How to Navigate the NFT Bear Market
Users can navigate the NFT bear market by looking out for unusual increased price volatility, which can be caused by an imbalance between sellers and buyers due to whales selling off. Users can also look to employ strategies like bulk minting, strategic selection and diversification, batch buying, and bottom-fishing across multiple NFT marketplaces.
Investors can identify opportunities to trade NFTs before a price drop by looking at whale sales, the balance between sellers and buyers, asset accumulation by short-term holders, and increased price volatility.
Some common strategies employed by profit-making NFT holders include using multiple platforms, bulk-minting, diversification, strategic batch and decline-rate buying, bottom fishing, and potentially focusing on the rarity score of NFTs within blue chip projects.
We look at how some NFT traders have applied these strategies to successful NFT investment
The NFT market operates within its own distinct economic cycle. The recent significant drop in the floor price of NFTs has left many investors and enthusiasts perplexed, especially for many blue chip NFTs. However, the bear market also presents an opportune time for investors to accumulate assets at lower prices and trigger a new hot wave in the market. For instance, projects like Opepen Threadition have injected new energy into the market with their “for the culture” vibe, resulting in a remarkable 72.7% increase in the floor price of Opepen Edition over the past 7 days.
Therefore, it is crucial to identify the optimal timing to buy the dip and maximize potential returns. In this article, we will delve into the reasons behind this dramatic decline and explore the strategies employed by influential investors, commonly known as “whales.”
How to Identify Opportunities Before the Price Drops
In this section, we’ll look at how users can identify opportunities before the price drops.
Whales Are Selling Off
Whale activity in the NFT market often correlates closely with price changes, as evidenced by the trend seen in Bored Ape Yacht Club. Based on the relationship between whale sales and floor price fluctuations in the last year, each instance of relatively sharp price fluctuation aligns with significant sales by whales. This suggests that the actions of these major players may, in fact, precipitate changes in the market, underscoring their role in influencing price volatility.
Source: NFTGo.io, Floor price & Whale Sales of Bored Ape Yacht Club
An analytical view of the data from BAYC and Azuki further substantiates this observation. Both correlation coefficient between whale sales and floor price changes are over 0.7, which reveals a strong positive relationship, indicating that as whale sales increase, the floor price tends to decrease. This correlation, while not perfect, is substantial enough to merit attention.
Crucially, this correlation also appears to be slightly predictive, with whale sell-offs typically preceding shifts in floor prices. This time lag could be explained by the market’s response time in adjusting to the increased volume of NFTs released by the whale’s sale. Thus, by tracking whale activities, investors may be able to anticipate upcoming market fluctuations.
Data Source: NFTGo.io, Series of Top Sellers/Buyers
Imbalance Between the Sellers and Buyers
Another noteworthy finding is the presence of a market imbalance, characterized by an evident surplus of sellers compared to buyers. Specifically, when analyzing the recent 10,000 transactions related to the Bored Ape Yacht Club (BAYC), it becomes apparent that the number of unique addresses engaged in selling activities (401) is nearly twice the number of addresses involved in purchasing (238). This discrepancy in participation potentially amplifies the downward movement in prices, signaling a bearish sentiment and an increased focus on seeking liquidity.
Source: NFTGo.io, Unique Address of Recent 10,000 BAYC Transactions
Asset Accumulation by Short-term Holders
The sudden surge of short-term buyers (holding period less than 24 hours) in the BAYC market on June 2 aligns with a market scenario in which investors capitalized on the price reaching its lowest point. Essentially, these quick-acting individuals took advantage of the declining floor price, acquiring BAYC NFTs at the most favorable value, primarily from holders who had held the assets for 1-7 days. This observation suggests a sense of urgency and opportunism among these buyers, who aiming to secure profits given the attractive price levels. Subsequently, the swift return to average short-term holder numbers in the subsequent days indicates that these investors promptly sold off their newly acquired BAYCs, reinforcing their speculative intent.
Source: NFTGo.io, Holding Period Trends&Distribution
Unusual Increased Price Volatility
High liquidity, often signifying a vibrant market, can in some instances hint at upcoming price drops. For example, Bored Ape Yacht Club saw unusually high liquidity from Feb 22, correlating with a floor price decrease starting point for this year. This surge in liquidity, potentially from increased seller activity, can put downward pressure on prices if unmatched by buyer interest. More striking was the high liquidity volatility from June 5 to July 3, indicating market uncertainty. With an imbalance of sellers over buyers, this uncertainty likely contributed to the lowest floor price on July 2. Therefore, monitoring liquidity changes and volatility can offer valuable insights and act as a signal for potential price declines in the NFT market.
Source: NFTGo.io, Floor Price & Liquidity
Profiles of Profit-Making NFT Holders
Source: NFTGo.io, Top PnL traders
Individuals need to earn more than 7K ETH to enter the top ten list of profitable makers, which includes famous Twitter influencers like @rollbitcom. Many of them on the list are blue-chip holders and have the ability to discover opportunities before anyone else. As a result, we have summarized their strategies and list some whales you should trace below.
Explore Multiple Platforms
Limiting oneself to popular platforms like OpenSea can mean missing out on unique opportunities found on other NFT marketplaces such as Blur, X2Y2, and LooksRare. Exploring these can widen an investor’s selection and offer unique investment opportunities.
This strategy primarily involves participating in the initial minting process of new NFT projects in large quantities. Investors often secure their position on whitelist by completing prerequisite tasks, thereby earning the privilege to mint ahead of others. Some opt for direct bulk minting through contracts, a method that potentially allows for faster and larger-volume minting. Additionally, freemints are another area of interest for these investors, often leading to significant profits. The bulk-mint strategy, therefore, is multifaceted and requires a high level of involvement and knowledge about the nuances of NFT project launches.
Strategic Selection and Diversification
This involves the purchase of NFTs based on rarity within blue-chip projects and diversifying investments across emerging projects. Rarer NFTs often retain their value better, making them a worthwhile investment. Setting alerts for specific rare traits allows investors to buy when prices drop and then either hold for potential long-term gains or resell at a fair, yet profitable price. Diversification, particularly for emerging blue-chip projects, is another critical aspect of this strategy. Buying a mix of NFTs from these projects spreads risk and increases the chances of acquiring high-value assets. For instance, an investor saw significant returns from acquiring a diverse selection of CryptoPunks and Meebits.
Strategic Batch and Decline-Rate Buying
Savvy investors often purchase NFTs in bulk, aligning their buying strategy with price declines. They segment their purchases into tiers based on price range, buying at each significant price drop to maximize potential returns. Additionally, some investors focus on the rate of price decline, buying more aggressively as prices fall steeply. By setting alerts for specific collections, these investors can react immediately when prices hit their target lows. For example, a whale investor in Bored Ape Yacht Club (BAYC) demonstrated this strategy by buying into the collection at each 10% price dip and diversifying purchases across different rarity categories.
A high-risk, high-reward strategy. “Bottom-fishing” involves making below-market-value offers for NFTs in the hope of acquiring undervalued assets. It requires excellent market knowledge to identify potential bargains and the patience to wait for the market to realize these NFTs’ actual value.
Rarity of Blue Chip Projects
When it comes to major blue chip projects, prioritize purchasing NFTs based on their rarity. Rarer NFTs tend to hold their value better over time. You can use alert monitor NFTs containing specific traits 24/7. When the related NFTs reach a specific price, you get notification – then you snipe it. After the purchase, you can choose to hold it for a long time, or sell it to another collector at a price higher than the purchase price but still a fair price – for a quick profit.
NFT Traders to Keep an Eye On
To substantiate the aforementioned strategies, we will examine specific trading addresses within the NFT market. By scrutinizing the transaction activities of these particular wallets, we aim to provide a concrete understanding of the practical application of these strategies, thereby demystifying the complexities of successful NFT investment.
Address: 0xd387a6e4e84a6c86bd90c158c6028a58cc8ac459 (pranksy.eth)
This address actively uses the bulk-mint strategy and keeps its portfolio diversified. Over the past three months, Pranksy.eth minted around 1.1K NFTs, including 121 from Ether Avatar and many from lesser-known projects, demonstrating a deft execution of the bulk-mint strategy. Furthermore, Pranksy.eth’s portfolio is impressively diverse with 331 collections, 90% from lesser-known NFTs, embodying strategic selection and diversification. This strategy reduces exposure to single-project volatility and broadens the possibility of hitting high-value assets. Through these strategies, Pranksy.eth creates a multi-avenue profit model while maintaining a balanced portfolio.
Address: 0x3fb65feeab83bf60b0d1ffbc4217d2d97a35c8d4 (chungster.eth)
This address actively makes strategic selections and explores multiple platforms, where strategic fluidity is an asset in the ever-evolving NFT landscape. This trader is attuned to the NFT market pulse, with transactions echoing trending themes such as Opepen, Ether Avatar, and Azuki Elementals. Moreover, chungster.eth displays remarkable platform versatility, not confining themselves to a single marketplace. They adapt to various communities’ preferences, with trading activities spread across Blur, OpenSea, and even more nuanced approaches like using OpenSea Pro via Blur or LooksRare Aggregator via OpenSea. This platform exploration amplifies opportunities, catering to specific community dynamics, and broadens the scope of potential profitable trades.
This address proficiently employs a mix of strategies: Strategic Selection, Batch Buying, Bottom-Fishing, and Diversification. They skillfully bought similar NFTs in bulk, like 8 DeGods, 6 Azukis, and 8 MAYCs at the same time respectively. When bottom-fishing, this trader showcases adroitness, purchasing Fatzuki NFTs at a low price of 0.2 ETH and swiftly selling them at 0.3 ETH. This rapid buy-sell strategy indicates an adept reading of market dynamics and a sharp eye for profitable opportunities. This address’s portfolio only contain 4 collections, but the trader’s activity spans over 10 collections, which also incorporates lesser-known collections. This strategic diversity illustrates a willingness to explore untapped potentials and underscores a thorough understanding of market fluctuations and opportunities.
In conclusion, it’s clear that influential whales and profit-makers are significantly shaping the landscape of the NFT universe. Their on-chain activities not only mirror market trends but also stimulate the growth of NFT projects with their considerable capital and reputational influence. As a result, assessing the number of whale holders has emerged as a crucial metric in evaluating the potential of NFT initiatives. This analysis of effective strategies and notable players highlights the importance of astute market knowledge and strategic approach in succeeding in the vibrant world of NFT trading. Through NFT analytics, individuals can effectively navigate this complex market, leveraging the ripple effects created by these whales to identify and seize opportunities in 2023 and beyond.
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