Do Cryptocurrency Prices Affect The Value Of Nfts? Let Us Find Out

The non-fungible token (NFT), a relatively unknown concept until recently, is now ubiquitous. Spending on digital assets jumped to nearly $41 billion at the end of 2021 — from just $1 billion in 2020 — according to a report by blockchain specialist Chainalysis. NFTs transform art, music, and even sports, and offer content creators the option to monetize their digital artwork.

In the past year, the NFT market has seen sales at eye-catching levels. A digital collage by South Carolina graphic designer Mike Winkelman, better known in the art world as “Beeple,” for example, has sold for $69.3 million, making it one of NFT’s biggest sales to date.

The value of the NFT depends on various factors – its rarity, the demand for the artwork or sometimes even the artist, and the prices of the underlying cryptocurrency being used. Many online marketplaces that sell NFTs are powered by blockchain. Currently, the Ethereum blockchain operates the most popular of them. So, if you are looking to buy or sell NFT through one of the popular marketplaces, you will most likely need the native cryptocurrency of Ethereum, Ether, for the transaction.

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But what is interesting is that while cryptocurrencies are very volatile, not all NFTs track the movement of their underlying cryptocurrencies. For example, despite the ongoing correction in the crypto markets, the NFT OpenSea market has recorded a trading volume of $2.3 billion in January so far, on track to break the monthly volume record if the trend continues.

Discussing Cryptocurrency Sale Last Weekend With Yahoo! Finance Department Mason Nystrom, senior research analyst at cryptocurrency analytics firm Misari, explained this anomaly. Nystrom said that despite the volatility of the cryptocurrency market, the nature of NFTs may make them independent of the cryptocurrency markets.

“NFT is a significantly broad category that can include music, art, collectibles, gaming assets, fantasy sports, financial assets, and more. As such, it is possible for the NFT business to grow in one sector while others decline or fluctuate over time,” he added. “Going forward, it is possible that we will see a larger decoupling of the crypto markets where an asset like Art NFTs may do well amid a poor overall crypto market, or vice versa.”

The collector, who operates under the alias “Branksy”, has another theory. “People who have spent several thousand on NFTs are not going to sell them at 50% off tomorrow, at least not many of them are. Just like traditional art markets bucking Wall Street trends, I think many see some NFTs as a store of value,” he told Reuters in May of the year. the past after the value of his cryptocurrency portfolio plummeted by more than $10 million at one point in one day.

Collectors believe that the artwork, virtual land, and other digital assets represented by NFTs hold a value different from the cryptocurrencies used to purchase them.

Study conducted by titled “Is Pricing for Non-fungible Token Driven by Cryptocurrencies?” It indicates that there is a low spread between cryptocurrencies and NFTs.

The study used a data set of the two largest cryptocurrency markets, Bitcoin and Ether, with primary data obtained from and NFT data taken from secondary market trades: Decentraland LAND tokens, CryptoPunk images, Axie Infinity game characters, and individuals trade data sourced nonfungible. com.

The results of the study show that when it comes to fluctuations in the cryptocurrency market, the indirect effect of the NFT markets is lower, indicating that the NFT and the cryptocurrency market are different from each other and do not necessarily influence each other in a meaningful way. co-founder Gauthier Zubinger told Reuters in May that the NFT market is becoming increasingly unrelated to the crypto market. Zubinger noted that wealthy cryptocurrency investors may see cashless trades as less risky than cryptocurrencies “because they are backed by a use case.”

(Edited by: Vijay Anand)

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