NFTs Are Dead ... For The Next Few Days
Mr. Fox breaks down how he is playing the NFT market right now.
Hello all and welcome back to another email. It has been a while but I’m back. Please enjoy.
Since August 28th, the launch of the Mutant Ape Yacht Club, NFT prices and sales volume have been on a consistent decline. Many people theorize that as one of the biggest mints in NFT history, the Mutant Apes took a lot of money out of the NFT market as a whole.
Let me explain further. The cost to mint a Mutant Ape was on average about 2.5 ETH. 10 000 Mutant Apes were minted. Ether was trading at roughly $3200 USD. If we multiply those three numbers:
2.5 times 10 000 times 3 200 = 80 000 000
The Bored Ape Yacht Club took in $80 million dollars with the release of their Mutant Ape collection, and thus, all of that money was taken out of the NFT market where it would have been otherwise used to buy existing projects.
Here is a graphical representation of the daily volume on OpenSea, which is the biggest NFT marketplace on the internet. Notice the peak on the day of the Mutant Ape Yacht Club release:
The lack of money in the ecosystem was easily felt. Floors on projects are down 30% since their peak late August, and people are finding it very difficult to sell anything at all.
This is because NFTs are a very illiquid market. When we look at something fungible, like a stock or currency, all it takes is one person in the world to want to buy said stock or currency for however much you want to sell it for to get it off your hands. You can free up your money very easily in these markets. In NFTs, almost every asset is unique, so for you to sell, not only does somebody need to want to buy into the project your NFT is in, they also need to want your specific NFT. You see where the issue is here.
With so many NFTs out there, if you’re holding one that is low-quality and unpopular, the chances of you selling it while the NFT market is down are next to nothing. This is why unless you plan to flip the NFT, or you got it for very cheap, you should be very smart about which one(s) you put your money into, because things can go south very very quickly.
This downtime in the market has taught many people things about liquidity as we discussed above. One thing that became more apparent, particularly to my friends who are new to NFTs, is that you have to sell on pumps. The NFT market really only has two states: either everything is selling, or nothing is selling. So, when you hold an NFT and its floor begins to appreciate quickly (or what we call in NFT world, “pump”), the mental framework you have to run through in your head is:
“If I don’t sell now, I’ll have to wait for another pump.”
“Will there be another pump? And how far can the floor drop before then?”
If you’re buying high-quality NFTs with a lookout of 3-10 years, you obviously don’t need to be asking yourself these questions. If you’re somebody playing with money that first and foremost you are okay with losing, but secondly are still trying to manage properly in order to give yourself the highest chance of success, and you’re on a less than one year time horizon, this is definitely the mental dialogue you need to be having.
With all of that being said, a lot has happened since I last wrote you. You may have noticed that there is no longer an Ape in my profile photo. This is because about 30 days ago now, I sold my Ape for 35 ETH! I immediately put that ETH into an NFT called MintPass #1 from Pixel Vault, which roughly doubled. I sold all of my NFTs after my incredible run, and am now sitting on 80 ETH. I took my account from 0.6 ETH in May to 80 ETH today, and I feel with current market dynamics that this is a good time to cash out.
Why do I feel this way?
The chance of an NFT downturn, which would result in the losing of a lot of that ETH, is too high to risk for the short-term 2-3x that this market still has left in it. There will be many opportunities to 100x or more on investments in Web3, and if there is anything my Bored Ape ever taught me, it is that you only need to be right once. I would rather sit and wait for another home run then sit at the plate striking out as I swing at every pitch. Will this next 100x opportunity be in NFTs? I don’t know. But as long as we are in the hunt, on the frontlines of Twitter and Discord, keeping up with the pack and all of the new information and innovation that comes with that, there is a good chance we can find it.
Now, is this all to say that there is no more money left to be made in NFTs? Absolutely not. All I’m doing is taking some money off the table.
This leads me to my next point.
How do we play the market on this downturn?
I think this is a lot easier of a play (if you’re liquid) than most people think.
Because all of our work occurs on blockchains, a lot of financial data for the assets we are buying and selling are open to us to view at anytime. The best website that I have found for this so far, and I have used it in this article and others in the past, is Dune Analytics. You can go to Dune Analytics and look through OpenSea sales, CryptoPunk, Art Block, and Bored Ape sales, etc. It is all there to be viewed if somebody has contributed it to Dune Analytics.
With more information we can make better decisions. The play is as follows:
NFTs go on runs when new money enters the space.
New money enters the space through blue-chip projects (for our observation purposes, tracking Art Blocks, CryptoPunks, and Bored Apes will more than suffice)
And then the rest of the market follows.
So, if you’re looking to deploy some ETH into top projects, just watch their daily volume on Dune Analytics. Right now we are on a consistent downtrend. As soon as you see a strong uptrend (day-over-day, week-over-week rise in ETH volume of sales in increases of at least 50% or more, 100% preferred) it means it is time to buy.
If you don’t have the money to invest into a top project, you have to wait for the rest of the market to catch up to moves in the blue-chip projects we discussed above. They always lag behind. Depending on price action, you may look to deploy money into cheaper projects a few days after the blue-chips outlined above pump. Typically, medium sized projects (Cool Cats, Gutter Cats, MetaHero, etc.) will follow one or two days after the big projects move, and then smallest projects will move a day or two after the medium sized projects move.
So, the strategy for those that are liquid is not too difficult. As long as you buy back into the market during strong uptrends, you are likely to experience a nice amount of upside, as NFTs are a parabolic market in nature.
If all of your money is tied up in ETH, you can hold through to the next leg up in the market (if it comes), or you can sell now if you fear a market crash and follow the strategy outlined above. With that being said, I don’t know how much lower the market has to go, so you may be selling at a bottom. The truth is that if you’re still holding, you should have decided on your strategy before this.
What’s the good news?
ETH has dipped, and dipped hard. It experienced a drawdown all the way to $2600.
Why is this good news?
Because there were lots of people patiently waiting for ETH to dip so they could buy in at a good price, and this was their opportunity to do so. Once people have ETH (especially the types of people buying now), they are going to look to buy some NFTs. I would be on the lookout over the next 5-10 days for a pump in NFTs as a result of this.
And that’s the update! I hope you learned something. I look forward to writing the next piece.
If you think this would be of value to someone, consider sending it to them. If you’ve been here for a while, I appreciate the support.
And down the Rabbit Hole we continue.
Mr. Fox.