Crypto Fall is Pulling NFTs by Leg! Will they Sustain the Blow?

With the decentralization scenario getting worse, will the crypto fall affect NFTs' market capitalization?

Although Metaverse, NFTs, and cryptocurrencies serve distinct purposes, they are connected to each other by the underlying technology. Non-Fungible Tokens are a relatively new concept that is taking the digital art concept towards new fronts. Last year alone, the spending on digital assets has increased to US$41 billion from US$1 billion in 2020. But can NFTS keep up the same pace this year despite the crypto fall?

Non-fungible tokens are digital items like art, music, sports, etc that can be bought and sold using blockchain technology. Even though they are extremely volatile, NFTs are not fungible, making them a different type of asset that is valued based on their popularity and demand. Since some of them are extremely unique, they are sold for record prices in the digital ecosystem. For example, a digital photo collage by Mike Winkelmann, a South Carolina-based graphic designer, was sold for a whopping US$69.3 million. While many marketplaces sell NFTs today, Ethereum is the major powerhouse for this disruptive digital addiction. However, since non-fungible tokens can't be bought with money or any other valuable means, cryptocurrencies are the only option. Interested investors can buy NFTs from the Ethereum platform by paying ETH.

Unfortunately, cryptocurrencies are undergoing a slump right now with major tokens like Bitcoin and Ethereum facing bearish trends. With the scenario getting even worse, will the crypto fall affect NFTs' market capitalization? According to experts, it is both yes and no. Despite the ongoing correction in the decentralized ecosystem, OpenSea, an NFT marketplace, has recorded US$2.3 billion in volume in January alone. However, when the gas fees of digital tokens increase despite the crypto fall, traders might have a hard time coping with it.

The Growing Popularity of NFTs

Just a couple of years back, nobody knew what an NFT was. But right now, everybody from celebrities to business magnets and even laymen are aware of the term. On the other hand, they have also started investing in NFTs with the hope to reap benefits. Non-fungible tokens have recorded a 38,000% year-over-year increase.

The explosive popularity of NFTs was sole because of the growing dominance of Bitcoin and Ethereum. When people start exploring disruptive concepts like cryptocurrencies, they tend to stretch their arms into non-fungible tokens, Metaverse, and decentralized applications. Similarly, the crypto wind has brought many people into the cryptocurrency market. However, things are very uncertain for digital tokens right now. With a possible 'crypto winter' on the radar, there are high chances that the crypto fall might have at least a slight impact on the NFT marketplace.

What if Cryptocurrencies are the Trigger to NFTs?

The cryptocurrency market has been enjoying prominence since 2020 when Bitcoin reached a record high and left people in awe. After undergoing multiple record prices and corrections, Bitcoin is currently experiencing a bearish trend. Along with the foremost cryptocurrency, Ethereum and other altcoins are also undergoing a massive sell-off period. The sharp declines and extreme volatility have become a new normal in the cryptocurrency market. Since Federal Reserve announced the plan to increase interest rates, the whole crypto sphere is facing severe hits. However, while some might argue that the crypto fall has nothing to do with NFTs, experts suggest otherwise.

Experts claim that the cryptocurrency price surge was the major reason why non-fungible tokens took shape in 2021. The Ethereum price hike in 2020 and 2021 has made many investors rich, After getting their hands on big money, they started investing in even more uncertain and riskier assets like NFTs to yield profit. However, since the ETH price is also at a massive fall, people buying NFTs in the platform might reduce.

The Impact of Gas Fees on Non-Fungible Tokens

Even when we say that it is not just crypto millionaires who are investing in NFTs, the 'gas fee' for digital tokens could also pose a problem to non-fungible tokens' growth. Gas fees is the payment made to the crypto miners who carry out the transaction on the blockchain. Despite the worsening crypto fall, gas prices spiked as demand to buy and sell ETH increased. This resulted in NFT liquidity drying up as buyers opted for delayed transactions to save up on gas fees.