NFTs Continue to Grow in Popularity – Can they affect the broad cryptocurrency market?

By: S_N_Chatterjee

As cryptocurrencies continue to grow in popularity, due to the emergence of trading platforms, like Global Solution, numerous other blockchain applications are attracting the wider public. Digitalization seems to be the one-way street for the global economy and entire industries are changing in the process.

One of the sectors that is not yet benefiting from increased attention, but continues to grow exponentially, is represented by non-fungible tokens (NFTs). These unique and valuable digital assets are being used for digital art, collectibles, music, games, sports, or fashion, and since their application is so diverse, people need to know what are NFTs, and more important than that, if these tokens can have an impact on the traditional cryptocurrency market.

What are NFTs?

Non-fungible tokens or NFTs, are units of data stored on a digital ledger (traditionally known as blockchain), with the purpose of being unique and not interchangeable. Although access to any copy of the original file is not restricted solely to the NFT buyer, only he will have proof of ownership, separate from the copyright.

Regardless of the blockchain supporting the NFT, each works to ensure that the digital item is authentically one-of-a-kind. Since these are rare assets and potential demand can be elevated, the NFTs market continued to expand in 2020, and is projected to do so in 2021 and beyond.

NFT market continues to expand

Based on the latest statistics, the NFT market was estimated at $250 million in 2020, tripling in value during the span of a single year. The figures are even more encouraging when it comes to the first quarter of 2021.

The NFT market had surged 2,100% to reach $2 billion in sales, according to nonfungible.com. Big spending on these tokens occurred at the same time new investors joined the industry. There were approximately 73,000 buyers and 33,000 sellers, during the first quarter of the year, which had fueled a rapid rise in valuations. A large imbalance between demand and supply, is considered to be the main reason why NFTs have the potential to increase in value in the long run. At the same time, it is important to note these tokens are based on blockchains like Ethereum, Flow, or Tezos, which raises the question of whether the broader market can be positively or negatively influenced.

Can NFTs impact the cryptocurrency market?

Most of the NFTs are operating on the Ethereum blockchain, meaning investors first need to buy ETH tokens and then use them to buy NFTs. The process is different as compared to using a trading platform like Global Solution since in this case investors have ownership over ETH tokens and can use that buying power for NFTs.

Increasing demand for NFTs can equal higher demand for Ether, Tezos, or other cryptocurrencies that provide support for these tokens on their blockchains. In the longer run, if the NFT industry can continue to grow at the same pace, that could be a supportive factor for the cryptocurrency market as well. At the same time, a setback in the NFT usage will mean lower demand for ETH or Tezos, acting as a tailwind.

By S N Chatterjee

Copyright 2021 © S N Chatterjee - All Rights Reserved

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