The Wolf Den #392 - DeFi Threatens The Status Quo
Some Facts About Trading NFTs, Part 1 - IntoTheBlock
In this report, we bring you the latest in on-chain cryptocurrency analysis. We look at the blockchain directly and analyze balances, transactions, and the overall activity of market participants. This gives us a unique insight into the future of the market.
This section is written in conjunction with IntoTheBlock (ITB). ITB is an intelligence company that leverages machine learning and advanced statistics to extract intelligent signals tailored to crypto-assets. IntoTheBlock tackles one of the hardest problems in crypto: to provide investors with a view of a crypto asset that goes beyond price and volume data.
The Wolf Den research team uses IntoTheBlock to dig deeper and get the most important insights about the crypto market.
Some Facts about Trading NFTs
We analyzed all of the NFT collection drops that happened in October on the Ethereum blockchain (where 80% of the NFT volume is traded).
Today, we will present you with interesting facts about NFTs that you might not know. In tomorrow’s edition we’ll share the second part.
Our IntoTheBlock’s NFTs release will be available on Q1 of 2022, so stay tuned for that.
The majority of NFT collections fail
As mentioned above, we analyzed all of the NFT collection drops that happened in October on the Ethereum blockchain (where 80% of the NFT volume is traded). The amount of collections launching each day was so high (more than 30 per day) that we had to filter to pick the most popular ones. Therefore, the filtering criteria was to include in the analysis only NFT collections that had over 5000 users on Discord and over 5000 followers on Twitter. We still ended up with 102 collections.
Some facts we found when looking at the drops:
Collections that are ranked among the most traded and most expensive took more than 2 days for price to appreciate several times the initial mint price.
The lifecycle of an NFT collection appreciating over time spans several months, with short term hype/mania cycles that can marginally or rapidly increase price.
90% of the collections that do not gain traction with price falling lose the interest of traders in a matter of 1–2 days. Then the floor price continues to decrease gradually over time.
So, from those 102 collections, how many were minted completely? Only 36 of them, or slightly more than one-third. The next chart shows the collections analyzed in the X-axis, while the Y-axis shows the percentage of the offered supply that was minted. The 36 collections that achieved a complete mint are highlighted in green. Red shows collection that failed to mint even 25% of the potential supply - a strong majority.
Problems when full supply fails to be minted:
If we mint a piece of that collection and try to sell it afterward, we will likely incur a loss selling lower than mint price. We may not even be able to sell it at all.
Rarity: If your NFT piece is not very rare among the collection, there is a high chance that a buyer interested in the collection would find it more inviting to mint another piece and try to get a rare piece, rather than buy your common NFT piece in the marketplace, even at a discounted price.
And what are the reasons for the majority of these collections failing to capture demand?
Many of these collections used bots to spoof social media activity and trick investors into thinking that the collections had meaningful interest before the minting started.
Either the minting price is set too high, or the supply available is too high, or both. This usually is due to new projects trying to set up minting prices and supply equal to projects that have been highly successful before them. This might not be a good reference, since the demand for each project before its minting date is completely different.
We coined the term “minting market cap” to quantitatively measure the offering of each collection in the primary market. To compute this metric, we multiplied minting price by supply offered. This metric can help us spot collections that are popular and highly anticipated, or collections that are priced too highly relative to demand. In the next chart, we see how most of the collections aim to have less than $5M of minting market cap, a good estimation to consider for future NFT releases:
From the collections completely minted (36), only 20 appreciated in price after two days. This is a consequence of illiquid markets. Even if a collection is completely minted, the demand for the collection has to gain momentum for the price to not fall. Since many traders are looking for short-term appreciation when the pieces arrive on the secondary market, the floor price can easily decrease if demand is absent. The char below shows returns per collection of the NFT collections analyzed. There are two bars for each collection, because we included fees under two scenarios, one being gas prices at the minimum and another case with gas fees being very high. We took the minimum and maximum gas prices that we saw over a month. Few collections outperformed massively, while most failed.
It is important to track fees when trading, especially in the NFT world. There are two types, fees per blockchain and fees per marketplace. Blockchain fees play a huge role on Ethereum, but not so much on other blockchains for a buyer. Marketplace fees vary greatly. In this example we modeled the fees from OpenSea - selling fees (2.5%), royalty fees (variable), and initialization fees (one-off paid per collection).
Tomorrow, we’ll talk about some indicators to measure demand and momentum in NFTs.
Bitcoin Thoughts And Analysis
DAILY CHART
Bitcoin appears to be forming a bottom, with confirmed bullish divergence coming out of oversold RSI. We often see these divs build - meaning we could put in another low in price with another higher low on RSI. One more dip would give much bigger divergences across the board, but that does not "have" to happen at all. We could be heading up from here.
This can also utterly fail, as can any indicator or strategy!
Price held support at the range EQ and the red 200 MA. I still want to see price above this range and breaking the descending black line to confirm any sort of reversal. For now, price is chopping sideways in a large range.
4-HOUR CHART
Price found support right at the EQ of the trading range, the dashed line in the middle of the red rectangle. This coincided with the local bullish divergences on multiple time frames, and should theoretically be enough to send price back to the range highs.
Above 53K is the key. Anything below that is still noise.
Altcoin Charts
AVAX/BTC
While I am still hesitant to share altcoin charts, this is worth paying attention to. AVAX has been one of the strongest performing coins this year, and is clearly breaking out of a bull flag again on the BTC pair, after concurrently flipping the previous all time high back to support at 17999.
I would be very cautious trading alts, but this looks ready to return to the recent all time high (25501) and shoot beyond.
Legacy Markets
DXY (DOLLAR INDEX)
The dollar continues to rage, rage against the dying of the light (those are not my words, it's a Dylan Thomas poem). Even in the fact of money printing, the dollar remains strong against a basket of other currencies. It's a race to the bottom, and the dollar is moving a bit slower than it's competitors.
As you can see, we have a breakout from the blue channel, then a double bottom, and now a bull pennant breakout (and nearly retest as support) with target shown in red.
Considering the FED is likely to being tapering an eventually raise rates, the dollar could continue to shine. This would likely be bad for stocks, metals and potentially Bitcoin, although that inverse correlation has diminished dramatically.
It should be stated clearly that this is JUST A CHART and the dollar is a complex instrument, who's relationship to other assets cannot be summed up with a picture and some lines. Take this with a grain of salt and don't make macro financial decisions based on it.
We Were Trillionaires For A Moment
A bug in CoinMarketCap’s pricing data caused a flurry of confusion and excitement. The glitch on the site caused coins to shoot up by billions, trillions, and quadrillions in percent and value, breaking the charts of the affected coins. To make matters worse, a number of other platforms that rely on CoinMarketCap’s price data were affected, meaning exchanges and wallets were misreporting the value of the affected coins. The bug shouldn’t cause any real harm, but goes to show that we still have a long ways to go and grow, especially how dependent and connected these platforms are. Did you enjoy your temporary (fake) riches?
Elon Musk Continues To Move The Market
Doge spiked 36.5% after the teaser from Elon Musk linked above. It’s quite incredible that a single sentence can move a market by billions of dollars in a matter of moments, but the impact of Elon Musk on the market has actually diminished dramatically with time. We can probably expect something similar to happen when Tesla once again resumes accepting cryptocurrency company-wide.
FOMC Meeting Today
Expect volatility in all markets today, as the Fed meets to discuss inflation. Spoiler, inflation is no longer being viewed as transitory, a word that Powell retired because it was "confusing." We have runaway inflation, and the Fed will be forced to use whatever weapons it has in it's arsenal to fight the trend. Unfortunately, this may be akin to using a nuclear weapon to stop a hurricane.
Expectations are that the Fed will begin to taper immediately, meaning they will buy less assets. Less manipulation, which in today's world is bearish.
What a broken system.
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The views and opinions expressed here are solely my own and should in no way be interpreted as financial advice. Every investment and trading move involves risk. You should conduct your own research when making a decision. I am not a financial advisor. Nothing contained in this e-mail constitutes or shall be construed as an offering of financial instruments or as investment advice or recommendations of an investment strategy or whether or not to "Buy," "Sell," or "Hold" an investment.