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NFTs Are Going Through Their First Crypto Winter – Here’s What to Expect

A mannequin standing in front of a wall with a sign saying not to buy crypto.
Market State by Cryptorank

Now, it probably doesn’t sound like a lot when we talk about the falling price of Bitcoin and Ethereum. But in terms of NFTs, their volatility has remained lower than most other tokens, even as the overall crypto markets have drawn down.

The search interest of NFTs remained relatively consistent during this time, however, displaying an upward trend, likely due to new games entering OpenSea. When Eth addresses dipped below $80B in March, many thought the crypto winter was finally over. However, it seems that wasn’t the case as many crypto assets retested 2022 lows in April. Despite this pullback, NFTs continued to show overall resilience.

OpenSea for example, is a marketplace for digital goods. As you can imagine, this niche is growing with or without the impending SEC ruling. One of the key factors which will determine the success of OpenSea moving forward is volume. Initially, we could see OpenSea pulling in over $250M in sales. But can they keep this up?

Typically, cryptocurrency is a volatile market, and even NFTs are not immune to the risks involved in investing in digital assets.

The crypto winter hit hard towards the end of Q1, causing the prices of many major cryptocurrencies to drop by more than 80% from their all-time highs. The slump has been felt across most asset classes, including NFTs.

Just as we saw with other digital assets during the downturn, many owners of NFTs chose to sell their collections rather than hold onto them for long-term gains or use them in their projects. This means fewer users are trading on secondary markets for these assets and, therefore, fewer people are interested in buying them.

Although NFTs held out longer than mainstream crypto assets earlier this year, market participation has fallen dramatically, and even blue-chip assets and collections have seen their prices drop.

It’s important to remember that non-fungible tokens are a relatively new market segment, and they’re currently undergoing their first market cycle. Suffice to say, the trajectory for both classes within crypto will depend on how the broader market performs. At this point, with the current tightening environment and growing fears of a recession, it is hard to imagine a significant rebound before 2023 unless the Fed changes course.

Decision Points on Why NFTs Are Both Winners and Losers in the 2022 Crypto Winter

Investors should be sure to buy NFTs that are relatively more liquid and backed by experienced teams and developers.

It’s worth noting that during this period, NFTs performed better than many other digital assets. This is because they generally have lower transaction fees and faster transaction speeds. These factors make them more attractive for use as a payment method compared to traditional cryptocurrencies.

More, NFTs can be used for gaming purposes which have helped them maintain their value during this difficult period. Gaming platforms have been able to benefit from increased demand due to an increase in users who want to play using these tokens instead of fiat currency or other cryptocurrencies like Bitcoin or Ethereum; also used on these platforms but have seen their values drop significantly recently due to market conditions not being favorable enough for them at this time frame.

Image Source: Adobe Stock

Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.