What is the relationship between NFT and Ethereum? Why is NFT crashing less than ETH?

The controversy over the NFT market boom and Ethereum energy consumption have emerged again. Ethereum NFTs consume an amazing amount of energy, and its transaction process (creating or selling NFTs) consumes an average of 214 kWh, which stems from its proof-of-work mechanism (similar to Bitcoin). Over the past year, the popularity of Ethereum and NFTs has increased dramatically, with NFTs having monthly transaction volumes on the Ethereum network reaching $10 billion. Many investors are concerned about the relationship between NFT and Ethereum, and this article will discuss this in-depth.

The correlation between NFT and Ethereum

The value of NFT varies by rarity and other dynamic factors, and the NFT market is also composed of ERC-1155 (semi-homogeneous) tokens. To more accurately reflect the total value of NFT collectibles, NFTGo.io's market value calculation uses the higher value of NFT collectibles floor price and its latest transaction price. This method avoids the influence of the highest-priced collection and can better reflect the overall value of the collection.

The plunge in ETH price directly affects the NFT market, because most NFT transactions are denominated in ETH or WETH.

ETH market value has fallen from about US$550 billion in early December 2021 to less than US$130 billion in June 2022. ETH and NFT market capitalization have both declined in the past three months. The figure below shows the adjustment of ETH and NFT market value return during this period (based on 100). The two show a high negative correlation.

Why is the NFT drop less than ETH?

NFT accounts for only a small part of the crypto market. NFT combines culture, art, finance and transactions, building a decentralized bridge for creators and fans. ETH is much more popular than NFT, and the huge liquidation of large funds in the cryptocurrency market in the past few weeks has also exacerbated the decline in ETH's market value. The figure below shows the market size difference between the two assets.

Since 2009, the cryptocurrency market has undergone many iterations and cycles and has gradually become the mainstream trading and investment method. Large funds and market makers invest heavily in top crypto assets such as Bitcoin and Ethereum. Compared with NFT, cryptocurrencies are a more mature market in the blockchain ecosystem.

We can quantify the mainstream of NFT relative to cryptocurrencies by calculating the ratio of NFT market capitalization to mainstream cryptocurrencies such as ETH. For example, according to YCharts data, on March 21, 2022, the ETH market value was US$238.3 billion, and the NFT market value recorded by NFTGo.io was US$19.3 billion, and the NFT/ETH ratio was approximately 0.08. On December 5, ETH's market value was US$498 billion, NFT's market value was US$9.8 billion, and the ratio was about 0.02. These ratio changes reflect the growth rate of NFT market capitalization scale relative to ETH. The focus of the analysis is on the growth rate of NFT relative to mainstream assets such as ETH, rather than predicting when the NFT market value will be the same as ETH market value.

While Ethereum is still the preferred blockchain for most NFT transactions, its high transaction fees make it less competitive. Although Ethereum's transaction fees have dropped, it is still far higher than its competitor Solana. Solana's transaction fees are only a few cents, while Ethereum's average transaction fees last month were $6.50. Low transaction fees are an important factor in Solana attracting users. However, even if NFT trading volumes drop, Ethereum still dominates the market.

The above is the detailed content of What is the relationship between NFT and Ethereum? Why is NFT crashing less than ETH?. For more information, please follow other related articles on the PHP Chinese website!