If there’s anything we have learnt in the past twelve (12) months, it’s that people pride in owning a piece of code that shows they overpaid for a JPEG file. Soon NFTs (non-fungible tokens) will be used to trade music rights, real estate and debt instruments. A lot has been happening in the crypto space. Sometimes, it becomes really difficult to keep up with what is happening there. No matter how much one tries to ignore, it is extremely difficult, if not impossible, to ignore the fact that a digital photo collage by South Carolina-based graphic designer, Mike Winkelmann, known to the art world as ‘Beeple’, sold for $69.3 million, making it one of the biggest NFT sales to date.
Before now, NFTs were relatively unknown but now, the reverse is the case. According to a report by Chainalysis, a blockchain specialist, spending on the digital asset jumped to nearly $41 billion at the end of 2021 from just $1 billion in 2020. NFTs transform art, music, and even sports, and provide creators the option to monetise their digital artwork. The value of an NFT is determined by lots of factors such as the demand for the artwork, scarcity, the artist and the price of the underlying cryptocurrency used.
NFTs have a relationship with cryptocurrencies that looks like that of a parent and child. When the NFT market was small, it depended on the crypto markets for its price action, but as they have matured, they have been breaking away. Most often than not, NFT marketplaces are powered by the blockchain. Currently, the Ethereum blockchain powers the most popular ones. This means that if you want to carry out transactions on any of these popular NFTs that are powered by the Ethereum blockchain, you will need to possess Ether, which is the native cryptocurrency on the Ethereum blockchain.
In as much as this is the case, NFTs do not usually follow the volatile movement of their underlying cryptocurrencies. In the words of Mason Nystrom, NFTs are a significantly broad category that can include music, art, collectibles, gaming assets, fantasy sports, financial assets, and more. As such, it’s possible that NFT commerce in one specific vertical grows while others decline or fluctuate over time, Going forward it’s possible that we’ll see a greater decoupling of the crypto markets whereby one asset like art NFTs might perform well amidst the overall crypto market performing poorly or vice versa.
When the crypto market experienced a downtime in January, NFTs took the reverse direction with OpenSea, an NFT trading platform recording $5 billion in sales volume. With that phenomenon, some observers have concluded that cryptocurrencies and NFTs are inversely related but that conclusion became questionable as both markets sank at the onset of the Ukrainian war.
Putting Things Together
There is no one-size-fits-all when it comes to the relationship between cryptocurrencies and NFTs. Because NFT transactions are carried out using crypto, no one can deny that there’s a relationship. However, this relationship is unique with situations. There are already plans underway to power NFT transactions with fiat currencies but until that happens, cryptocurrencies will always have a voice in the NFT market.
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