NFTs Have Soared While Cryptos Suffered Drastically. Why is that?

NFTs have risen by leaps and bounds whereas cryptos continue to dive down due to several reasons

You might have scarcely made out of 2021, without hearing about NFTs, which has taken the crypto and art domains by storm. NFTs are essentially digital receipts recording ownership of digital and physical assets such as art, videos, wearables, or objects on a blockchain, that have entered the cultural mainstream with a seemingly unstoppable force. The most memorable NFT projects and sales of 2021 have been a collection of some of the most bizarre trends that have encouraged millions of new investors to dive into the crypto and blockchain space this year. NFTs are basically a part of the phenomenon that is revolutionizing finance, particularly around the way people invest in art, music, and sports. Recently, NFTs have gained massive popularity and significance in the art and finance world, but when it comes to cryptocurrencies, these have drastically crashed and we still cannot figure out why!

NFTs are nothing new, in fact, they have been around since 2014, but they have sky-rocketed only recently during the past couple of months. There are over US$2.5 billion in NFT sales in the first half of 2021; almost US$1.2 billion in NFT in the month of July alone. This kind of exponential growth was never before seen in the crypto domain over the course of the pandemic. Even major brands like Coca-Cola jumped on the wagon selling a four-piece collection and donated the proceeds to Special Olympics International. 

Experts say that one of the major reasons why NFTs have gained significance is due to the fact that the concept of NFT is bringing the possibility of art ownership to the masses, which historically have been reserved for the wealthy. They are also especially appealing to the millennials and zoomers, who generally have a greater appreciation for digital platforms. 

Why has investing in NFTs been worth it?

NFTs have exploded in popularity. After some investors made millions out of these NFTs, other enthusiasts are ready or are planning to jump on with it to get on the hype. There are many investors who believe that NFTs are a legitimate store of value and represent a shift in how the world views art and collectible assets. But sometimes, fraudsters may create just a digital image by copying someone else's art with a unique asset address. Now, this has made several other investors question the value of NFTs. But even though some of the cryptocurrency specialists question the value of NFTs, it is still quite evident that this investment class is all set to surge in the future. 

In some cases, NFTs and cryptos are almost considered intertwined. Investors need cryptocurrencies to buy NFTs, and both crypto and NFTs use the digital ledger known as the blockchain to show proof of ownership of an asset. But NFTs themselves are not digital currencies, instead, they are unique. As NFTs are becoming more popular by the day, their disparities show that cryptocurrencies and NFTs are operating in distinct markets.

Why are cryptos crashing?

According to reports, the price of Bitcoin and Ethereum, two of the largest digital assets have dropped 40% each since mid-November. In recent months, the price of Bitcoin fluctuated around US$40,000, whereas, it literally touched the moon after it soared way above US$65,000. As experts have already predicted before, cryptos undergo a cycle that involves their volatility, price surge, and value dives. Since many are hoping that this cycle will come to an end and we will again see the face of profits in the market. 

But Bitcoin's lagging price in recent weeks comes amid a continuing inflation surge, the stock market's worst month since March 2020, and ongoing signals that the Federal Reserve will begin raising rates in order to counteract inflation are some of the many reasons why investors are quite discouraged with the condition of cryptos in the market. 

Meanwhile, government officials have continued to show an interest in stronger regulations upon digital currencies, including the possibility of creating a government-issued digital currency. Ethereum's price has also followed similar patterns as Bitcoin in recent weeks. Investors who invest in crypto and are planning on long-term investment have been drastically affected by this.

Bottom line

Although the top collections have been able to hold their values even when cryptocurrency as a whole has been taking huge hits, the NFT market has been plagued by scams and fraudsters in recent months. Crypto analysts believe that the craze of NFT will die down and after it does, cryptocurrencies and NFTs will be standing in a very similar situation.