The cryptocurrency market is struggling with a strange mystery: NFT prices – unique digital assets placed in the blockchain – are rising even as cryptocurrencies fall into bear territory. Why?
In late January, the two largest cryptocurrencies – bitcoin and ether – lost almost half of their value since the hits of all time in November and took over the rest of the cryptocurrency market. However, according to DappRadar, the top 100 NFT collections lost only 15 percent. its value over the same period. Interestingly, NFT’s “blue-chip” collections – the most popular and valuable of them, such as Bored Ape Yacht Club (BAYC), Mutant Ape Yacht Club, World of Women and Doodles – have actually grown in dollars since November.
What is so impressive is that speculative assets are expected to suffer the most when central banks begin to tighten monetary policy. For this reason, the seemingly unprofitable, expensive gains so far have been a terrible year. However, NFT – currently the most speculative investment in the world – stands well. Why? Yes, the truth is that since the NFT market is still very young, no one knows for sure, writes Reda Farran from Finimize.
Theory 1: NFTs are rated higher as Aether drops. Most NFT trades are expressed in ether, which indicates a negative relationship with the price of the cryptocurrency. Thus, the trend we see is that when the value of Aether falls, NFTs – especially NFTs of blue chips – are priced higher to accommodate the dollar before they fall. BAYC’s reserve price has actually increased by 14%. the last cryptocurrency month turned into a dollar during the market, so the collection has become a somewhat unique asset class, and it certainly has value in a very short period of time. Interestingly, NFT (Aether) prices do not fall as Aether’s price rises. Again, no one can say why, but it has to do with speed: while price increases are slow and steady, reductions are frequent. So the cycle goes like this: the NFT collection is launched and grows over time by setting a minimum price. Ether falls strongly and rapidly. NFT reserve price rises by one broadcast in response to the decline. The market is getting used to a new level. Ether prices continue to rise over time, and the NFT collection continues to be sold at a higher minimum Aether price.
Theory 2: NFT is still in the fastest phase of the adaptation curve. NFT originated much later than cryptocurrencies. They are so new that they are probably still in the fastest, earliest stage of the adaptation curve, and are increasingly attracting the attention of the mainstream. In fact, Google searches for the term “NFT” for the first time ahead of those for “crypto”. Adidas, Coca-Cola, Pepsi, Budweiser, Gucci, Dolce & Gabbana, Burberry and many other brands have either released their collections or collaborated with major NFT teams.
Theory 3: NFTs use shortfall values. As new NFT collections appear every day, “lack” can seem like a weird word choice. But let’s not forget that our focus here is on NFT blue chip collections. And these collections have a limited supply of NFT – say 10,000 or 20,000 – and will remain the same forever. It’s easy to forget how small a set of 10,000 is. In his first speech since renaming Facebook Meta, Mark Zuckerberg said he wanted to move one billion people to Metaverse in a decade. Suppose only 20 percent. 200 million of these people are interested in owning a digital avatar that will go hand in hand with their digital identities on the metaversion. Suppose you have a collection of 100 desirable digital avatars, each with 10,000 NFTs, for a total of 1 million highly popular NFTs. This is only 0.5 percent. 200 million needs are expected. This is basically a rounding error.
In addition, many major Web2 players integrate NFT into their platforms as digital avatars. Twitter – arguably the most popular social networking platform for cryptocurrency and NFT fans – last month launched its long-awaited NFT profile photo verification mechanism, as well as Instagram and Facebook. This helps to combat the anti-NFT story because the NFT screen image is the same as it is. Thanks to Twitter’s new authentication capabilities, it’s impossible to target NFT you don’t own. So, for the first time, your NFT is inextricably linked only to you and you.
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So when you combine a relatively small number of popular NFTs, a growing interest in digital avatars, more Web2 platforms to use them properly, and FOMO’s human quality, you can understand why NFTs enjoy a momentary rarity.