How do crypto prices affect NFT values?
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NFTs and cryptocurrency have been joined at the hip from the very beginning.
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 made NFTs possible – after all, they both rely on blockchain transactions to validate their authenticity and ownership.
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With all these commonalities, it stands to reason that fluctuations in the price of cryptocurrencies will affect the value of NFTs – and they do. But if you’re looking for a straight line between crypto market volatility and changes in the price of NFTs, a direct cause and effect is getting harder and harder to find.
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A red-hot NFT in the cold crypto winter
On July 12, CryptoPunk sold #4464 for 2500 ETH. It was the biggest NFT selloff in 30 days – and not just any 30 days. The summer of 2022 will forever be remembered as the crypto winter.
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According to CNBC, cryptocurrencies lost $2 trillion in value between the peak in 2021 and mid-July of this year. The collapse of stablecoin terraUSD contributed to the fall, as did the meltdown of Three Arrows Capital and the 70% decline of Bitcoin, the world’s largest cryptocurrency.
So even in the deepest freeze of crypto winter, one of the rarest NFTs from one of the most celebrated NFT collections was able to command a historically high asking price. But what does that mean?
A tie, you say? Dollar vs. ETH
According to Decrypt, the CryptoPunk #4464 transaction 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 2500 ETH. CryptoPunk #5577 was also sold for 2500 ETH in February 2022.
Since most NFTs are registered on the Ethereum blockchain, most NFT values are listed in ETH cryptocurrency denominations – and this is where the relationship between crypto prices and NFT values is clearest. Thanks to the crypto market’s notorious volatility, a tie between three NFTs isn’t really a tie at all.
The #4156 sale took place in the pre-winter heyday of the crypto market when 2,500 ETH was worth $10.25 million. Two months later, the 2,500 ETH that #5577 sold for was worth $7.7 million. The most recent sale – #4464 on July 12 – was worth just $2.6 million.
So three different buyers bought three different NFTs just a few months apart, each for 2500 ETH. However, due to fluctuations in the price of cryptocurrency, the “tie” leaves a value gap of $7.65 million between first and third.
The parent-child metaphor
In describing the relationship between cryptocurrency and NFTs, CoinDesk came up with a clever analogy where crypto is the parent and NFTs are the children. It’s not precise, but it makes a complex money relationship easy to understand.
When the NFT market emerged, it was small, weak and dependent on the crypto market to drive price action. Then NFTers grew up big and strong, wanting independence.
Like teenagers who overestimate their readiness for the world, NFTs rebelled, experiencing a boom just as crypto prices plummeted. Then, as the NFT market matured and got a taste of the harsh realities of the world outside, it returned home to reconnect the fortunes of its crypto parents.
Platforms like eBay and Instagram plan to integrate NFTs, and Coinbase’s long-awaited NFT marketplace is expected to let users buy them with credit cards and fiat currency. The near future development may finally disconnect NFTs and crypto; but until then, NFTers live close to the nest even though they are technically out on their own.
It’s complicated — and still playing out
Do crypto prices affect NFT values? It depends on who you ask.
Coinbase cited data showing very little correlation between NFTs and crypto in terms of both sales volume and prices.
On the other hand, Cryptonews outlined a direct correlation between the current panic in the crypto market and falling NFT prices.
CNBC TV18 landed in the middle: It concludes that NFTs sometimes track the movement of their underlying cryptocurrencies, but not always.
All three publications – along with most credible experts – agree on a few things that might explain the discrepancy:
- The markets are still new
- The separation of the two markets is even more recent and not yet complete
- They are both enduring their first extended bear market together
In the end, the relationship between crypto prices and NFT values is messy, but the picture is likely to become clearer when the current crypto winter finally thaws.
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