While cryptocurrency investments are rebounding, the ownership of non-fungible tokens has been hit harder.
A string of unlucky incidents in 2022 had an impact on the whole crypto business, and those effects are still felt in 2023. The ownership of non-fungible tokens was considerably more severely affected, despite the fact that investments in cryptocurrencies are rapidly rebounding. Knowing that coins and tokens are linked but distinct helps explain why the NFT market declined and continues to shrink. Here’s more information on the variations between cryptocurrency coins and tokens.
Although one of the primary causes of the NFT market’s collapse was the fall of the cryptocurrency market, there were other factors at play as well.
How did the cryptocurrency crash affect NFTs?
One of the key causes of the drop in investor confidence and interest is the decline of cryptocurrencies. Non-fungible tokens (NFTs) are dependent on cryptocurrencies due to the high correlation between them. Cryptocurrency and non-fungible token prices have plummeted, leading some large corporations to announce massive layoffs. Evidently, many became skeptical of investing after such instances. Although analysts point out that this might just be a problem related to the economic cycle, the NFT market does not appear to recover well from recessions, even though all types of economies experience them.
Two other primary causes of the NFT collapse
- Skepticism toward cyber security – Non-fungible tokens have historically been a source of controversy due in large part to public skepticism of their security. Despite the fact that NFTs are typically regarded as safe, some incidents have caused concern. One such incident happened last year, in the midst of an ongoing crypto crisis, when non-fungible tokens valued at $100 million were taken.
- Inflation – An overheated NFT market contributed to the reduction in trade volumes. Examining the market’s growth over the past three years and following the news shows that NFT interest surged due to hype. The Bored Ape Yacht Club is a fantastic illustration of this. The individual NFTs in this collection fetched millions of dollars. Several other instances are like this as well.
Predictions and the current situation
The NFT market’s downturn has had an impact on a number of areas. Celebrities, who influence the public, loved non-fungible tokens before this crash. Since FTX’s bankruptcy and the collapse of cryptocurrencies, the NFT sector has worked to restore investor confidence, although it may take time.
The NFT meltdown has not only negatively impacted investors and collectors, but it has also adversely affected NFT creators’ future. Artists may showcase their work in multiple venues thanks to blockchain technology and non-fungible tokens. Yet with the collapse of the entire market, confidence in such a financial resource has suffered greatly.
Non-fungible token prices have declined, but recent indications indicate that the market is beginning to rebound. Although it is still too soon to say if the market will recover from its recent loss, analysts say it is unlikely and advise patience while it does, casting a positive light on the NFT market’s situation.
The trading volume for non-fungible tokens increased by 38% between January and February 2023, reaching $946 million. While the volume of transactions on the Ethereum blockchain increased by 37.29% between January and $659 million. NFT sales up to this month rose 42% to 9.2 million units.