What Does the Crypto Winter Mean for NFTs?
- September 7, 2022
What Does the Crypto Winter Mean for NFTs?
Considering 2020 and 2021 turned out to be falls and summers of crypto, 2022 is clearly crypto’s winter. For everyone familiar with a crypto winter, this winter had nothing new to offer or look forward to. It was an expected deal. The astronomical price rise we witnessed in 2021 already paved the way for a sharp fall in asset prices. If there is a high, a low will be followed.
But there was something unique, after all, a class of crypto assets that had not experienced a crypto winter yet. NFTs, especially the art ones, took flight in 2021. Meaning that the NFT market had not yet witnessed any crypto winter. So we didn’t really know how the market would react to the fall in crypto prices, with a harder fall? A stable environment? Or would they pin to the prices of some tokens? Let’s dive in for the answers.
We know for sure that the NFT prices remained anything but stable. Prices dropped in an instant. Blue-chip assets like Bored Ape Yacht Club took the brunt as well, with its prices halving. But there were some assets that grew as well.
While one can argue that the reaction was expected, there were quite a few reasons to believe that NFTs would fare better than the crypto tokens in the market. NFTs come from a different asset class (although they wildly resemble a crypto token), meaning that while they are sold for financial reasons, people buy them for sentimental reasons as well.
There are numerous NFTs that are highly valuable, but they have dedicated communities that do not pay heed to the price of the asset. Instead, they value the community and the access it provides.
Another reason is that NFTs generally have a higher barrier when it comes to buying them, while crypto tokens are easier to buy. When it comes to NFTs, you are first required to buy coins in the native currency of the exchange. This roughly translates to a less expected FOMO in NFT purchases, leading to resilient prices in the long run.
But these assumptions were rendered false when NFTs stooped low along with crypto tokens, and just as badly.
So what is the action plan?
If you expected NFTs to have more resilient prices, the reality would fairly sober you up. But it’s not all that bad. NFT assets do behave like crypto assets, after all. This means that their behaviour is predictable. And what better in uncertain times like these than predictive behaviour?
But if you do look at NFTs as you look at crypto assets, things will look pretty bleak. While many NFTs were saved the brunt of a devastating value drop when they were denominated in their native currency, the picture is drastically different when you consider the damage the native coins are going through in the market.
But if you are someone who considers the value of your portfolio in terms of the native currency of the network and not the underlying fiat, the volatility of the market has nothing on you. Investors who do this are in the perfect position to make the most of the appreciation of the value of their tokens when the market eventually takes a turn.
Since it is now clear that NFTs are not particularly immune to the moves and shakes the crypto market goes through, plan with that in mind. Summed up, treat NFTs like crypto assets in a bear market.
Bear runs, no matter how disastrous, are good for the long-term health of an ecosystem. The bull run of NFTs saw everyone releasing NFT projects. No one stopped from getting an NFT listed on Opensea, even in the absence of a community or use case. Many projects got lifted, and among them were also the ones that lacked important fundamentals.
This created an ecosystem where all the projects had similar showings, be it with fundamentals or without. The bear market came to the rescue, and many uninspiring projects moved towards the giant 0. The pattern is expected to continue throughout 2022 and even gain momentum in early 2023. Then when the bull markets come back, the projects that stood their ground in this storm will be solid ones.
But this brings us to another question– if a bull run led the appalling projects to their highs, does that indicate that a bear run will lead to something inverse? Probably. Bear markets do not lead to “rug pullers”. The projects going live now are the ones strong enough to face this market. The mere fact that the teams behind those projects launched them during a bear market is pretty telling of the project’s fundamentals. Although this isn’t always true, if you are looking to invest in NFTs or crypto, it is one of the factors for you to consider.
The only thing left for you to do during the NFTs bear market is not much different than what you do during other bear markets. Buy projects that are trading at a discount according to you and wait it out. This is the simple strategy that has worked for crypto tokens for every bear cycle, and it will work for NFTs as well since they both react similarly to price action in the market.