The market for non-fungible tokens kicked off the year on solid footing, bucking the broader market rout that sent ripples across much of US equities and cryptocurrency markets.
Blue chip cryptocurrencies like bitcoin are down double-digit percentage points year-to-date, dragged down by the same macro fears that have put much of the stock market under pressure in January. Despite those jitters about a more hawkish US Federal Reserve, NFTs – a market ranging collectibles and digital art – had a strong start to the year.
My colleague Thomas Bialek illustrated this phenomenon in a recently published research report.
"A look at the floor price performance of the most popular profile picture PFP collections over the last three months reveals a noticeable disparity between these 'blue chip' NFTs and the price of ETH and BTC," Bialek wrote.
On the flip side, floor prices across NFTs were mixed as cryptocurrencies themselves staged a comeback over the last 24-hours.
The divergence between the two camps illustrates the degree to which the crypto ecosystem is becoming more dynamic with certain segments experiencing bullish regimes whilst others get stuck in the doldrums. But what exactly has spared NFTs from being grasped by the rout?
A lot of it has to do with human psychology, according to FTX founder Sam Bankman-Fried, who admittedly was surprised at the degree to which NFTs have held up since the beginning of the year.
"The fact that they're non fungible makes them less liquid," he told The Block, referring to the ease at which a trader can move in and out of an NFT position.
In Bankman-Fried's view, the public-facing nature of NFTs makes them harder to sell compared to the coins someone holds within a brokerage firm like Coinbase.
"But I have also been a bit surprised about how much they've been out performing recently. The fact that you're public about owning one makes it harder to sell because it is a public giving up on something versus a private rebalancing of your portfolio."
Furthermore, NFTs are better thought of as being akin to a luxury good, which, similarly to NFTs, are purchased to flex.
"People are less inclined to sell their NFTs at a loss," relative to more liquid assets like tokens themselves, according to DeFiance Capital's Arthur Cheong.
"The whole psychology is also very interesting."