If the chorus of Q3’21 in NFT world was “WE’RE ALL GONNA MAKE IT” (WAGMI), then the chorus of Q4 has been “ARE WE GONNA MAKE IT?”
The month of August brought about peak mania in NFT markets, as several projects went up 10–100x, and there was a period where you could throw a dart at an NFT project and make money.
Well the markets have reset a bit, largely due to a combination of Ethereum (ETH) ripping up, increasing gas fees on the ETH network making low-end transacting almost impossible, and over-saturation of new projects without matching demand.
Let’s take a look at where we’re at, starting with the macro NFT market view, then hitting different NFT sectors including Blue Chip PFPs, Art Blocks (generative art), and CryptoArt (SuperRare, 1/1s), and we’ll end with some predictions for 2022 and what is most likely to lead the next leg up.
NFT Market Macro View
As you can quickly see in the chart below from Dune Analytics (credit @rchen8), OpenSea volume has absolutely exploded from early 2021. Starting in June, we saw monthly volumes of $150mm, $328MM in July and then a staggering $3.4B in August. But since August, we’ve seen a steady downtrend.
September came in at $3B, October at $2.64B and November just closed at $2.38B, essentially dropping 10% in revenue per month since peak in August.
Anecdotally, it seemed that September benefited from money still circling around the ecosystem from August mania. Then October started with a boom with the MekaVerse project launch, which seemed to attract a large new buyer pool (15K ETH+ volume in the first week post-launch) leading to the huge weekly spike in early October (see chart below).
Then in mid-October the MekaVerse project tanked (from ~8 ETH floor to sub-1), ETH ripped, gas was high and buying activity plummeted. It was stair-steps down in daily volume all the way until mid-November, bottoming out around ~$40mm/day. Blue chip projects mostly followed suit, as most were down 30–75% in the dark days from October to mid-Nov.
But then in mid-November, we bounced back. The rally started when the Bored Ape Yacht Club project went absolutely nuclear on some major news and celebrity partnerships, and did ~45K ETH (~$200mm) in volume in about 7 days. Then the Wolf Game project debuted with its first of its kind Defi-meets-NFT yield farming mechanics (which did ~12k ETH in volume in its 1st 3 days post-launch), driving the next round of increased daily volume.
There are clearly more drivers than those two, as the volume sustained for the rest of November, and in fact the last 15 days of November projected out to a ~$3B month.
So while it seemed like November was a “bear” month — the numbers don’t really support that.
Then what are the other drivers of the increased volume? One potential driver — new traders and new money.
New users on OpenSea who have made at least 1 transaction continue to grow parabolically, eclipsing the 700k threshold in late November. For reference, there were 88k active users on April 1.
So we have new buyers who are bringing new money to the ecosystem, which is great news. And daily volumes have essentially returned to within 10% of peak levels.
Has this translated to increased prices in the blue chip projects? Not exactly.
Blue Chip PFPs
This sector of the market includes the highest performing “profile picture projects” or PFPs. These are typically viewed as collectibles versus digital art, and to make “blue chip” status by my definition, they need to have done at least $100mm in volume and hold at least a $10k floor.
If we take a look at the graphic from Nansen.ai and their blue chip NFT index view from the past 3 months, we can gain a high level view of what’s been happening. We saw the aggregate marketcap for this index reach 4M-4.5M ETH at peak (average between 3M-3.5M) in early September then steadily dropping down to between 2.5M-3M ETH by November end.
An obvious driver of that marketcap reduction is the drop in daily trading volumes. Daily volume was solid in Sept, albeit with spikes, but was very low from mid-Oct to mid-Nov, before recovering a bit in late November but only to ~50% of peak levels.
When liquidity in the NFT market dries up, floors drop fast and it quickly becomes a race to the bottom. Typically blue chips hold up better than the overall market, but certainly aren’t immune. Let’s take a look at some of the blue chip projects floor at the end of November compared to their all time highs (using data* from https://dune.xyz/rantum/NFT-Sales-Overview-by-Project).
There’s a lot to unpack from this table. The 1st takeaway is that the BAYC/MAYC ecosystem is performing the best by far, followed by Punks and Metaheroes. This is very important to take note of, as top performers during “bear” markets tend to perform the best in bulls.
But still all floors are down from peak — why is that? Each project is its own little ecosystem and has its own drivers, but from a macro level, it seems the drivers include:
-natural drop from unsustainable peak levels, which were driven by whale action
-rising ETH/altcoin prices/market demand and rotation of funds out of NFTs and into tokens
-the introduction of new projects, leading to sell-offs from the blue chips
We can see a great illustration of that last point in this graphic below from Lucky Trader. This is the monthly NFT project rankings, filtered by sales volume, and showing the top 16 as of Nov 30th.
Of these top 16 projects, 8 didn’t exist yet in Q3’21. Those 8 new joiners include Wolf Game, Doodles, Chain Runners, JRNY Club, Edifice, Lil Baby Ape Club and the Littles. I’m also including Parallel in the 8, as its volume is propped up from a Q4 pack drop.
Not all of these new projects have achieved blue chip status yet (some have, like Doodles), but they are clearly driving some noticeable sales volume and impacting the market. It doesn’t seem like there’s enough money in the marketplace to sustain the price levels of the prior blue chips, along with the incoming class.
But what about all the new traders? It looks like new traders want to trade the new projects, not the old ones. And bag holders of the blue chips see their liquidity drying up and are selling off to chase the shiny new projects as well. That trend, along with some of the OG NFT holders moving out of NFTs and into ETH (on the sidelines to to speak), seems to be the cause of the market action we’re seeing in the PFP market.
We’re seeing some similar trends in generative art as well.
Art Blocks (Generative Art)
This volume chart below pretty much sums up the Art Blocks market over the past few months.
August was peak euphoria. We saw major whale action, led by Vincent Van Dough and then his NFT fund Starry Night Cap, and for a few amazing weeks all of the sales revenue just cycled around the Art Blocks ecosystem. Almost every Curated project floor went up 10x or more, some as high as 1000x the price to mint.
Then the music stopped. We saw some trickle down volume through September, but October and November have been crickets. And this has had a major impact on the marquee Curated project floor prices. The best performers are down 50–60% and most are down 80%+.
This has impacted new projects as well. The Geometry Runners project from Rich Lord dropped during peak mania in August and minted out at 5 ETH in a gas war, netting the artist ~$40mm plus. This led the Art Blocks team to change the dutch auction structure to have higher starting prices (and higher ending prices as well, although the artists do control these).
We then saw two of the most highly anticipated Art Blocks drops, Skulptuur and Meridians, debut with an average mint price around 6 ETH. Then Curated drops took a pause at the end of series 4 in September, and since the long pause, the mint out price has been substantially less.
Here is a list of the average mint price for the 4 Curated projects dropping in November (there were none in October), along with their current floor price and trading volume.
-Edifice: 2.79 (3.4 floor and 5.1K ETH traded)
-Asemica: 2.18 (0.33 floor and 591 ETH traded)
-Autology: 0.76 (0.33 floor and 396 ETH traded)
-Bent: 1.08 (1.7 floor and 1k ETH traded)
So a bit of a mixed board there for new mints. Both Edifice and Bent are sitting above mint price, but Asemica and Autology are substantially below and essentially on the floor of the whole Curated set. The impact here is that traders who used to mint every curated drop are no longer doing so, taking a large chunk of the demand/liquidity out of the market.
Increasing project supply has also impacted market sentiment. There are now over 200 different projects on the Art Blocks platform and growing by 3–5 per week. Art Blocks has publicly stated they have no intention of limiting supply and view themselves as a launching point for generative artists. Which makes sense for the AB team. But there’s clearly not enough market demand to support all of these right now.
There are currently 26 open projects on the artblocks.io site which can be actively minted. In August at peak mania we reached zero as the whole platform sold out.
Some say its a healthy reset. We are starting to see pricing levels similar to what we had in early Q2, and Factory/Playground projects can be minted casually. Certainly for those who are “in it for the art”, there are much more attractive entry points right now to collect from your favorite artists.
But there’s a lot of trepidation in the market right now and a large percentage of traders who have simply exited this market due to dried up liquidity. It seems like we would need some major trigger event(s) (i.e. new whales or funds concentrated in Art Blocks) to rebound anywhere close to prior highs.
Time will tell, but I anticipate the remainder of Q4 to maintain the down trend and more holders looking to move into ETH even at steep discounts to their purchase prices.
It’s quite a different story in the CryptoArt space.
Late Q3 and early Q4 2021 have been famously touted as “1/1 season” on NFT twitter, and rightfully so. We saw the primary CryptoArt site SuperRare hit its all time high revenue month in October, coming in at $37mm.
The October surge was led by a combination of some major whale action and a major run on the work of OG artists, notably XCOPY.
Multiple XCOPY pieces sold over 1k ETH, including the all-time high of 1330 ETH / $6mm purchase of “A Coin for the Ferryman” just 1 month ago. His primary sales have been fetching new records as well, including his primary sale record of 469 ETH on his latest drop “DANKRUPT”.
The whale action was led by Starry Night Cap, who alone has spent ~4600 ETH building its portfolio of 1/1 art (check it out, it’s amazing: https://bit.ly/3lt3zPI). Other top collectors certainly took note and took action, taking part in the digital art land grab before Starry Night took everything. This led to several of the other top OG artists (Hackatao, Coldie, Dimitry, Matt Kane) work becoming “unobtainable” ($300k-$400k floors), as the “cheapest” pieces were swooped up.
But the OG artists’ success has been shared with newcomers on the scene as well. Several rising star artists have made a big splash on SuperRare in the past few months, notably AlphaCentauriKid (ACK), Dan Giuz and Seerlight, amidst several others.
ACK sold his genesis piece for 165 ETH, a genesis sale record on SuperRare. Dan Giuz has seen his work picked up by the top collectors and is fetching increasing prices upwards of 60 ETH consistently. And Seerlight has seen his work go from commanding single digit ETH prices to triple digit prices in just a matter of months.
So things are quite rosy in this sector, but I do have some concerns. The community of collectors who are actively driving this market is quite small, not much more than a dozen of key players or so. We are seeing a slow trickle of newcomers, and a few new whales, but certainly not enough to drive a next leg up or even maintain these pricing levels for most artists.
I think there is high likelihood that we will see sales prices trend down in the near term for most artists outside of an elite few, and even for top artists like XCOPY, I don’t think each new drop will be a record sale. Especially as we see an influx of supply in December.
But this will eventually correct, led by triggers such as supply slow down, new whales, better 1/1 valuation frameworks and education, and the next inning of “1/1 season” will commence. And overall this sector (1/1s from top artists) remains the safest place to park ETH in the NFT market.
Conclusion and Predictions
Overall early Q4 has seemed bearish, especially for the legacy blue chip PFPs and Art Blocks projects. But that is only compared to the August peak highs, and when compared to early 2021, all those projects are up substantially. Good news for the early collectors, bad news for those who entered in Aug/Sept time frame.
I want to revisit the blue-chip marketcap graphic from earlier in this post, with the data formatted a bit differently. Here we have the blue chip projects marketcap in USD and ETH, vs ETH price (credit @nelsonadcock).
The overall blue chip marketcap is actually up ~25% in USD terms, even though it’s down ~20% in ETH terms. Of course most crypto-natives only care about ETH prices for NFTs, but $USD value still matters to a good portion of traders. So it’s not all doom and gloom these past few months.
There are also plenty of big picture bullish indicators:
-Coinbase marketplace is coming, along with 2mm users on their waiting list.
-NFTs are gaining cultural relevance and acceptance with celebrities, athletes, musicians and brands (see Budweiser’s latest NFT and Adidas’s big collab).
-General public interest in NFTs is at all time highs based on google search trends.
So where do we go from here? I lay out some predictions below, in response to some of the biggest questions I receive and see on NFT twitter.
Questions and Predictions
- What happens to NFTs if ETH goes to $10k?
- Historically NFTs underperform when ETH rips up or down, and overperforms when ETH is stable. I think a lot of NFT-sphere thinks ETH is going to rip up to $10k, and thus I think legacy NFT traders sit on sidelines until ETH price action levels out.
- Preditcion: We will see continued bleeding in most blue chips for near future as most legacy traders sit out, which combined with potential tax loss harvesting, makes for a rough December. With that said, I do expect to see a rebound once ETH stabilizes; but a lot depends on the answer to the next question.
2. Which projects are the new NFT users (i.e. from CoinBase) going to buy?
- Recent data is showing us that new NFT money buys new projects, not the old ones. This is evidenced by the late November OpenSea daily volume data — daily volume is fine and not far from peak level, but the blue chips are still down. This is because the money is going elsewhere.
- Prediction: The average new coinbase NFT trader isn’t coming to buy the legacy blue chips — they’re likely going to chase the hot new PFP drop of the day. And they’re going to have some nice projects to choose from, as we’re seeing big players and artists enter this PFP space with new project drops (Seerlight, RTFKT and Hackatao). New drops will do well, but less likely for legacy blue chips.
3. Wen token?
- This may be the hottest question in the NFT space right now. We have recently seen the craze that Wolf Game and its $WOOL token created in just a few short weeks. Passive income from NFTs and Defi/NFT mechanics are absolutely the rage right now.
- Prediction: Tokenization will be hotter than ever, and will be the driver of the next leg up for those blue chips which utilize them (Punks Comic / MetaHeroes, CoolCats, and most notably Bored Apes). Tokens also create a more natural entry for the huge crypto-native user base to play in this space, which is a bigger user base than the NFT trader base by orders of magnitude, and will add to liquidity substantially.
4) Are new whales/funds coming? What about DAOs?
- There has been increasing chatter around NFT funds being spun up in Q4 (though we haven’t seen too many big entrances yet). But sentiment remains that they’re coming. And after the splash that ConstitutionDAO made, new chatter about PunksDAO, and the early success of DAOs like FingerPrints, Flamingo and PleasrDAO, I believe we’ll see a year of explosive DAO growth.
- Prediction: Funds and DAOs will be the wildcard for 2022. Given their backing likely coming from more of the legacy/OG traders, this DAO-led market action will be one of the biggest blue chip drivers in 2022 (vs new traders and new money).
This is my take on the current market and my predictions for what’s to come. I’m overall still very bullish on NFTs, but we all have to read the market and change direction/focus areas when presented with new evidence.
For me personally, this has led to a decreased focus on generative art and a greater focus on new PFP projects from top creators, projects with dedicated marketing teams, and projects with proven utility.
But as we’ve seen in the past, the market can change on a dime. I’ll certainly be paying close attention.
Enjoy this post? Let me know your thoughts! You can reach me at @tyler_did_it on twitter, and I’m always interested in chatting NFTs!