Experts termed 2020 and 2021 as the ‘fall’ and ‘summer’ for the crypto market, automatically pointing to 2022 as the ‘crypto winter.’ Although NFTs held out longer than mainstream crypto assets, the market participation has witnessed a 360-degree turn.
Currently, even premium blue chip collections like the Bored Ape Yacht Club witnessed a crash.
But is this the end of the once-dominant digital-art culture? More importantly, what does this mean for NFTs in 2022?
Continue reading as we decrypt the fate of NFTs in this crypto winter. But first, let’s understand the primary term of discussion in the weblog.
Crypto’s Winter: The Recent Lull In The Industry!
Cryptocurrency winter is a term that denotes a prolonged downturn in the market prices of crypto tokens. The term is phrased to indicate well-known currencies like BTC and ETH to prominent performers like Non-Fungible Tokens (NFTs) and other lesser-known crypto tokens and coins.
However, the key phrase isn’t only limited to downtrends in the crypto industry. Crypto winters can also be a collective term for other bearish movements in the stock market or economic declines.
What Influenced The Crypto Winter?
The start of 2022 was a bearish season for almost every digital asset in the market. Although portrayed as invincible, not every investor was ready to believe in the bearish trend for NFTs. This was primarily because the market had yet to experience any crypto winter.
But despite these presumptions and expectations, the market participation for NFTs has declined extensively. This became a pressing concern for investors, especially when prominent blue collections and assets have been experiencing a more significant fall in prices and valuations.
This raises the question, why were investors optimistic about the NFT market despite the bearish run of the crypto market?
Well, some rationales justify the hopes for better gains with NFT. Continue reading as we focus on some of these core rationales in the following section.
- Increased Friction: It is no secret that NFT investments have more friction compared to investments in conventional crypto assets. People must spend other crypto assets such as SOL or BTC purchasing NFT. But one cannot use fiat currencies to buy NFTs, so investors first need to purchase cryptos to buy NFTs.
- Lack Of Fiat Currencies: Crypto assets have the upper hand over NFTs since there is a notable flow of fiat currencies in the crypto market. This is one of the primary drivers of Bitcoin’s prices in 2021. But the catch here is that conventional investors have established a strong correlation between high-risk assets such as the shares of tech companies.
- Sentiment: The NFT market capitalizes on the sentimental values people attach to these assets. This creates a sense of community where connecting with like-minded people becomes easier and more accessible. This is another reason why expectations were high from NFT investments.
But NFT investors are now bracing for the first ever winter, confused about what the remaining half of the year has in store for them.
Read more: Will Crypto and NFTs Ever Rule the World?
Deeper Insight And Important Figures
Many investors dismiss NFTs as replicable digital images. But these digital art pieces create a sense of community, a similar incident witnessed in the early days of Bitcoin. For instance, more recently, the profile picture avatar on social media has become very popular, and they were also making up most of the value in the NFT space.
This creates social pressure among NFT investors, which in turn promotes the mentality of long-term holding. Besides that, certain NFT holders get tickets for live shows and access to private chats, among many other forms of utility.
In addition, some services, such as Collab Land, are responsible for authenticating these rights and integrating them with Discords to verify possession. NFTs are primarily stored in Web3 wallets such as the Rainbow or Metamask wallets.
Despite all these factors, the Fed lowering interest rates and reducing the size of balance sheets to combat inflation has had an impact on the NFT market. This came as a gradual ripple effect, starting with the conventional equity and crypto market.
Since the last peak in November 2021, the crypto market has lost about $2 trillion. While major players like Bitcoin and Ether did not feel much impact, smaller assets had to bear the brunt. But that is not to say that Ether and Bitcoin did not suffer during this period, as they, too, lost over 70% of their peak time valuation.
Consequently, NFT also suffered from the consequences resulting in a steep drop to $22.2 billion from the peak market valuation of $37.2 billion. This is a notable 40% decline in the overall valuation of the crypto market. Even the daily trading volume peaked at $800 billion in January and dropped by 95% to $40 billion.
Consequent Implications Of NFTs & Crypto Winter
Looking at the bigger picture, it becomes evident the NFT market suffered more than the crypto market. This is a relative indication of underperformance among NFTs and can be translated as a beta performer under shadowed by the crypto market.
This shows that NFTs outperform during the bullish run and underperform during the bearish season. Besides, NFTs are a relatively new player in the market going through their first bearish season. This shows that crypto’s performance largely influences the broader market’s performance.
Consequently, the crypto market’s performance will determine the future of the NFT market. Hence, with all that going on worldwide, it does not seem like there will be a rebound anytime soon.
The market’s current situation is not great; investors should take appropriate risk evaluations before investing in NFTs. This becomes more important when you invest in NFTs with more liquidity backed by an established team of developers.
Bottom Line: The Investors Take
Investors need to pay keen attention to the trading volumes of specific NFTs. Any increase in trading volume could be a hint for better performance in the future.
Also, if you are an investor denominating your portfolio in the native crypto asset with little emphasis on fluctuations with assets like Ether might just be able to deal with the volatility of NFTs.
Top NFT collections can retain better value in terms of Ether which automatically puts them in a better position in the market. That said, one must remember that these are just mere predictions, so you must still do your research and due diligence before making any investment decision.