How Would a Recession Affect NFTs?

The standard view is that in the event of an economic slowdown, crypto will perform badly, and in that case, NFTs would perform the worst of all.

NFTs are the newest and least understood quarter of the crypto sector. They are seen as highly volatile, difficult to take seriously (which is fine, as in many cases they go out of their way to be irreverent), and on the whole, like the kind of fringe asset that could come crashing down at the drop of a hat.

And, that may very well be an accurate forecast. Rising interest rates exert more pressure on our finances, consumers reduce their spending, and there is lower demand for luxury or superfluous goods, and less appetite for risky investments.

Crypto, if it is a risky investment, would go down in price due to reduced demand, and art, being a luxury item, would do the same. As such, NFTs, many of which are art and design in a crypto format, and intersect the notions of both superfluity and risk, would be expected to plot a similar downward trajectory.

In fact, being at once extremely novel, and at the outer edges of both the art and crypto worlds, common sense dictates that with NFTs, negative economic effects would be amplified.

This all makes sense, and conservative investors often come out to the good. However, it is also worth noting that the NFT space is not known for its conservatism, and besides, it can be useful to consider alternative possibilities, even if they initially appear unlikely to unfold.

Taking a contrary view, the first thing to keep in mind is that Bitcoin and Ethereum are more mainstream and well-established than they ever have been before. Wider adoption, in some form, looks inevitable, and there is a feeling of increased stability, in the sense that these things are here for the long term.

Basically, the longer these assets (or currencies, or tech platforms, or whatever they are) stick around, the more likely it is that they will then stick around some more. Outside the top two cryptocurrencies, it is a different story, but when considering the two main players (and Bitcoin in particular), they are simply not as high risk as they once were.

And, when it comes to NFTs, they exist almost entirely within the crypto bubble, or more specifically, within the Ethereum bubble (NFTs on other blockchains remain a small section of the NFT space).

As such, NFTs are, in certain ways, insulated against what goes on outside of crypto, with the majority of trading happening between people and organizations who are deeply inside the bubble, and entirely comfortable there.

This means that the majority of current NFT trading is not new money entering the market, it is long-term crypto-natives, who are already crypto-wealthy having been heavily exposed to Bitcoin, Ethereum or profitable altcoins from an early stage, and perhaps having benefited further from DeFi.

These kinds of natives and whales can afford to keep a significant amount of wealth in crypto at all times, never needing to cash out entirely, and will keep participating in internal crypto-based transactions regardless of what is happening to fiat in the outside world.

In other words, there are influential NFT traders and collectors playing a very long game, and who have the luxury of being able to value 1 ETH at precisely 1 ETH.

That said, it is advantageous to have newcomers joining the market, but when it comes to new money entering, there is another factor at play. A drop in the price of the currency in which NFTs are priced means that NFTs become cheaper in fiat terms, which could actually incentivize people to jump in, by providing an attractive fiat entry point.

In fact, if you were looking to acquire some NFTs that you think have long-term value, then during a dip in the crypto markets would be exactly when you should convert some fiat and pick up good quality assets.

On top of all that, the NFT space (and much of crypto in general) is full of people who are deeply enthusiastic about and committed to web3, metaverse development, decentralization, art, design and gaming. A common mantra, when prices are down or the outer economic outlook is bleak, is to keep building.

The optimism and creativity rarely skip a beat, and there is a vital contradiction in effect: while the NFT space moves insanely quickly, making it practically impossible to keep up-to-date with everything happening, the overarching timescale to which core builders are operating is one of years and decades.

There is a sense that whatever happens regarding markets and the economy is predictably cyclical, but the all-encompassing technological arc is much longer, and more unstoppable, than any economic ups and downs.

This kind of enthusiasm is infectious, crypto-natives will keep rotating resources, and as a result, there is a possibility that NFTs might not behave as convention usually dictates.

The standard view is that in the event of an economic slowdown, crypto will perform badly, and in that case, NFTs would perform the worst of all.

NFTs are the newest and least understood quarter of the crypto sector. They are seen as highly volatile, difficult to take seriously (which is fine, as in many cases they go out of their way to be irreverent), and on the whole, like the kind of fringe asset that could come crashing down at the drop of a hat.

And, that may very well be an accurate forecast. Rising interest rates exert more pressure on our finances, consumers reduce their spending, and there is lower demand for luxury or superfluous goods, and less appetite for risky investments.

Crypto, if it is a risky investment, would go down in price due to reduced demand, and art, being a luxury item, would do the same. As such, NFTs, many of which are art and design in a crypto format, and intersect the notions of both superfluity and risk, would be expected to plot a similar downward trajectory.

In fact, being at once extremely novel, and at the outer edges of both the art and crypto worlds, common sense dictates that with NFTs, negative economic effects would be amplified.

This all makes sense, and conservative investors often come out to the good. However, it is also worth noting that the NFT space is not known for its conservatism, and besides, it can be useful to consider alternative possibilities, even if they initially appear unlikely to unfold.

Taking a contrary view, the first thing to keep in mind is that Bitcoin and Ethereum are more mainstream and well-established than they ever have been before. Wider adoption, in some form, looks inevitable, and there is a feeling of increased stability, in the sense that these things are here for the long term.

Basically, the longer these assets (or currencies, or tech platforms, or whatever they are) stick around, the more likely it is that they will then stick around some more. Outside the top two cryptocurrencies, it is a different story, but when considering the two main players (and Bitcoin in particular), they are simply not as high risk as they once were.

And, when it comes to NFTs, they exist almost entirely within the crypto bubble, or more specifically, within the Ethereum bubble (NFTs on other blockchains remain a small section of the NFT space).

As such, NFTs are, in certain ways, insulated against what goes on outside of crypto, with the majority of trading happening between people and organizations who are deeply inside the bubble, and entirely comfortable there.

This means that the majority of current NFT trading is not new money entering the market, it is long-term crypto-natives, who are already crypto-wealthy having been heavily exposed to Bitcoin, Ethereum or profitable altcoins from an early stage, and perhaps having benefited further from DeFi.

These kinds of natives and whales can afford to keep a significant amount of wealth in crypto at all times, never needing to cash out entirely, and will keep participating in internal crypto-based transactions regardless of what is happening to fiat in the outside world.

In other words, there are influential NFT traders and collectors playing a very long game, and who have the luxury of being able to value 1 ETH at precisely 1 ETH.

That said, it is advantageous to have newcomers joining the market, but when it comes to new money entering, there is another factor at play. A drop in the price of the currency in which NFTs are priced means that NFTs become cheaper in fiat terms, which could actually incentivize people to jump in, by providing an attractive fiat entry point.

In fact, if you were looking to acquire some NFTs that you think have long-term value, then during a dip in the crypto markets would be exactly when you should convert some fiat and pick up good quality assets.

On top of all that, the NFT space (and much of crypto in general) is full of people who are deeply enthusiastic about and committed to web3, metaverse development, decentralization, art, design and gaming. A common mantra, when prices are down or the outer economic outlook is bleak, is to keep building.

The optimism and creativity rarely skip a beat, and there is a vital contradiction in effect: while the NFT space moves insanely quickly, making it practically impossible to keep up-to-date with everything happening, the overarching timescale to which core builders are operating is one of years and decades.

There is a sense that whatever happens regarding markets and the economy is predictably cyclical, but the all-encompassing technological arc is much longer, and more unstoppable, than any economic ups and downs.

This kind of enthusiasm is infectious, crypto-natives will keep rotating resources, and as a result, there is a possibility that NFTs might not behave as convention usually dictates.