Are NFTs Still Profitable In a Bear Market?
The NFT market remains a relatively small sector of broader crypto. This means that the macroeconomic headwinds faced by Bitcoin and equities invariably stir up NFTs in their wake. Non-fungible tokens, as a nascent, rapidly growing industry, have become infamous for their volatility.
While this makes investing challenging, it doesn’t make it impossible. In fact, diligent investing in a bear market can provide incredible returns once upward momentum returns.
NFT investing is distinctly different from fungible tokens. Given that NFTs represent unique assets like art, there is a fair dose of subjectivity that influences collectors’ decisions.
Prominent pfp (profile picture) NFT collections generally comprise 5,000-10,000 individual items. As these vary greatly in rarity and aesthetic appeal, it’s impossible to establish an objective market price for a collection.
Rather, NFT investors use a collection’s floor price to roughly determine a collection’s relative value. This is displayed alongside a collection’s trading volume on NFT marketplaces.
Floor price simply denotes the lowest listing on offer within a collection at any given time. This fluctuates regularly as anyone can list their NFT below other items, thus setting the floor price.
While volatile, NFT collections often find stability as they reach a “fair” market valuation. As a result, the floor tends to move less, with lower-priced items being snapped up quickly.
Floor price goes hand in hand with rarity. As you might assume, the lowest-priced items in a collection are generally the most common. At the other end of the scale, a collection’s most rare offerings can command exponentially higher values.
While trading rare items can provide opportunities for outsized gains, these are far less liquid than their common counterparts. It’s much easier to sell common items than it is to find a willing buyer for very rare NFTs.
An extra layer of insight can be gleaned by examining a collection’s holder metrics. Analytics showing the number of unique holders in a collection can prove invaluable in determining a project’s strength. These insights include unique ownership, how many NFTs are owned per wallet, holder overlap with blue-chip collections, and more.
Harnessing this data is vital for investors hoping to gain an edge. Origin Protocol’s NFT arm, Origin Story, provides in-depth community analytics dashboards for all the marketplaces it powers. This provides collectors with key data available at a glance.
The Pudgy Penguins Community Dashboard, by Origin Story
Forms of NFT Investing
NFT collectors adopt a variety of roles that speak to the different aspects of the space.
On a high level, investors may either invest with a long-term vision or for short-term profit. We’ve put together a guide on NFT flipping for those interested in short-term plays.
Profile picture NFTs provide by far the greatest liquidity in the sector at present. Investing in pfp-based NFT collections can be highly lucrative as emerging projects quickly gain recognition.
Pfp collectors need to gain an in-depth understanding of the space’s culture, appetite, and communities in order to succeed. Keeping tabs on market activity makes it easier to assess which collections are likely to garner mass appeal. This provides a strong foundation to invest early with confidence.
While pfps are one of the most liquid forms of NFTs in space, this attention can be a double-edged sword. New collections launch daily, making for a crowded landscape. It’s important to be patient and remain mindful of bad actors.
Investing in Fine Art
Despite its popularity, pfps can often leave something to be desired when it comes to the artwork itself.
Instead, some collectors gravitate toward 1/1 offerings from individual artists. Despite being a smaller segment, the 1/1 NFT landscape is exploding with talent from some of the best artists alive today.
The NFT space has attracted serious creative heavyweights. These creators vary widely, from digital icons like Beeple and Trevor Jones to mixed media innovators like Daniel Arsham,
Be mindful that as with rare pfp NFTs, fine art pieces can be difficult to liquidate. That being said, discovering artists early and investing in their long-term success can be a highly lucrative strategy.
Beeple’s “Everydays”, auctioned for $69m
The NFT space has made tremendous strides in the space of just a few years. With that trajectory showing no signs of slowing, early NFTs have become prized items. NFTs that marked an innovation or encapsulated the space’s culture at the time can fetch high premiums on secondary markets.
This perspective makes it easier to understand how NFTs like Etherocks can command such high valuations. Despite representing a simple clipart image, these NFTs garnered widespread attention due to their historical significance.
Cryptopunks, one of the most prominent NFT collections, acts as both a pfp and a historical NFT. Their creation in 2017 gave rise to the ERC-721 token standard that NFTs use today.
Keep in mind that this is a crowded sector, as many speculators search to unearth a finite number of early NFTs. However, if you’re known for your blockchain sleuthing skills, you may just find the next long-lost grail.
See also: The History of NFTs
“Pepenopoulous”, a Rare Pepe (circa. 2016) sold for $3.6m at Sotheby’s
Utility Based NFTs
While NFTs today are primarily focused on art, this only represents one use case of budding technology. NFTs hold the potential to disrupt major industries by ensuring an asset’s provenance and eliminating the need for redundant third parties.
We’ve barely scratched the surface of these implementations. From the real estate industry to automobiles, there are endless potential applications for NFTs. As the space matures, increased emphasis will likely be placed on cultivating real-world use cases for NFTs. Paying close attention to these innovations as they launch is bound to give investors an edge.
Succeeding in the Bear Market
Investing in any speculative asset is challenging during a bear market. That being said, there’s still ample opportunity when it comes to investing in NFTs.
Patience is perhaps the most important weapon in one’s digital asset trading arsenal. Bull markets provide easy gratification, but bear markets provide real chances to make life-changing trades. It’s vital to trust your conviction and understand that others will go out of their way to poke holes in your thesis. It’s also important to ensure that you regularly assess your risk tolerance to avoid large drawdowns.
Investing in strong NFTs in the depths of the bear can provide a formidable foundation for bull markets to come.
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