Colors Community DAO, the NFT branch of the Colors YouTube channel which raised 60 ETH from its “Founding Pass” drop this month, just converted 95% of its Ethereum treasury into USDC, a stablecoin pegged to the price of a dollar, in order to “reduce operational risks.” The focus for many has quickly shifted from hyper-growth to defensive mode or simply heads-down building.
If this all sounds gloomy, there is some good news out there and the appetite for music NFTs hasn’t disappeared completely. Earlier this month, and even with the price of ETH down 60% from the November 2021 highs, a collective of independent musicians known as Headless Chaos managed to sell $458,000 worth of NFTs. While upcoming artists Kaien Cruz and Daniel Allan sold collections worth $41,000 and $29,000, respectively, in poor market conditions. (The market has since dropped another 38%.)
One strategy we might see is the shift to a free-mint model, which is likely to gain traction while people are reluctant to spend their money on anything speculative, like NFTs. For fans, a free NFT means there’s no risk of losing their money. And for artists, it’s a great way to connect with their community. Last month, Chainsmokers launched 5,000 NFTs, for free. Each NFT offers fans a percentage of streaming royalties to their new album “So Far So Good.” Later this year, Warner Records will launch a free collection called StickMen Toys, which comes loaded with generative music.
On the ground, musicians are still cautiously optimistic. Lyrah, an indie artist whose music has been featured on HBO shows such as the Charmed reboot, says she isn’t changing anything about her release strategy due to the market conditions, and is using NFTs to continue creating new experiences for her community of fans. She’s also developing Web3 music contracts to adapt for royalty sharing and new forms of rights ownership. “Instead of focusing on the hype,” she says, “I focus on the value NFTs can unlock through shared ownership, access and experience.”
As for the future, there’s still plenty of investment money waiting on the sidelines. Venture capital firm Andreessen Horowitz (A16z) just raised a $2.2 billion fund to deploy into the crypto ecosystem. The firm cites music as one of the most exciting areas for disruption. Of course, capital allocators will probably be a lot more cautious given the market conditions, and sky-high valuations we saw in 2021 will come back down to Earth.
Meanwhile, many existing startups have healthy cash reserves after raising enormous amounts of venture capital during the hype last year. 3LAU’s NFT platform Royal raised $55 million last November, and Zora Labs, an NFT marketplace for musicians and artists, raised $50 million as recently as May. And, yes, that money is all in U.S. dollars — not crypto. Although many startups won’t make it, there’s plenty of fuel to keep the development going.
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