Since March 2022, the NFT market has waned compared to its ATH, but trading remains active. Now, about a year since the beginning of the bear market, we can ask how the NFT industry has been affected. What does it mean for investors?
In this paper, 0xScope, in conjunction with Footprint, examines the performance of the emerging NFT industry from June to September 2022. We answer the above questions by analyzing user behavior, on-chain transactions, actual activity behind projects, and performance in terms of NFT prices.
Main research topics
NFT use cases are currently focused on games, metaverse, art and social communities.
GameFi economics are inseparable from NFTs, while in the Web3 social sector, NFTs are an on-chain asset that can complement a user’s identity. In the future, with the development of metaverse and the expansion of users’ digital assets, NFTs will have even wider applications.
This report delves into the performance of each element of the NFT ecosystem by examining the NFT projects still in circulation in the market and how they performed during the bear market cycle in the first half of 2022.
- How do we view the impact of macro and historical events on the NFT market?
- What is the recent buying behavior of the NFT market? How is consumer and VC confidence in 2022 compared to 2021?
- How many daily active users are still in the NFT trading market (one of the most important indicators)? What are the NFT projects that users are still interested in?
- How many new users are there in the NFT trading market? How many of these addresses are real users, and how many are wash traders?
- NFT Market Overview
ETH is the most common payment currency for NFTs. While the prices of NFTs are already extremely volatile, the price volatility of ETH exacerbates the price instability in this market. In a bull market, buying NFTs can gain NFT appreciation as well as ETH appreciation, and vice versa in a bear market. However, there is also the possibility that one’s NFTs lose liquidity and they will be unable to liquidate them.
The following chart shows the relationship between the total market capitalization of NFTs and the price of ETH over the past year: the bar chart represents the total market capitalization of NFT, and the line chart represents the trend of the price of ETH. It can be seen that the overall market capitalization of NFT shows a strong correlation trend with the ETH price. The only difference is that from February to May 2022, the NFT market cap was still overheating even though ETH was in the process of falling, reaching a maximum of 40B total market cap. After May, the value of NFTs bottomed out along with ETH. Until recently, in November and December, it seemed that NFT market cap gradually broke away from the price impact of ETH and rose again to 32.8B.
Overall, the NFT market cap follows the ETH price movement and behaves more drastically. When the ETH price plateaus, the NFT market cap may break away from the ETH price trend and start an independent market. A point worth noting is that due to the fact that anyone can create an NFT series and the presence of high floor prices and low liquidity NFTs, there will be a serious bubble in NFT market cap.
- Real Traders in the NFT Market
As of November 2022, the total transaction volume in the secondary market for the entire NFT segment of the Etherchain reached 72.1B, and still had a total transaction volume of 3.4B in August and October, when the cryptocurrency industry was depressed. During these 3 months, a total of 1.55M addresses were involved in NFT transactions, with 0.96M buyers and 1M sellers, roughly an average of 2183 USD per address traded.
But since everyone on the blockchain can create unlimited addresses, what is the approximate true trader base? Let’s take the data for October as an example. The total number of addresses, buyers and sellers trading NFT in October are: 392,707, 231,727 and 266,983 respectively. October trading NFT total number of entities, buyers, sellers, respectively: 262,752, 171,636, 179,024
You can see that the number of entities is much less than the number of addresses, because the address imputation algorithm used by 0xScope is able to group addresses that may belong to the same person into one entity, so each entity may represent multiple addresses behind it.
Also we calculate the real trader ratio separately: 67%, 74%, 67%
67% means that less than 7 out of every 10 addresses of all NFT trading addresses may be real traders. So the base of NFT traders in October is about 0.26M, and the average trading volume per person will also increase compared to the number of addresses used.
- Real Traders in Mainstream NFT Marketplaces
The percentage of real users is calculated as: Total number of entities interacted with / Total number of addresses interacted with.
The higher the percentage of real users means that the majority of the project users only use one address, while the lower the percentage means that people may use multiple addresses and have suspicious behaviour.
From the figure, we can see that the proportion of real users of the entire NFT market is not high. On average, each user has roughly used at least 2 addresses for interaction. Among them, X2Y2 (56%) and Element (53%) have the lowest percentage of real users.
The following chart will further explore the daily real user rate of projects.
The blue bars represent the number of new addresses, and the green bars represent the number of new entities.
The yellow dash represents the daily trend of the real user ratio of new users.
The orange dash represents the historical trend of the real user ratio for all users
New users are critical for a project because they determine its lifecycle, popularity, and compensate for the impact of lost users on daily activity. One effective way to increase new users is to run campaigns, but how do you judge the effectiveness of a web3 campaign? It’s not just about how many new interaction addresses are added, for example a wash trader may bring hundreds of addresses, but the number of entities behind them may only be 1. So it also depends on the percentage of real users added, and the higher the percentage the better.
Besides OpenSea, the other 3 main NFT trading platforms have relatively high daily fluctuations in the proportion of real users, especially Element. This marketplace had a high number of new users in September and October, but the proportion of real users reached as low as 30%, indicating serious wash trading problems. This fraudulent activity can include wash trading for incentives and bulk address purchasing of one’s own NFT collection to inflate the price.
- Real NFT Holders
Using the same approach as before, the number of addresses held, the number of entities held, and the percentage of real holders for each of the current mainstream NFT collections are counted. The lower this percentage, i.e. the more concentrated the NFTs, and therefore the smaller the number of people controlling a large number of NFT assets.
One reason to cloak one’s ownership of NFT bulk purchases is if you intend to front-run trades. For example, previously OpenSea executives were informed in advance of what its NFT Banner would show and made a profit by buying those NFTs in advance. To put it in perspective, if you know that an NFT series is going to rise and you don’t want to be found out from the holder list, you should split your purchases into different addresses.
The second is to control the floor price. Because the floor price will affect the sentiment of ordinary NFT holders, concentrating ownership of NFTs in a collection allows one to manipulate the price of bulk address pending orders and thus affect the entire NFT floor at different price levels. Therefore, for the average investor, avoid the NFTs with a skewed percentage of holders.
Based on the data and analysis above, we assume that:
- The overall market capitalization of NFT shows a strong correlation trend with ETH prices, and when ETH prices stabilize, the market capitalization of NFT may break away from the ETH price trend and open an independent market.
- The price of NFTs has had brief fluctuations during 2022, but overall the future is promising.
- In 2022, the number of real users in the NFT market accounted for about 70%, that is, for every 10 addresses there may be less than 7 real traders.
- At present, the top NFT collections in the market are Bored Ape Yacht Club, Otherdeed, Mutant Ape Yacht Club and Meebits.
This piece is a joint report by Footprint Analytics & 0xscope.
The Footprint Community is a place where data and crypto enthusiasts worldwide help each other understand and gain insights about Web3, the metaverse, DeFi, GameFi, or any other area of the fledgling world of blockchain. Here you’ll find active, diverse voices supporting each other and driving the community forward.
Footprint Website: https://www.footprint.network
0xScope is the first Web3 Knowledge Graph Protocol. It solves the problem that Web3 data analyzes addresses instead of real users by establishing a new identity standard — — the new Scope Entity from the data layer. And it unifies the standards of different types of Web2 data and Web3 data by utilizing its knowledge graphing capability, which greatly reduces the difficulty of data acquisition and improves data penetration ability. Based on real-time, deep transaction tracking capabilities and a rich set of address tags, 0xScope provides Web3 organizations and projects with powerful financial risk control products and business insight reports.
Links for 0xScope
Apply for API: https://developer.0xscope.com
Disclaimer: The views and opinions expressed by the author should not be considered as financial advice. We do not give advice on financial products.