The white-hot market for non-fungible tokens has become so big, NFTs are even showing up in the headlines of mainstream publications like the New York Times and on cable news programs. But the craze have much of an effect on bitcoin? Probably not, at least for now.
The oldest and largest cryptocurrency, which, at around $57K, ended a weeklong winning streak Friday, sits at the center of digital-asset markets, accounting for some 62% of the overall industryâs $1.7 trillion market capitalization.
So it would stand to reason there might be some spillover into the bitcoin universe from NFTs, which work atop mainly Ethereum-based blockchain networks, even if the connection might be indirect.
âAlthough NFTs have a different use case than bitcoin, both are part of the same vision for a decentralized digital future,â said Miha GrÄar, head of business development at crypto exchange Kraken. âThe success of one complements the other.â
Read more: Associated Press NFT Artwork Sells for $180K in Ether
According to the website nonfungible.com, the NFT industry had a market capitalization of $338 million at the end of 2020.
The NFT figure, however, doesnât include this yearâs eye-popping growth, most recently evidenced in Thursdayâs $69 million purchase of a digital work by the artist Mike Winkelmann, also known as Beeple. Or the $6.6 million digital token representing an animated clip of a graffiti-covered Donald Trump lying face down in the grass. Or the $1 million batch of 34 âdigital collectiblesâ known as CryptoPunks.
Contrast those figures with bitcoinâs market value of roughly $1 trillion. So at least for now, the NFT âindustryâ might not be enough to make a big difference in the crypto universe, especially with the MicroStrategys and Teslas on Wall Street buying billions of dollars of bitcoin as an inflation hedge or a bet on future payment technologies.
âThe relative sizes of the markets means itâs effectively impossible for NFT spillover to have a material price impactâ on bitcoin, Piers Kicks, venture partner at the cryptocurrency analysis firm Delphi Digital, said in a Twitter message to CoinDesk.
Read more: Kraken Clients Stake $725M of FLOW Tokens, Buying Into NFT Frenzy
Even so, the NFT market is seen as having vast growth potential for a broad range of things: artwork; video game items including skins, weapons and avatars; music; digital trading cards; tokenized real estate, racehorses and designer sneakers; virtual land; and video footage of iconic sporting moments.
Such widespread use could introduce new people into the cryptocurrency ecosystem. That might lead to investing in bitcoin.
âIf you want to buy NFTs, you need to be buying crypto,â Joel Kruger, cryptocurrency strategist at LMAX Digital, told CoinDesk. âAnd if youâre going to start learning about crypto, you are going to be turned onto the value proposition that bitcoin offers.â
NFTs âintroduce a whole new world of people to the possibility of new technology, which happens to be around blockchain and cryptocurrency,â Kruger said. âThis is the way adoption should happen. There is an opportunity and solution that is better than what exists right now, and people are drawn to that.â
Itâs important to note the majority of NFTs transactions are made with ether, the native cryptocurrency of the Ethereum blockchain and second-biggest overall.
Read more: How NFTs Became Art, and Everything Became an NFT
Beepleâs $69 million NFT, for example, was paid for with ether by Metakovan, the pseudonymous founder of non-fungible token (NFT) fund Metapurse.
There are strong linkages between bitcoin and ether because bitcoinâs price usually has a strong impact on ether and other cryptocurrency prices.
As of March 11, the correlation between bitcoin and ether remains strong at 0.70, despite a drop from earlier last year, according to data compiled by CoinDesk.
Itâs also possible to convert bitcoin into a tokenized form such as wrapped bitcoin (wBTC) so that it can be transferred over the Ethereum blockchain.
âIf you want to buy NFTs, you need to be buying crypto,â Kruger said. âAnd if youâre going to start learning about crypto, you are going to be turned onto the value proposition that bitcoin offers.â
Watch: Whatâs Next for Beeple After Dizzying $69M NFT Sale?
In addition, there are indications interest in NFTs be having some kind of effect on the market for ether.
When the volume of NFT buyers and sellers increased dramatically in the fourth quarter of 2020, according to the âNon-Fungible Tokens 2020â report by nonfungible.com, etherâs prices were also moving up quickly to above $1,000 from Septemberâs low around $312. This year, ether has pushed even higher, to an all-time high above $2,000 as recently as last month.