Who earns during the price collapse in NFT market, review by Crypto-Upvotes experts

In July, prices for CryptoPunks, Bored Ape Yacht Club and other popular NFT collections fell by more than 60%. Our experts talk about the trends in the market. And the existing trading opportunities and its further prospects

In early July, the prices of the well-known and best capitalized collectible NFTs plummeted. And which are considered the blue chips of the NFT market. Collections such as CryptoPunks, Bored Ape Yacht Club (BAYC) or Azuki fell in price by more than 60% in just one month. This is attributed to market trends. However, even a bearish period leaves traders with opportunities to make money.

BAYC, which is backed by Yuga Labs, saw its floor price fall below 30 ETH for the first time since October 2021. At the time of publication, the price has recovered to 32 ETH (about $60k). But it is still far below the historic high of $370 thousand in April 2022. The news that singer Justin Bieber bought BAYC image #3001 for $1.3 million (500 ETH at the exchange rate at the time of purchase) had fallen in price by more than 20 times by early July was widely circulated on the web.

The fall in the NFT market comes on the back of Bitcoin’s rise

So far, NFT prices have been falling systematically since the beginning of the year. And bitcoin kept going to new annual highs, and now its return for the year exceeds 80%. Most altcoins have also been rising in price, but less aggressively. This is evidenced by bitcoin’s growing dominance – for the first time since April 2021, the figure exceeded 50% of the total crypto market capitalization.

Along with the fall in prices on the NFT market, the volume of trading on the platforms significantly decreased. This indicator can be seen as a marker of interest in the market. And the low volume indicates a smaller number of participants. According to NFTGo data, over the month the total daily volume of NFT secondary trades fell by 55% from $22 million at the end of June to $10 million or lower.

Copyright royalties (royalties) from NFT creators have also hit a two-year low. According to a recent report from analytics platform Nansen, weekly royalty payments peaked at $76 million in April 2022. And by the end of June, they fell 95% to $3.8 million. Royalties are directly tied to trading volume – many NFT projects include a commission on secondary trades when creating collections. And that is paid to them in the form of royalties and serves as revenue.

In addition, the total volume of royalties fell as some trading platforms made them optional in order to attract traders. This was the case with the market leaders Blur, OpenSea, Magic Eden and LooksRare. Thus, the reduction in trading volumes and changes in the market structure led to a noticeable decrease in royalties as the main source of income for companies and teams behind NFT projects and art creators.

Whale Games

The fall in NFT prices and trading volumes is also attributed to the growing dominance of the Blur platform. It is initially oriented at more professional traders and speculators. But due to its scale, transactions on it inevitably affect the entire market. After the launch of its own token BLUR and its sensational airdrop in February this year. Blur has implemented a user reward program where traders receive tokens for placing orders and listing NFTs.

Traders on Blur with significant capital (“whales”) who can afford short-term losses sell large NFT positions en masse. And which they previously purchased and then buy them back again, gaining more tokens through more trades. This is called “farming” the tokens. Selling these tokens in the future is likely to compensate them for their losses.

Such activity increases selling pressure and collapses minimum prices in collections. It also provokes panic selling by smaller traders. And some of them in addition take loans for trading against NFT or other crypto-assets in specialized services. The combination of these factors leads to fewer and fewer new users entering the market. Alternatively, they act as the buyer of last resort.

However, there is a contrary view that token farming increases liquidity on the platform. Those traders who engage in it get an incentive to place more assets on it. And thus preventing an even greater collapse of prices on NFT.

The resulting farmed tokens are actively traded on exchanges – at the time of publication, the price of BLUR is near an all-time low of $0.30, according to CoinMarketCap. This is nearly 80% below the all-time high of $1.40 reached in late February.

NFT market prospects

Like the broader cryptocurrency market, the NFT market is likely to continue to exhibit cyclical price dynamics. As new projects emerge in the sector, bullish cycles occur. And leading to increased innovation and adoption of new technologies. This eventually leads to the emergence of lower quality projects. And then a market crash and the start of a new cycle.

The NFT sphere could, in theory, benefit from the gaming business. Blockchain gaming has become one of the popular destinations for venture capitalists in the Web3 segment. And investment in this sector is estimated at $10 billion. Many of these games involve using NFT to represent ownership of in-game assets or players’ digital avatars. However, developing truly high-quality, high-budget games can take several years. And so it’s not yet obvious which developers can take on this niche and carve out a leadership role in it.

The NFT market is no longer limited to marketplaces like OpenSea or Rarible, where you can release new NFTs or trade them with other users. There are credit services or platforms for trading derivatives on NFTs from large collections. And allowing you to speculate on NFTs without actually owning them.

Earning opportunities

For those who believe the bearish trends in NFT will continue, there is an opportunity to make money on a short position (on a “short”). And roughly the same as in the traditional or cryptocurrency markets. To do this, you can use credit platforms such as NFTfi, Arcade or the Blend service on the Blur platform. In order to “short” NFT, the trader first defines a collection. And whose value he believes will decline. Then he uses the lending platform to borrow NFTs, sells the asset at the current market price. And then re-buys it at a lower value, after which he closes the loan.

Because such platforms require lenders to actually own the underlying asset. So borrowers can only “short” NFTs from the largest and most liquid collections. Those who, conversely, believe in market growth can use these same platforms to borrow against their NFTs. And accumulating more assets and taking profits if the market goes into a bullish phase.

Platforms for trading perpetual futures for specific NFT collections. NFTPerp, for example, allow speculating on the floor prices of popular collections without the need to own the underlying assets. However, this is still a new market segment and the services are highly dependent on external data providers (aka oracles). And who can distort the data, which creates corresponding risks. In addition, as in the traditional market, there is margin call risk when trading NFT futures.

Music NFTs

Our experts note that in addition to collectible NFTs or blockchain games, there are NFT-related initiatives from big brands or, for example, music NFT platforms. In July, the market decline did not prevent the Sound service from raising $20 million from investors. And that includes Andreessen Horowitz’s largest crypto fund (a16z crypto). The platform allows you to trade musical compositions in the form of NFT. And musicians who place compositions on it have already collectively earned more than $5 million.