With the total market value of the cryptocurrency market approaching the $3 trillion mark, the NFT market has entered a cold winter, reaching its lowest point in a year. Is it time to buy the dip? This question can be answered by analyzing the fundamentals and on-chain data of the projects.
Table of Contents:
NFT market value shrinks by 50% compared to a year ago
Fundamental analysis
On-chain data analysis
While Bitcoin continues to reach new highs and the total market value of cryptocurrencies reaches a staggering $2.7 trillion, the NFT market seems to still be stuck in a winter slump, with both its market value and trading volume continuously declining.
According to data from NFT Go, the total market value and trading volume of the NFT market have both decreased compared to a year ago. The current market value is only 2.86 million ETH, a decrease of 50.77%, reaching its lowest point in a year.
In particular, Bored Ape Yacht Club (BAYC), considered the first blue-chip NFT, has seen its floor price drop below 13 ETH this week, reaching a new low since August 2021. This market performance undoubtedly makes many investors wonder if the NFT market has bottomed out and if now is a good time to enter.
To assess whether the market has bottomed out, we will analyze the insights provided by crypto analyst JZ Invest, who evaluates whether a project is suitable for buying the dip based on its fundamentals and combines it with the distribution of on-chain data to determine when investors should enter.
To evaluate whether an NFT project is suitable for buying the dip, investors can consider the project’s background, source of funding, and revenue generation. They can ask themselves the following questions:
– Does it have support from large Web2 companies, such as Memeland and RTFKT?
– Has it received investments from top VCs, such as the $450 million investment led by a16z in Yugalabs?
– Has it generated significant profits from primary market sales and is still operating? This can be determined from the sale price and the number of tokens issued.
– Does it have sustainable revenue models, such as secondary market royalties, other utilities, or the release of other series?
– Does it have a strong and active community culture?
Additionally, regulatory risks associated with NFTs must also be considered.
Once investors have assessed that a project is suitable for buying the dip, they can use tools like Nansen and Opensea Pro to find clues about the distribution of tokens on the blockchain. In summary, we should follow the buying logic of smart wallets. Nansen helps us identify suitable smart wallets, while Opensea Pro provides detailed transaction records of wallets.
Taking BAYC as an example, searching on Nansen’s NFT God Mode page will display a chart showing smart wallets as yellow dots. It can be observed that after BAYC fell below 15 ETH recently, six smart wallets made purchases. It is important to exclude wallets that are engaged in point farming, which can be determined from the frequency and quantity of their purchases.
After upgrading to Nansen, investors can copy the address of the smart wallet and paste it into Opensea Pro to view its detailed transaction history. This will help clarify the buying logic of the wallet. Screenshots from JZ’s article illustrate possible trading strategies of smart wallets.
The record of nakari.eth trading BAYC, shown below, indicates a strategy of continuous buying and profiting from small price differences.
The record of BAYC trades by nakari.eth. Source: Opensea Pro
The record of hanwe.eth, who previously countered the copy-trading bot, shows a strategy of continuous buying, lending on Blend, and engaging in swing trading.
The record of BAYC trades by hanwe.eth. Source: Opensea Pro
Through these analyses, investors can learn from them and find strategies that suit their own preferences (but remember not to directly copy them, as whale-sized capital has inherent advantages in trading).
It is also important to consider the potential upside. By referencing historical highs of NFT floor prices and considering the long-term potential of projects, investors can estimate the potential increase in value when the bull market returns. Such investment strategies are worth considering only when the expected risk-reward ratio reaches an attractive level.
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