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What are NFTs and How Manipulative is the NFT Market?

The outbreak of non-fungible tokens (NFTs) is incredible. The way it has taken over a large portion of the cryptocurrency space is something that has left people astonished. These non-fungible assets have shared the crypto market at a speedy rate. Moreover, their prices have even gone higher immensely.

Many people think that their ultimate fame and demand have been the reason behind their exorbitant prices. And to some extent it is true. However, there is another story to the story that many are unaware of. To know if the price of NFTs is the reflection of their actual value or if it is some kind of manipulation, this article will discuss everything you need to know.

What are NFTs?

NFTs are known as non-fungible tokens that cannot be replaced or duplicated. Unlike a crypto token, NFTs are one-of-a-kind assets that are unique because they are only owned by a single holder. No other person can own them unless they have purchased them. Hence, an NFT maintains the authenticity and ownership rights of the asset and gives full authority to its holder.

NFTs can be anything. From digital arts, photography, memes, domain names to music, NFTs can take any form and shape. They are backed by blockchain technology that is responsible to preserve their ownership rights and authenticity. There are no multiple owners of NFT at a time. The application of transaction rights, metadata, authentication codes, or encryption tools helps maintain the ownership rights of the asset.

What Factors Affect NFT Price?

The following are some factors that can influence the price of the NFTs:

  • The marketplaces can largely influence the price of the NFTs.
  • The market trends can influence the prices.
  • Holders have the power to set the selling price for their assets.
  • The scarcity of the assets can also affect the price of the NFTs.
  • The kind of NFTs can largely impact their worth and demand.
  • People can set the standards for an NFT worth.
  • The craze and the hype tend to influence the market.
  • Several markets even manipulate the prices.

What is NFT Price Manipulation?

The non-fungible tokens are the hype these days. The reason why the market has grown and the prices have gone much higher than one can think of. Since its rise, the NFT market has suffered from cyber attacks and market manipulation. And since then the masses have developed doubt and fear regarding its credibility.

Recently, MetaKovan’s (Vignesh Sundaresan) purchased Beeple’s Everydays: The First 5000 Days at around USD 70 million. It set a world record within an NFT market for an NFT sale. The people in the NFT sphere and beyond are still unaware that MetaKovan bought 20 Beeple’s one-of-ones, singular and unique ‘editions’ before the purchase of 5000 Days. This raises the question of why MetaKovan would spend $70 million after obtaining Beeple’s 5000 Days. The answer is to raise the price of his previous purchases.

MetaKovan intended to inflate Beeple’s worth as an artist by pushing the price of 5000 Days and purchasing the piece for $70 million. The monetary value of the art has boosted immensely since this instance and it is most likely to be displayed in Metaverse digital museum. However, this is not a single event that took place in the NFT market. There are many more occasions where NFT price manipulation has been observed. And these are the reasons why people are not comfortable talking about them. Be it wash trading or price manipulation, both have damaged the NFT market significantly.

How Manipulative is the NFT Market?

An NFT market is prone to market manipulation at an unbelievable rate. This fact can be explained through an example NFT enthusiasts will be able to relate to. If you are an NFT fanatic, you must have an idea of CryptoPunks which is the world’s most famous NFT collectible. In fact, it is one of the earliest NFTs developed on the Ethereum blockchain technology.

In a period from July to September/October last year, its price went from one ETH (Ethereum) to six ETH that can be attributed to the opening of the Rarible platform, which prompted consumers to use their platform by distributing Rari tokens to both buyers and sellers. Hence, it influenced people to buy and sell in bigger volumes.

The strategy was simple. The more people trade through Rarible, the more tokens they would earn from those transactions. As a result, the price of CryptoPunks on the crypto market skyrocketed at an unimaginable speed because a large portion of the CryptoPunks sales was happening on Rarible. On the other hand, it made another impact on the tokens by overshadowing probable losses.

Consequences of NFT Price Manipulation

The consequences are outrageous. NFT price manipulation has some unwelcome impacts that can harm people’s budgets. An NFT art is usually supported and promoted by a single person or a group of collectors who put their efforts into raising their prices. It ultimately benefits the artist who becomes more popular when the world starts knowing them through their work.

The NFTs are much different from the traditional arts. Both worlds work differently. Unlike a traditional world, different factors determine the value of art in an NFT sphere. When the collectors and investors disappear, the value of traditional art is still recognized and supported by the rest of the art. However, when the collectors and investors fall off the map, the price of an NFT art collapses. It happens because the economic value of an artist’s work is increased and influenced by an individual or a group. It means that there’s no real consensual value of the NFT art. This largely impacts the NFT market and can sometimes yield negative outcomes.

Another reason that adds to the reason why the NFT market is unreliable is that these manipulations are frequent. It happens so frequently that their transparency is questioned. The people whose purchasing decisions are influenced by the price manipulation of NFTs are most likely to become the targets of market volatility.

Are There any Efforts Being Made to Prevent this Issue?

Unlike Crypto exchanges that are controlled by various government agencies, NFTs are still very unregulated. However now, efforts are being put to imitate the mechanisms used by the traditional art world and use them for NFTs. These incentives are meant to prevent the NFT market from being manipulated. But how would it create an effect?

This will be done by including gatekeeping as a business model for NFT platforms. This mechanism will determine the artists’ worth and will help in maintaining the authenticity of the art and the artist. Hence, the investors will have an idea about the credibility of the art they are going to invest in.

The worth of nearly every single NFT is an outcome of price manipulation. As long as the market is manipulated, we can not predict when it will stop and when the prices will be determined by their actual value. If you are an aspiring NFT investor then consider and compare the market trends and the value of the asset properly.

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