Now that the jpeg craze is dead, capital should be allocating itself towards more virtuous NFT use cases, should it not? That's where economic activity in an efficient market would move towards.

The marketplace decides what the purpose is. The use case people wanted was an easy way to launder real money into jpegs of arbitrarily set ETH values. Now that the PPP loan and ZIRP era is over, the bottom has fallen out of NFTs entirely. NBA Top Shot was one of the few non-jpeg early succes stories but that's flamed out as well.