Crypto research firm Nansen published a report, shared with NewsBTC, on non-fungible tokens (NFTs) and their performance amid an ongoing downtrend across the industry. NFTs have been a hot sector since 2021 because they facilitated the adoption of digital assets on a larger scale but negatively impacted the direction of Bitcoin and other cryptocurrencies.
According to Nansen, the NFT Blue Chip-10 and NFT 500 indexes showed strength last month. At the time, bitcoin and the largest cryptocurrency were on the verge of hitting yearly lows. The price of BTC fell to a multi-year low of about $17,500.
Meanwhile, Nansen Blue Chip-10 reported a 23.6% increase as early as June 2022 and may have hinted at a decrease in selling pressure for the industry. In June, the cryptocurrency market witnessed a capitulation event as major crypto investment firms became forced sellers as they defaulted on their perpetual debt obligations.
NFTs act as an indicator of the future activity of the crypto market. With Nansen indices trending in the opposite direction throughout June, the positive performance extended and hinted at a local bottom formation for Bitcoin and Ethereum.
The report claimed the following regarding the general sentiment in the cryptocurrency market and how NFTs have outperformed even during periods of turmoil and ongoing selling pressure:
Blue Chip NFTs led the trend reversal in June (…). Although the last week of June saw a bear market rally within the broad crypto market, it appears that this bullish trend started earlier in the NFT market. All non-fungible tokens (NFT) sectors rebounded in June (when measured in ETH), except for Gaming NFTs at the end of Q2 2022.
In July, the cryptocurrency market saw some relief with bitcoin trading above its all-time high of 2017, north of $20,000. However, BTC price has lost steam and looks set for another period of sideways movement and consolidation.
What NFT means for the crypto market in the short term
Additional data provided by Nansen claims that the recovery in this sector may be unsustainable. Despite the positive performance in June, this digital asset recorded a decrease in trading volume, number of transactions and active users, as shown below.
This decline in sector activity is consistent with NFTs investors reducing risks and adjusting to current macroeconomic conditions. Nansen noted:
(…) In the DeFi sector of Ethereum (ETH), we are witnessing an exciting deleveraging event with a large investor base suffering significant historical losses. The “risk off” sentiment is still very visible in the NFT market and the limited liquidity in the NFT market suggests that this bullish trend may not continue (…).
However, the sector is recording an increase in the number of first-time buyers and a decrease in the ratio of sellers and buyers. This metric is used to gauge the general sentiment of NFT investors which appears to be more bullish than in the crypto market as a whole and, according to Nansen, “highlights the development of NFT as a sector.”