NFTs and cryptocurrency have been joined at the hip from the very beginning.
In order 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 of those commonalities, it stands to reason that fluctuations in the price of cryptocurrencies would impact the value of NFTs — and they do. But, if you’re looking for a straight line between volatility in the crypto market and changes in the price of NFTs, a direct cause and effect is getting harder and harder to come by.
A Red-Hot NFT in the Cold Crypto Winter
On July 12, CryptoPunk #4464 sold for 2,500 ETH. It was the largest NFT sale 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 their 2021 peak and mid-July of this year. The collapse of the stablecoin terraUSD contributed to the fall, as did the meltdown of Three Arrows Capital and the 70% drop of Bitcoin, the world’s biggest cryptocurrency.
So, even in the crypto winter’s deepest freeze, one of the rarest NFTs from one of the most vaunted NFT collections was able to command a historically high asking price. But what does that mean?
A Tie, You Say? Dollars 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 2,500 ETH. CryptoPunk #5577 sold for 2,500 ETH as well, in February 2022.
Since most NFTs are recorded on the Ethereum blockchain, most NFT values are listed in ETH cryptocurrency denominations — and that’s 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 crypto market’s pre-winter heyday 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 purchased three different NFTs just a few months apart, each for 2,500 ETH. But because of fluctuations in the price of cryptocurrency, that “tie” leaves a value gap of $7.65 million between the first and the 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 monetary relationship easy to understand.
When the NFT market emerged, it was small, weak and dependent on the crypto market to steer its price action. Then, NFTs grew up big and strong, craving independence.
Like teenagers who overestimate their readiness for the world, NFTs rebelled, experiencing a boom just as crypto prices were cratering. Then, as the NFT market matured and got a taste of the harsh realities of the world outside, it returned home to reconnect its fortunes to those of its crypto parents.
Platforms like eBay and Instagram are planning to integrate NFTs, and Coinbase’s hotly anticipated NFT marketplace is expected to let users buy them with credit cards and fiat currency. Those near-future developments could finally decouple NFTs and crypto; but, until then, NFTs are living close to the nest even though they’re 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 link between the current crypto market panic 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 could explain the discrepancy:
- The markets are still new
- The separation of the two markets is even newer and not yet complete
- They’re both enduring their first extended bear market together
In the end, the relationship between crypto prices and NFT values is muddled, but the picture likely will become clearer when the current crypto winter finally thaws.
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