The non-fungible token (NFT), a relatively unknown concept until recently, has now become the talk of the town. Spending on the digital asset jumped to nearly $41 billion at the end of 2021, from just $1 billion in 2020, according to a report by blockchain specialist Chainalysis. NFTs are transforming art, music and even sports and giving creators the opportunity to monetize their digital works.

Last year, the NFT market recorded sales at breathtaking prices. A digital photo collage by South Carolina-based graphic designer Mike Winkelmann, known in the art world as “Beeple,” for example, sold for $69.3 million, making made one of the biggest NFT sales to date.

The value of NFTs depends on various factors such as their rarity, the demand for the artwork or sometimes the artist, and the prices of the underlying cryptocurrency used to trade them. Many online marketplaces that sell NFTs are powered by blockchain. Currently, the Ethereum blockchain powers the most popular ones. So, if you are looking to buy or sell NFTs through one of the popular marketplaces, you will most likely need Ethereum’s native cryptocurrency, Ether, for the transaction.

But what is interesting is that while cryptocurrencies are extremely volatile, not all NFTs follow the movement of their underlying crypto. For example, despite the ongoing correction in the crypto markets, the OpenSea NFT Market has seen $2.3 billion in NFT volume so far in January, on course to break its monthly volume record if volumes continue.

Discussing last weekend’s crypto selloff with Yahoo Finance, Mason Nystrom, senior research analyst at crypto analytics firm Messari explained the anomaly. Despite the volatility of the crypto market, the nature of NFTs can make them independent of crypto markets, Nystrom said.

“NFTs are a very broad category that can include music, art, collectibles, gaming assets, fantasy sports, financial assets, etc. As such, it is possible that NFT trading in a specific vertical grows while others decline or fluctuate over time,” he added. “Going forward, it is possible that we will see more decoupling of crypto markets, in which an asset like art NFTs could perform well in the midst of the overall poorly performing crypto market or vice versa. .”

A collector who goes by the pseudonym “Pranksy” had another theory. “People who have spent several thousand dollars on NFTs are not going to sell them 50% tomorrow, at least not many are. Much like traditional art markets bucking Wall Street trends, I think many see some NFTs as a store of value,” he told Reuters in May last year after the value of his cryptocurrency portfolio fell more than $10 million at one point. given in one day.

Collectors believe that the artworks, virtual lands and other digital assets represented by NFTs have a separate value from the cryptocurrencies used to buy them.

A study by sciencedirect.com titled “Is the pricing of non-fungible tokens determined by cryptocurrencies?” suggests that there is a slight spillover between cryptocurrencies and NFTs.

The study used the dataset of the two largest cryptocurrency markets, Bitcoin and Ether, with raw data obtained from coinmarketcap.com and NFT data taken from secondary market transactions: Decentraland LAND tokens, CryptoPunk images and Axie Infinity game characters, and individual. commercial data from nonfungible.com.

The study results show that when it comes to cryptocurrency market volatility, the ripple effect in NFT markets is weaker, suggesting that NFT and the cryptocurrency market currencies are distinct from each other and do not necessarily affect each other significantly.

NonFungible.com co-founder Gauthier Zuppinger told Reuters in May that the NFT market was increasingly de-correlated from the crypto market. Crypto-rich investors might even see NFTs as less risky than cryptocurrencies “because they’re backed by the use case,” Zuppinger pointed out.

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