Most people at this point who have invested in cryptocurrencies or NFTs know that the two are intimately linked in many ways. An NFT resides on the blockchain of a certain cryptocurrency, that crypto is used to purchase the NFT, and it is then ‘held’ by the owner in a digital wallet supporting both.
One would therefore expect the prices of NFTs and cryptocurrencies to go hand in hand. When one goes up, the other goes down. But this is not the case at all. Read on to discover more about how cryptocurrencies effect NFTs and vice versa.
First we should establish the main difference between Cryptocurrencies and NFTs. Cryptocurrencies are a lot more transaction friendly. Their goal is to be able to use it to buy and sell anything like any other currency. Unlike NFTs, which cannot be simply used to buy stuff. NFTs are more similar to Cryptocurrency as a store of value. You hold on to your asset and its value can go up over time like a stock in a company.
Because of the uniqueness of each NFT, a skilled trader can find underpriced items, buying and selling for huge profits very quickly. On the other hand, at times it can be much harder to sell your NFT. Cryptocurrency can be exchanged for other crypto or even for regular currency at any time, while you may not always find a buyer for a specific NFT, or be forced to sell at a big loss.
Yes, but not the way you think. You probably have heard of the phrase “a rising tide lifts all boats”. one would expect the prices of cryptocurrencies and NFTs to ebb and flow together. But actually NFT prices compared to cryptocurrencies are unpredictable at times, and more often than not, actually flow in the opposite direction. Why?
NFTs are usually priced in cryptocurrency (some sites enable purchases in dollars or Euros but they are still a minority). Thus when the value of cryptocurrencies goes down, NFTs get cheaper. For example, if the price of a certain NFT is 1 Ethereum, and the price of Ethereum is 3500 dollars, that NFT would cost 3500 dollars. If Ethereum is at 2500 dollars, the price is stil 1 Ethereum, but it is $1000 cheaper at just 2500$.
Thus the market will usually correct itself by prices of NFTs, in Ethereum (or any other cryptocurrency) going down to at least match the price in dollars it was before. In theory, this doesn't change anything, because a buyer or seller may say “I got less Ethereum, but the price of Ethereum is higher, so I still got my money”. The problem with this is that most cryptocurrency stays in that Ecosystem and is not converted back to regular currency. Most NFT traders count Ethereum, not dollars. They are holding their cryptocurrency long term and are therefore not concerned about the value against the dollar at that specific moment, as far as they are concerned, they have lost Ethereum on the sale.
There is more to unpack here. When prices of cryptocurrencies are low, is when many people are interested in investing their hard earned money in that currency, hoping to gain from future rises in price. This creates a situation where many people have new available liquidity in cryptocurrency but nothing to do with it. One of the best ways for that money to “work” and accrue more value is by investing it in NFTs. This is why when cryptocurrency value is low, prices can adjust upward far beyond a simple correction as it injects the market with activity and liquidity.
It’s wrong to think in terms of NFT vs Crypto. The two are related, and the relationship between the two is pretty consistent. When Cryptocurrency prices go up, NFT prices go down. When Cryptocurrency prices go down, NFT prices go up. This doesn’t hold true for every NFT project, but it is a guideline and a general trend worth observing, for those who trade in both cryptocurrencies and NFTs.
It is not better or worse but different. NFTs are unique items and therefore can perform functions a standard currency cannot. Currencies can perform more functions and be traded immediately at any time. A good investor should profit from investing in both.
NFT means non-fungible token, a unique digital asset that cannot be replicated, while Crypto is a fungible token, one Bitcoin is identical to the other. Thus NFTs are related to cryptocurrency but also different, and are also a different form of investment.
Unsurprisingly, it is best to buy cryptocurrency during a dip in value, when you can get the best bang for your buck. You should now hold that cryptocurrency in your wallet until prices rise.
The ideal situation for buying NFTs is when you already have cryptocurrency in your wallet and crypto values are high. This means the NFT prices (in cryptocurrency) should be low and you can get a better deal, and because you bought that cryptocurrency for a low price at an earlier date, you are getting the best of both worlds.