NOTFTs and cryptocurrency were joined at the hip from the start.
To buy the former, you usually have to use the latter – and the same digital wallets are used to store both. NFT prices are listed in cryptocurrency denominations, and most people who own NFTs also invest in crypto. The advent of cryptocurrency has made NFTs possible – after all, they both rely on blockchain transactions to validate their authenticity and ownership.
See our list: 100 Most Influential Money Experts
Looking to diversify in a bear market? Consider These 6 Alternative Investments
With all of these commonalities, it stands to reason that fluctuations in the price of cryptocurrencies would impact the value of NFTs – and they do. But, if you are looking for a straight line between crypto market volatility and NFT price changes, a direct cause and effect becomes increasingly difficult to find.
On July 12, CryptoPunk #4464 sold for 2,500 ETH. This was the biggest NFT sale in 30 days – and not just any 30 days. The summer of 2022 will forever be remembered as the crypto winter.
Take our survey: Do you tip for service?
According to CNBC, cryptocurrencies lost $2 trillion in value between their 2021 peak and mid-July this year. The collapse of stablecoin terraUSD contributed to the fall, as did the collapse of Three Arrows Capital and the 70% drop in Bitcoin, the world’s largest cryptocurrency.
So even in the deepest freeze of the crypto winter, one of the rarest NFTs from one of the most vaunted NFT collections was able to reach a historically high asking price. But what does that mean?
According to Decrypt, CryptoPunk transaction #4464 is locked in a three-way tie for the fourth-largest CryptoPunk NFT sale of all time.
In December 2021, CryptoPunk #4156 also sold for 2,500 ETH. CryptoPunk #5577 also sold for 2,500 ETH, in February 2022.
Since most NFTs are recorded on the Ethereum blockchain, most NFT values are listed in the cryptocurrency denominations ETH – and this is where the relationship between crypto prices and NFT values is. clearer. Thanks to the notorious volatility of the crypto market, a tie between three NFTs isn’t really a tie.
Sell #4156 took place during the peak of the pre-winter crypto market, when 2,500 ETH was worth $10.25 million. Two months later, the 2,500 ETH sold for #5577 was worth $7.7 million. The most recent sale – #4464 on July 12 – was only worth $2.6 million.
So, three different buyers bought three different NFTs a few months apart, each for 2,500 ETH. But due to fluctuations in the price of the cryptocurrency, this “tie” leaves a gap in value of $7.65 million between first and third.
In describing the relationship between cryptocurrency and NFTs, CoinDesk offered a clever analogy where crypto is the parent and NFTs are the children. It’s not precise, but it makes a complex monetary relationship easy to understand.
When the NFT market emerged, it was small, weak, and reliant on the crypto market to drive its price action. Then the NFTs grew big and strong, hungry for independence.
Like teenagers overestimating their readiness for the world, NFTs rebelled, experiencing a boom just as crypto prices cracked. Then, as the NFT market matured and tasted the harsh realities of the outside world, it returned home to reconnect its fortunes to that of its crypto kin.
Platforms like eBay and Instagram are planning to integrate NFTs, and Coinbase’s highly anticipated NFT Marketplace is expected to allow users to purchase them with credit cards and fiat currency. These developments in the near future could finally decouple NFTs and cryptography; but, until then, NFTs live close to the nest even though they are technically alone.
Do crypto prices affect NFT values? It depends who you ask.
Coinbase cited data showing very little correlation between NFTs and crypto in terms of sales volume and price.
On the other hand, Cryptonews pointed to a direct link between the current panic in the crypto market and the crash in NFT prices.
CNBC TV18 landed in the middle: it concludes that NFTs sometimes follow the movement of their underlying cryptocurrencies, but not always.
All three publications – as well as the most credible experts – agree on a few points that could explain the discrepancy:
- Markets are still new
- The separation of the two markets is even more recent and not yet complete
- They both endure their first extended bear market together
Ultimately, the relationship between crypto prices and NFT values is confusing, but the picture will likely become clearer when the current crypto winter finally thaws.
More from GOBankingRates
This article originally appeared on GOBankingRates.com: How Do Crypto Prices Affect NFT Values?
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.