A quantitative approach to trading NFTs
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In this webinar, we will present several advanced analytics and insights that can help you make better decisions while trading NFTs. This analytical approach can aid to value NFTs in a more deterministic way. We will analyze the implied risks and propose some ideas for strategies.
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A quantitative approach to trading NFTs
- 1. A quantitative approach to trading NFTs November 2021
- 2. Agenda ● Why trade NFTs? ● NFT activity today ● Unexpected findings ● Advanced analytics ● Thinking of strategies ● Useful links
- 3. A quick update about ITB
- 4. New Algorand dedicated analytics ● 50+ unique indicators dedicated to ALGO divided into 7 categories: ○ Financial ○ Network ○ Ownership ○ Exchanges ○ Social ○ Derivatives ○ Capital markets Source: https://app.intotheblock.com/coin/ALGO/
- 6. Currency.com
- 7. Other notable launches ● CoinQuora ● Blokpres ● Digitalexchange.id
- 8. Why trade NFTs? ● Not financial advice!
- 9. Why trade NFTs? ● Beyond profit: ○ Social: communities ○ Emotional attachment ○ Fun ○ Artistic value
- 10. Why trade NFTs? ● Profitable? ○ High risks -> Illiquid markets ■ Small altcoins can be sold anytime ■ NFTs without buyers can not be sold ○ High profits (few)
- 11. NFT activity today ● Search trends on ATH Source: Google trends
- 12. NFT activity today ● Ethereum - OpenSea
- 13. NFT activity today ● Due to increasing fees? Source: https://app.intotheblock.com/coin/ETH/deep-dive?group=network&chart=feesStats
- 14. NFT activity today ● Not only on Ethereum, other chains as well ○ Solana Source: https://dappradar.com/rankings/protocol/solana/category/marketplaces
- 15. Unexpected findings ● We analyzed: Number of NFT collections 102 Filtering criteria: demand indicator >5000 followers on Discord and Twitter Only on Ethereum. Marketplaces: OpenSea, Artblocks. Time Frame of analysis 1 month (October 1 to October 27)
- 16. Unexpected findings ● Few collections mint completely -> offer failing to meet demand ○ Might be impossible to sell a bought NFT from a collection not fully minted ○ Cause: High prices or high supply
- 17. Unexpected findings ● Even fewer collections are profitable in the short term ○ Analyzing price 2 days after mint
- 18. Unexpected findings ● Fees play an important role. Evenmore on Ethereum OpenSea Selling fees (per piece): 2.5% Owner Royalties (per collection): Variable Minting/listing/initialization fees (per account): Ethereum TX fee Ethereum Gas fee of minting (per piece): Two cases: 1. Minimum $80 2. Maximum $200
- 19. Unexpected findings ● Each marketplace has a different fee structure Source: https://nftartexhibition.net/blog/2021/11/02/the-latest-comparison-of-major-nft-marketplaces/
- 20. Unexpected findings ● Rarity: no standard methodology of calculating it ○ Generally, each web has its own. ● Rankings can vary greatly from one methodology to other. Source: https://rarity.tools/
- 21. Unexpected findings ● Measuring demand before minting is hard ○ Social media followers don’t work: ■ Is common for accounts to fake # followers ● Red Flags ● Better cue: organic activity ○ Twitter interactions ○ Discord engagement
- 22. Unexpected findings ● Successful collections take time to appreciate ○ Cool Cats weekly floor price in USD
- 23. Unexpected findings ● Unsuccessful collections lose floor price fast (1-2 days) Source: https://www.thenifty.com/
- 24. Unexpected findings ● Artblocks is not an ‘easy game’ ○ Measuring price 7 days after mint date:
- 25. Advanced analytics: primary market ● Measuring offer for collections ○ Minting price * Supply = Minting marketcap
- 26. Advanced analytics: secondary market ● Measuring supply variations in collections: ○ Decreased supply -> possibility of price increase / supply shock Source: https://solanafloor.com/
- 27. Advanced analytics: secondary market ● Measuring demand in a collection ○ Using volume traded as proxy of demand could be misleading ■ Increased prices -> less affordable -> less volume ● Bored Apes collection Volume vs Price
- 28. Advanced analytics: secondary market ● Measuring interest in certain collection ○ Number of offers is: ■ A good indicator of demand -> A leading indicator of floor price
- 29. Advanced analytics: secondary market ● Quantifying momentum with tx size ○ Loot collection: Reduction of TXs + lack of high size Txs = fading interest
- 30. Advanced analytics: secondary market ● Spotting mispriced rare pieces: ○ Spotting mispriced listed NFTs according to its rarity rank ■ Rank 1-50 prices increase exponentially Source: https://solanafloor.com/
- 31. Advanced analytics: secondary market ● Dutch auctions (Artblocks) ○ Being greedy can end up being more expensive (gas) ○ Keeping in mind gas prices to avoid overpaying
- 32. Thinking strategies ● Understanding risk: ○ Higher risk-Higher return: recently minted collections ○ Lower risk-Lower return: renowned collections. ■ Price has been sustained over time. Source: https://cryptoslam.io/
- 33. Thinking strategies ● Primary market ○ Short term = speculation. ○ Higher risks ● Secondary market ○ Long term = appreciation ○ Lower risks
- 34. Thinking strategies ● Primary market ○ Project discovery ○ Connections ○ Being early and fast ○ Time demanding ○ Taking risks ■ Calculating the approximate rarity rank before release
- 35. Thinking strategies ● Secondary market ○ Project roadmap and deliverables ○ Community growth ○ Social recognition ○ Healthy indicators
- 36. Thinking strategies ● Secondary market ○ “Fundamental” analysis ○ Example found online Source: https://www.speicherx.com/
- 37. Useful links ● Upcoming NFT drops: ○ Filter by chains, social activity+links: ■ https://nextdrop.is, https://nftcalendar.io, https://www.non-fungi.com/ ● Rarity ranks: ○ Profile pictures: https://rarity.tools ○ Exclusively Solana: https://howrare.is ○ Artblocks: https://rarity.guide ● NFT analytics: ○ Marketplaces: https://dappradar.com ○ Collections: https://cryptoslam.io/, https://solanafloor.com/ ○ Collections floor prices (OpenSea): https://www.thenifty.com
- 38. Looking to the future ● Exchanges launching NFT marketplaces -> Ease the entry barrier of retail to DeFi ○ FTX US -> Recently launched. Soon supporting Ethereum. ○ Coinbase -> Yet to launch, >2M whitelist registrations. ● On-chain gaming ○ NFT + Gaming funds arising ● Digital Art ○ Sotheby’s auctions ○ More digital artists entering the space ● Metaverse ○ Facebook rebranding + Microsoft ○ Decentraland rise
- 40. Thank You! Questions? Juan Pellicer Research Analyst at IntoTheBlock Email: jpellicer@intotheblock.io Twitter: @juanmpellicer
Editor's Notes
- Hi everyone, thank you for attending to this intotheblock webinar My name is Juan Pellicer and we will be speak about NFTs. We are going to speak about NFT. Since we have done several webinars explaining NFTs, for this one we are going to go a bit deeper and suppose that you have already some basic experience buying and selling nfts The session is being recorded and will be uploaded to our youtube channel tomorrow as usual If you have any questions feel free to write them in the q&a panel and I will address them at the end
- These are the topics that we will cover today: Why trade NFTs? Is it profitable? Are there other considerations? Give a quick overview of the NFT activity nowadays. If is a fad or something that could stay in the long term We will show some unexpected facts that we found after analyzing 1 month of data of all the popular NFT projects that were minted Then we will show some interesting ideas of indicators that are not well known We will talk about strategies, how to think in terms of risk, what to value in the long and short term And finally we will share some websites that are useful to be informed about new nft drops, calculate rarity, of check some indicators
- Since our last webinar
- A lot of people requested us to include new analytics of L1’s, so here we are. These analytics are freely available even for those not registered -> check website/source
- Educational and informational purposes only We advice you to do your own research We hope that with these resources you will learn more about NFT
- COMPONENTS NOT MEASURABLE DIFFICULT TO BE QUANTIFIED SENSATION OF BEING PART OF A COMMUNITY ATTACHMENT AFTER USING A PFP FOR LONG FUN FROM MINTING TO SPECULATING WITH THEM ARTISTIC VALUE, HARD TO ESTIMATE PIECE OF A RENOWED ARTIST
- But today we are going to focus on profit.
- First we are going to quickly assess if interest on NFTs continues or is going down. Since many people think that the interest since summer is way lower, the fact is that is in ATH in google searches, surpassing Dogecoin or even Ethereum.
- This chart is the weekly traded volume on OpenSea overtime, the major Ethereum NFT marketplace This is one of the metrics that most people use to assess if NFT activity is increasing or decreasing. Many think that this decrease in OpenSea is due to the increasing costs of Ethereum, which partly is true:
- The fees since this summer have been in a constant increase, from less than $10 in june to over $40 today due to the high usage of the Ethereum chain So this definitely has been a factor. But analyzing the activity of marketplaces of other blockchains...
- It has been decreasing as well, for example the daily number of users or volume in these exchanges have decreased consi
- Cut your losses short
- In the short term
- BEFORE THE MINT Common problem: many collections have more offer than demand: either very high supply or high prices or both. This shows a way to value collections before they mint, we can get an estimated marketcap (if the collection would mint completely) by multiplying the Minting price times the Supply Projects that are awaited have high marketcaps but also some project with few interest that try to aim too high. This calculus can help to spot those
- AFTER THE MINT: Best indicator of vision of holders for the long term.
- One of the analytics for NFTs that is used more commonly is volume traded. This is a misleading indicator, because when a collection gets more expensive, less people can afford it and their volumes tend to decrease, while its floor price can perfectly maintain, so is not a good proxy of demand or interest
- Another idea is to track the offers are collection is getting on the marketplace Con: Sending offers costs no gas so some bots send ridiculous offer amounts in renowned collections to try to trick sellers Makes sense thinking that when the interest in a collection arises, first the potential buyers try to send offers cheaper than listing price, and if they are not accepted then they market buy
- This is another idea that can help you assess if a collection is gaining or losing interest A reduction of txs and a lack of high size txs can mean that the interest is fading As more expensive gets the collection, is normal that lower transactions come with time, but they should be either maintaining its price or increasing, not decreasing
- Here instead of looking at collections on NFTs and its rarity. This is a good idea to spot mispriced NFTs. This chart shows the prices of listed NFTs versus its rank Rarity ranks are priced exponentially. Until rank 500 there is almost no difference in price. Then price rises fast until the rarest prices. Following the curve that the distribution is following can help to spot rare pieces that are not priced correctly. (under the curve)
- Dutch Auction: minting begins with a high set price that decreases over time until the project hits its resting price or is sold out. Two tips: Trying to not wait until there is few of the supply left, because people rush to buy and gas prices could increase rapidly and end up overpaying Taking care of the current gas always. Certain gas spikes could make the minting notoriously more expensive
- This is equivalent to altcoins with big or small market capitalization Generally speaking those projects that have been performing well over a period of time are those that are more likely to maintain its price. Lindy effect: The more time has passed with a collection maintaining value the more it signs that investors find them valuable in the longterm
- Life cycle Time windows Unofficial sales - escrow, estimate rarity, verify that the nft is genuine Mktplace listing - usually rarity attributes are then disclosed but rarity rankings are not published yet
- Qualities that get rewarded
- fanbase
- This is an example of a framework that would be more sort of fundamental analysis. It evaluates different attributes of each NFT collection that could help an nft project to succeed and consequently increase in price. The idea is that this can be customized to the preferences of each investor. Many more attributes could be considered. Regarding the recommendations about how much to invest I would discard them. It depends on the NFT price and how much each trader is willing to risk.
- There are a ton. Here are condensed one of the most populars. We will leave these links in the description of the video in case you want to check them later
- The reason why I’m more excited in the short term is due to the fact that centralized exchanges are launching NFT marketplaces The volume of people that use centralized exchanges and not DeFi wallets is still big This is a good entry point for them to start to get interested in DeFi, without gas costs or having to learn self-custody FTX: we do not have much analytics about how it is performing, might be limited due to being in the US website of NFT Coinbase: their CEO says that this marketplace could be bigger than their actual crypto market, which makes sense considering that most things traded today are not fungible On-chain gaming: after massive Axie Infinity success everything is possible. If you are interested on Axie Infinity performance, we have a very interesting deep dive article in our blog Sothebys auctions: incremental number of NFT auctions
- Our next webinar will be held on December fifteen. We will review how staking works, what are the possibilities in Ethereum and other chains Ethereum. Also we will So don’t forget to check it out.