NFTs in a Recession

By Meagan Loyst, Founder of Gen Z VCs & Investor at Lerer Hippeau

It feels like today, no matter where we look, we can’t avoid the negativity tied to a potential downturn… especially as it pertains to Web3 & crypto. I’m seeing much less “wagmi” statements on Twitter, and more headlines like these:

  • Bitcoin tumbled below $24,000 on Monday, hitting its lowest level since December 2020, as investors dump crypto amid a broader sell-off in risk assets
  • Stocks get CRUSHED as the S&P 500 slides into bear market territory

So… what happens now? I’m zeroing in on NFTs. Specifically, in a downturn:

  • how I think consumers will react
  • how utility & community (more specifically, superfandom) will play a role

The state of NFTs

First, let’s level-set on the state of the market. NFT adoption is still very much in its infancy with a 2.8% adoption rate in the U.S. (and 11.6% globally). And on top of that, the majority of NFTs are owned by whales, which account for over 80% of the market.

So basically, all the same (wealthy) people are buying and trading NFTs – the same people who own Apes likely own Punks, Cats, and Doodles. Which means you likely see a ton of crossover between communities, and likely in newer communities who reserve spots for folks like these on their whitelists. I’ll show you what I mean:

  • When Adidas launched their “Into the Metaverse” NFT collection in December 2021, they sold 29,620 NFTs and made $24 million in an afternoon. 
  • 20,000 of them (so 68%) were reserved in early access for communities they partnered with (BAYC, MAYC) vs. net-new NFT holders.

When you limit access, you limit the pool of new people entering the ecosystem. In joining these new communities, you’re likely to see similar smiling faces that exist in your other Discord channels.

Diminishing utility at scale

For many NFT projects, the name of the game is utility – keeping people engaged for the long-haul through community promises like special access to events, merch, and a sense of belonging or friendship.

A question I started posing to myself recently was around the concept of diminishing utility at scale… if you join 10, 20, or even 100 communities, overtime is there diminishing utility if you’re continuously running into the same people? And what prevents you from getting value out of each and every new community you join or would like to join?


To get value out of most communities, there’s often a time component. You need to spend time in the Discord to get to know other members and see what’s happening. You need to spend time going to events to meet people. Time is inherently a limiting factor as you scale into numerous communities. 

  • DAOs are a good example of this, where you likely concentrate your contributions to a select few communities because of time constraints.


Money is also a limiting factor. Even with ETH and other cryptocurrencies depreciating, the floor price for many projects (especially the popular ones) is quite high, limiting the amount of communities you can enter and partake in seriously.

  • The floor price for a Bored Ape today is 74.5 ETH, aka $87k.

In a downturn, people tend to take stock of their assets and rethink their spending. It feels like a very human response to prepare for the future and think about where you can make some natural cuts.

  • 1,500+ people commented on Pomp’s recent tweet asking “What is the first item you would stop purchasing in a recession? Must be something you purchase at least once a month.” Read through the suggestions if you have time, as it’s pretty interesting.

Even consumer stocks are often split into “consumer discretionary” and “consumer staples” – consumer staples fulfill a basic need and people will buy in good times and in bad times (ie: toilet paper), whereas consumer discretionary purchases are superfluous items or services that people can live without when times get tough (ie: Blue Apron).

In the minds of today’s consumers… where will NFTs fall? Or put simply, what value will they place in the utility of the community? A staple they can’t live without? Or discretionary?

NFTs: Consumer staples or discretionary?

Not all utility is created equal, it will vary from person to person. For me, I could never have enough pairs of shoes or hair accessories to match my dresses in every color – there is an abundance of utility in buying physical purchases. An art collector might feel the same way about buying new art, that they can never have enough rare pieces to fill their walls and look at every day.

NFTs are tricky though because there are so many reasons why people buy NFTs.

  • An investment opportunity to make $$$
  • Beautiful artwork that they want to own vs. look at
  • Access to exclusive community events and forums
  • Public clout in the case of PFPs
  • Opportunity to meet like-minded people
  • Supporting meaningful causes
  • And many many more…

Heading into a recession, I don’t think the promise of clout, a pure investment opportunity, or any one single piece of the equation above is enough to get people to buy into the “hype” of a new project or community.

I predict that people will take a long, hard look at the PFP communities they’re currently in and choose where they’d like to double down on their time (and money) – or – we’ll see the rise of highly specialized communities where the utility is tied to a particular activity/interest (ie: golfing for LinksDAO) or fandom (ie: Glossier, Gary Vee). Essentially, we’ll see the rise of superfans where people really show their allegiances with a select few communities where it makes sense to (a) have their assets tied up in an NFT and (b) where they want to actively spend their time and get full utility.

I also think the lipstick effect can apply to NFTs in today’s macro environment – that NFTs can be discretionary purchases that provide an uplift in one’s emotions through a public display.

The lipstick effect

During recessions, there’s something known as the “lipstick effect” that happens where “women will indulge in discretionary purchases that provide an emotional uplift without breaking the budget.” Lipstick is often used as the quintessential example, helping to boost a women’s confidence with an often public display – women often “splurge on luxury brand lipsticks that are used in public, like semipublic restrooms and after dinner in a restaurant, and forego higher-priced beauty products that are applied in the privacy of home, like facial cleansers and eye makeup.”

I believe NFTs, and more importantly the community/utility, can provide that “emotional uplift” for certain people as lipstick does for women. You publicly want to show which communities you’re involved in on Twitter, at events, on your clothing – even if it’s expensive and can be considered a luxury in a world where you could theoretically sell it in hard times.

It’s not perfect logic, but I do see parallels.

The rise of superfandom & interest-based utility

So in summary, utility is of paramount importance to NFT communities in today’s macro environment. It has always been important, but I think it will face more scrutiny in the minds of consumers as they evaluate where they’re spending their time & money as the world shuts down.

This is the perfect time to capitalize on the notion of “100 True Fans” as proposed by Li Jin vs. the prior notion of 1,000 True Fans. 

  • Quality over quantity.
  • Focus on people’s dedicated passions and interests, where they can see & find immediate utility beyond the superficial.

I’ll give you a great example of this in practice.

I think this is the perfect time for eCommerce companies with dedicated communities (think Glossier) to think about this.

  • First, they’re in the beauty category (people will buy their Lip Gloss whether the world is ending or not). Hello, lipstick effect.
  • Second, the use cases and time-to-utility can be quite immediate – think special discount codes in exchange for loyalty and engagement.
  • Third, the technology is there. Novel recently raised $6 million to do exactly this for brands with cult followings like Everlane and viral up-and-comers like Noah Shnapp’s TBH.

There will always be a place for NFTs (and community) if you find the right people, show them value, and make them feel special.

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