Is NFT Inflation Same as the USD Inflation?

Introduction

The Ethereum platform’s economics are inextricably linked to NFTs, much to how crypto is connected to USD. That is, for the time being. This combination has a lot of consequences for NFT players, whether you’re an artist, a collector, a speculator, or just a curious observer.

Pricing NFTs in USD

The cryptocurrency Ethereum is a deflationary currency, while the US dollar is an inflating currency. Inflation encourages you to spend, whereas deflation encourages you to save as a non-traditional consumer. Inflation may, however, work against you as a creator if you don’t plan ahead.

For example, if you price a piece at $1000 instead of 0.5ETH, and the value of the dollar falls by 10% due to inflation, the same $1000 will only be able to buy 0.45ETH. To employ a metaphor, inflation serves as a force that draws purchasers to your asking price. Pricing your items in USD should, in principle, help them sell faster.

Pricing NFTs in ETH

So, what happens if you opt to price your artwork in ETH instead of USD? Let’s pretend that ETH has entered a modest deflationary phase. When you use ETH to establish a price, you run the danger of the currency increasing in value and pricing individuals out of the market. 

Let’s say you set a price of 0.5 ETH. On April 2nd, 2021, it worthed $2000 in US dollars. The work hangs on the market for a while, whether because it’s a specialized piece or because you’re still looking for a customer base. Only a month later, on May 2nd, 2021, you check the statistics and discover that not only has it not sold, but it is also appearing in fewer and fewer searches. At the time of writing, the exchange rate for 0.5 ETH is $3000.

You are now asking for 50 percent more than you were hoping to attract a wealthy but still moderate-income buyer at around $2000 (imagine $1999). To continue the analogy, the deflationary impact of ETH pricing serves as a force pushing the item up beyond the reach of customers, which is precisely what you don’t want to happen.

What are your Options?

If you’ve read this far, you’ll see that we’ve run into difficulty. We are now in an inflationary situation, which will most certainly last for several years. So, in an ideal world, you’d price in USD (to aid customers in making a purchase), but you’d want to get paid in ETH. And you’d prefer the sale to take place as soon as possible to avoid your artwork’s worth depreciating. So, what are our options?

1. Price in US dollars, but round up a little because you should expect it to take some time to locate a buyer, and you want to make sure you’re well paid.
2. Set the price in ETH, but be aggressive with it. You don’t want to risk your piece becoming out of reach due to an increase in the ETH/USD ratio. Furthermore, because you are rewarded in ETH, the gain in ETH’s value in the future should largely offset the upfront loss in revenue.

Recommendation

While both techniques are legitimate, we recommend that you utilize the second one. Make sure to be aggressive with your ETH price while keeping in mind the high cost of gas. Keep it in mind. In the period of a year, 0.5 ETH gathered today at a $2500 ETH: USD ratio may quickly inflate to $5000 or $10000. Ideally, you should be in a situation where you have some funds and can afford to wait to convert your ETH. In any case, make sure you use one of the methods listed above. Best of luck!

Conclusion

Finally, as we have seen in the example above with NFT trading, that is the first significant difference between USD and NFT inflation. The second and probably the essential difference is that NFTs will always be in the same basket as cryptocurrencies themselves. What do we mean by that? Well, in order to do anything with NFTs, you need cryptocurrencies that are different from USD. By the way, you can get most of the major cryptocurrencies at CEX.IO

While USD can be printed on-demand, that can be done whenever most of the cryptocurrency can’t. Let’s take Bitcoin, for example. Bitcoin has a limitation of 21 million coins, and it has been that way since its creation. That means no matter what happens once the 21th million Bitcoin has been mined, there are no more of them, creating significant value that USD cannot match. Ethereum, even though it does not have a limited number of coins, has introduced a burning fee mechanism with EIP-1559 making it a deflationary asset.

The final words are that the USD inflation influences NFT inflation, but they differ in many ways.

DISCLAIMER: The Information on this website is provided as general market commentary and does not constitute investment advice. We encourage you to do your own research before investing.