The Ultimate Study To NFT Market Crash: Causes And Predictions
Updated: Oct 3, 2022
Talking about NFT, Crypto and Blockchain always exhilarate me because of their vastness and versatile graphs. I have explained these Non-Fungible Tokens numerous times in my previous articles. In case you have not read them, do not worry; I will bring those efforts again and briefly explain. NFT are nothing but a kind of digital asset that has its own identity and information. Folks, do not confuse trading or exchanging them like your Ethereum or Bitcoin assets because they are different. What demarcates them is their uniqueness and the information embedded in them. When you deal with Bitcoin, one Bitcoin is equal to another one, but in NFTs, it is not. The name non-fungible comes from this. Cryptocurrencies, even if they intend to have asset-like properties are currencies, but NFTs are indeed pure assets. If you want to understand more about creating your own NFT and minting them, refer here. Now that you know about NFT, the obvious question on the internet is How can you earn through it? It is time for you to take a breath since I have covered you again with this article. When you understand the terminology about these earning cookies, let us focus on their present which is the NFT market crash and their future. Economically, we should read the detailed predictions and learn from the history to avoid mistakes and swim in the million-dollar pool. I have deeply analyzed the reports on the internet, the past recession, and a few economic principles to make it easy for you to understand the NFT market crash and its future. Before anything, we will check the current trend chart of buying and selling the NFTs below.
With the chart, you might understand one thing; the fall of trading with NFTs or the informal way of the NFT market crash. Do you know why? Well, if you do not, it does not affect me because that is what we are here for through this article. Let us now check the market share of NFT and Cryptos together. You know that without a crypto wallet, it is impossible to trade in NFTs; hence the relative comparison is crucial for us. Also, if you are an active participant in both markets, you are aware of the strong crossover. For Cryptocurrency, I am representing the famous wallet- Ethereum and for NFT, let us take Cryptopunks, the highest selling one.
If you wonder why we are still checking the comparison graphs, you must know because the co-movement can let us know its market trends. The few findings of the comparison are that, unlike in the crypto and share market, there is less spillover in the NFT market. If you are confused by spillover, the term means the impact of unrelated events in a nation contributing to distress in other economies. Secondly, they have low volatility transmissions but a sign of co-movement in both markets.
Moving forward, let us go on the current NFT market share and value through the below graph.
It is clear that compared to the 12-month data, it is at its lowest rate. Do you think this is the end of NFT, or should I call it just a recession? This might be a sign of the NFT market crash but why did this happen? We will learn this in the article.
Causes Of NFT Market Crash.
1. Crypto Slump.
This factor is responsible for the NFT fall, so we studied the crypto and NFT graphs together. If you are thinking about the Crypto slump, let me tell you broadly what it means. However, before I start, I would like to point out that the lowest price of Bitcoin was USD 19748.60 on 14th July 2022. However, it recovered to USD 22,437.80 today. No other term can describe the collapse of crypto prices than the crypto slump. The higher inflation and the central bank's higher interest rates are the two crucial reasons behind it. If it crashes to lower than USD 20,000, it may trigger more margin calls forcing liquidations. These are the surface reasons, but one has to admit that the US recession is different this time than the usual one because of the higher jobs reaching up to 11 Million and still no one aiming to join any. People are on the hunt for passive income sources, so there is scope in crypto, NFTs and WEB 3.0. Crypto is slumping due to spending less money than before. When this steps in, Ethereum is the source of minting half of the NFTs, and since cryptocurrencies are falling, so we see the NFT market crash. But wait, we are missing something. It may be not the complete information, I guess. Look at these charts below.
Even so, I can not be sure since NFT sales did not suffer from the fall in crypto in May. In fact, it was highest in the month. Hence the falling down of cryptos can not be the sole reason behind the NFT market crash.
2. Environmental Footprints.
The appreciation of art in the form of NFT transactions comes with the guilt of harming the environment as well. How? We are contributing to the rise in carbon footprints every day by using too much energy, not because of our lifestyle but because we can afford to enjoy the luxuries available. I will not give you a brief but a combined calculation on a particular NFT commodity you buy.
A single Ethereum transaction on NFT causes 146 Kg of CO2. Let us check the carbon footprint of the Cryptopunks through a simple calculation. It has recorded sales of 7570 in the last 12 months. When you multiply 146 and 7570, it comes to 1,105,220 Kg of CO2, which is equivalent to 7,570,000 Km travelling on Petrol.
Then, we think to be vegan because of environmental reasons and not consuming beef. It depends on one's health whether to consume meat or not. But the reason for not consuming food and playing with NFTs is not among the wisest choices. With sudden climate changes and increasing global crisis, we have to check what is best even if it brings some passive income to us. Therefore, ethical reasoning to not harm the environment can be a reason behind the NFT market crash.
3. Government Monetary Policies.
When we talk about laws and policies for federal banks and financial regulations, we may not forget those even in blockchain technology. Imagine we hype up the blockchain technology usage in transactions which is secure and safe. It is unclear how the tax will be paid when this comes in. There is no access to transaction history, yet money is still transferred.
For this particular management, federal laws come in, and the government's approach to these cryptocurrencies alters. Talking about India, presently, there are no laws enacted, but the proposed bill, Cryptocurrency and Regulation of Official Digital Currency Bill, 2021, is in the lead. There has always been a trigger warning from the Reserve bank Of India on not transferring these kinds of transactions as they can be a part of illegitimate financial activities.
Let us check the countries and their accordance with the further crypto rules.
In US federal further, Crypto rules are on the way. We can not predict the laws, but they may be harmful to our economies and can give us long-term losses.
4. Investors Take.
A recent report by Morgan Stanley predicted the NFT market crash, and the reasons for specifying the finding are clear. NFTs, just like cryptocurrencies, are held by buyers who want to resell them for greater profits- not HODLers the report says. Some investors also argue the usability of NFTs and that they cannot compare to physical artworks.
Additionally, in recent months we have witnessed the incapability to resell Jack Dorsey’s first tweet- which sold for $2.9 Million. The pricing of famous artworks like Ape is drowning as well. Both of these instances point towards the price instability often ignored by many.
All of these factors have equally contributed to lessening the buyings. One can either compare it to the dot com bubble when the buyers returned after a long time or to the 1634-37 Dutch Tulip Mania when the bubble collapsed.
5. Veblen Goods Theory.
If you focus on the ongoing situation, you will see that few digital JPEGs are worth more than a mansion. NFTs in this ay reveal the craziest and terrible part of economics. But, when we see it from the side of the creator's part, NFT is a way to monetize the time the artists invest in their work. We see that these are better for creators since they receive both recognition and hefty payments for their work. While at the same time, NFT establishes much tougher economic principles.
You can say that Veblen Goods are commodities you buy to show how rich you are or how expensive you appear to be. NFTs come under the list of Veblen Goods but consider one fact here tha what if these do not attract the same prestige as before? We know that these are for positive status, and as these become common for ordinary people, potential buyers will start searching for other Veblen goods. Therefore, this can be a reason for the NFT market crash.
6. Inflation Affect.
Now, when the world is in crisis, many countries are on the border of bankruptcy or energy blackout, Europe has all-time high inflation, and the Russian-Ukraine war has its after-effects. Amidst all these situations, who is accountable for the growth? What is the perfect share market where you can invest?
The post-pandemic world is witnessing steady inflation, even in the US. Check the inflation chart of the US.
We are not here to discuss world inflation, but the effect is on NFTs. When people turn to buy only the necessary items for now and remove the luxury things that they buy out of nostalgia and emotions, NFT will affect it. In economic literature, there is a difference between functional value and hedonic value. There is a difference between them: one is purchased for its utility and the other is purchased for its aesthetic appeal. NFTs work more on the second one, so the gifts or digital exchanges are popular and bought by Millions. Far now, at the time of inflation, these things dry up what I call, and so for this time, it is falling. Moreover, one can not think that it is solely the crash, but it can be a recession and may rise in future.
7. Macroeconomic Instability.
Recessions can occur when stocks fall a lot, leading to falls in consumer confidence, a loss of consumer wealth, and a decline in consumer wealth. In 1929, Wall Street crashed, contributing to the great depression. In 2008, the stock market crashed again, bringing the 2008 recession. However, these recessions do not always bring a downfall but can bring an unprecedented boom to an economy. There is also a noteworthy point that if something unusual brings the share market prices down, then it is likely to rise again.
When we apply this concept to NFTs, it is clear that it is falling at the moment and may continue for some more days or months but is not the future signalling the permanent NFT market crash. Hence, the consumer income can bring down the macroeconomic instability, which is why NFTs are turning down, but they may rise again.
Future Predictions.
NFTs are crashing for now, but one can certainly bet on this technology. When a new partner steps into the following technology and brings something attractive, the buyers will again move on to buying NFTs. eBay move its biggest track on partnering with the NFT marketplace Known Origin.
However, it is not possible to judge and study the marketplace. All we can do is focus on these crypto assets and ensure that they only make us rich instead of drowning in the poverty economy.