The world of cryptocurrencies is coming up on its 15th birthday. It is also almost the one year anniversary of the start of a crypto winter. Bitcoin fell by two-thirds and has now hovered at that level for three months. The rest of the crypto tokens have followed suit except for a few of the so-called stablecoins that have gone bust. A newer-than-crypto aspect of the internet and crypto world is the non-fungible token or NFT. This is typically artwork, but it can be anything digital and unique. NFTs are bought and sold using digital currencies (crypto), so are crypto winter and NFTs on the same track or not?
NFT Prices Fall During Crypto Winter
About the time that Bitcoin had sunk to its current trading range in June 2022 NFTs on average were selling for 25% less as reported in Hyperallergic. Hypepotamus reviews the issue and gives it a hopeful spin with interviews of those working in this niche. One of their comments is that folks generally do not appreciate the amount of work and time needed to develop net tech products or new aspects of current tech. As such the NFT world seems to always be looking for the next new thing and is generally disappointed that that new thing is not immediately available. That could be a bit of why prices are down. The good thing for NFTs is that their 25% drop is substantially less that Bitcoin and the other crypto tokens have experienced in the last year. It appears to us that in both crypto tokens and unique digital NFTs investors are reassessing current value as related to where value will be found in years to come.
Future of NFTs
The world of cryptocurrencies and the world of NFTs are sorting themselves out. It has become clear that algorithmic stablecoins are not as stable or safe as those which are backed by cold hard cash in dollars, euros, yen, pounds, or the like. Likewise, investors in NFTs have learned what investors in fine art have known for centuries, which is that not all promising young artists become Rembrandts, Picassos, or Monets. Thus, there is talent in picking artwork and NFTs that have future value and there is risk. Meanwhile, the world of NFTs is maturing and those in this niche are talking about applications in e-commerce, fintech, legal and even healthcare niches. Such applications hold the promise of greater value added to this sector.
Fundamental Versus Speculative Value in NFTs and the Crypto Realm
We have often voiced our opinion that the world of crypto tokens will eventually gravitate toward values based on fundamental uses such as how Ethereum is a lynchpin in the NFT world and others have more value in the Metaverse or DeFi (decentralized finance). In this regard we discussed how Ethereum may well end up with a higher total value than Bitcoin. In the crypto world one can view Bitcoin as a commodity or an investable asset like a stock. The latter especially makes sense as Bitcoin is tracking with the Nasdaq up and down as markets are buffeted by inflation, rising interest rates, war in Ukraine, and increasing tensions between the US and China. The current NFT world is more like the world of fine art where quality matters as does fame of the artist. But artwork is often seen as a hedge against inflation and, as such, tends to go up in price when inflation rages. It remains to be seen if NFTs will follow that route to value or will settle into a prolonged winter with crypto tokens.
Crypto Winter and NFTs – SlideShare Version