The prices of major cryptocurrencies are currently declining from already low levels. It’s a selloff, but probably not one substantial enough to shatter the crypto community’s faith. Still, the effect of declining crypto prices on crypto-priced assets should be intriguing to watch. The NFT market, which is mostly based on the Ethereum blockchain, has experienced a tremendous increase in value and trading volumes as to the value of ether, the chain’s native coin, has skyrocketed. In a market where ether is decreasing, what will happen to NFTs? Let us discuss it.
According to CoinMarketCap data, bitcoin has dropped 8.6% in the last week, ether has dropped 7.8%, and Solana’s token has dropped roughly 12%. Even in the highly volatile crypto market, those are significant drops. The drops are much more pronounced when compared to recent highs. Bitcoin is down roughly 35%, ether is down 28%, while Solana’s token is down about 40% from all-time highs achieved in Q4 2021. What exactly is going on? Today’s Wall Street Journal offers a short explanation: As part of the broader tech selloff, cryptocurrencies such as bitcoin and ether plummeted, confirming their reputation among investors as hazardous investments that can quickly be dumped in times of market stress.
The declines sparked by Federal Reserve minutes that revealed officials are considering a faster rate hike schedule this year. Holding unpredictable investments that yield little income becomes less appealing when interest rates climb, compared to government bonds. Simply put, as interest rates rise, less risky assets become more appealing in terms of yield; riskier assets become less attractive and thus worthless. Similar forces in the crypto market are likely to be driving declines in the value of high-growth software stocks, at this moment. It appears Bitcoin correlate asset. What does this signify for NFTs, though?
There no single element that is driving the increase in NFT value and trading activity, Rather, a variety of factors have been at work, ranging from celebrity involvement to improved technology, increased public awareness, and more. I would argue that the significant appreciation of ether in the last year or two has also played a role. Ethereum’s token might be purchased for less than $250 per by mid-2020. By the end of the year, the value of ether had tripled, and it had reached $4,700. This significant increase in value resulted in the production of a massive amount of paper — token. In short, those that invested in ether saw massive gains in a short period.
From my perspective, the riches gained by the appreciation of ether led to the NFT boom more than anything else did. After all, I don’t believe people have been putting millions of dollars into the ether to buy digital signatures on the blockchain that correspond to specific photos; rather, I believe ether-rich people are gambling with what must seem like house money on non-traditional assets. That has not to say it is a bad thing; I believe it is neutral. However, it begs the question of what happens to NFT activity and prices when it is a supporting asset, if we can call ether that, rapidly depreciates.
