Observe more and act less, wait patiently, and capture the signal of the NFT market’s bull return.
Observe more, act less, and patiently wait for the signal of the NFT market's bull return.
In September 2020, an innovative term “NFT (Non-Fungible Token)” began to gradually enter people’s field of vision and was captured by a few early players and institutions. However, starting from February 2021, NFT exploded in growth, with a weekly trading volume exceeding $2 million. Within a few months, the total market value of most NFT projects increased by up to 2000%, attracting a large number of outsiders to learn and enter the market.
As more and more people join, the “consensus” spreads among the crowd. But for many, the first goal is how to invest and profit from the rapidly growing NFT market. The rules of the NFT game are very different from traditional ways of doing things. Although consensus is a wonderful thing, the culture behind many projects is also worth our attention and love. However, we cannot deny that during a bull market, most NFT projects resemble a game of passing the parcel, and it is difficult for a small image to have such high value at the beginning.
Therefore, in less than 150 days, when most users have just figured out what “non-fungible tokens” are and what PFP is, and are preparing to proclaim “everything can be an NFT” and make grand plans, a liquidity crisis has quietly permeated every corner of the market and the market has started to plummet. In the short term, people still held hope for a “mere correction”, but the situation did not improve afterwards. Many projects went to zero, and even the top blue-chip project BAYC fell nearly 90% from its peak.
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According to data from NFTGo, there were only over 40,000 profitable users in the past 7 days, while the number of users who suffered losses reached 450,000. It can be seen that the market has been in a cold winter.
Some people jokingly say, “Isn’t the essence of NFT just to see a small picture you like, Ctrl C + Ctrl V, do you still need to buy it?”
Every bull and bear market will wash away a large number of users, and NFT is also experiencing its first bear market. Those who are still paying attention to the NFT track are surely racking their brains to think about when NFT will recover and how to capture the signals of recovery in advance.
First of all, we must understand that it is generally difficult for the NFT market to recover autonomously. The essence of sector rotation still lies in the entry of funds. The market of tokens can rely on the overall economic environment, but for NFT, it has not yet become an investment target for many traditional investors and institutions, making it difficult to be influenced by traditional financial environments.
Therefore, the resurgence of NFT is more reliant on its own “hard power.” There are three signals for reference:
The first point is to pay attention to the new actions of the giants and look for positive news.
In the previous cycle, the metaverse project gained popularity, largely due to the parent company of Facebook changing its name to Meta. Giants have abundant funds, extensive resources, and professional team judgments; each of these points is enough to push a certain niche track to its climax. Moreover, it is widely recognized that giants have good foresight, and it is easier to profit by following in their footsteps.
However, sometimes you need to be cautious. Giants often manipulate the market by spreading positive news, and there may not be any signals when their funds exit early, making it easy for people to be oblivious. Secondly, the giants’ perspectives are not 100% accurate; for example, in the first quarter financial report of Facebook’s parent company Meta, its metaverse business unit, Reality Labs, suffered a quarterly operating loss of $3.99 billion.
But without a doubt, if there is another new action from a giant in the industry, the market will not be so quiet.
The second point is to pay attention to the emergence of groundbreaking applications.
Just as the emergence of StepN opened the era of Play-to-Earn (P2E), various projects related to running, jumping rope, and even “Sleep to Earn” emerged one after another, and many domestic news media began reporting on StepN, making everyone “alert,” showing how popular it was at the time (although StepN was not the first similar application, it was indeed the first to combine and break the circle with NFT).
If there is another similar application, it will definitely bring a lot of heat. Just like the recently launched blockchain game Matr1x, it gives many users in the industry hope for breaking the circle in blockchain games—finally, blockchain games have gameplay, not just 4399. However, even if a circle-breaking application appears again, we should also look at how the economic model is designed. Otherwise, the final outcome will be a death spiral, and users will return to “Work to Earn.”
The third point is to pay attention to the data.
Although I say that the essence of sector rotation is the influx of funds, this is precisely the most important point; where the funds flow, there will be hotspots and a resurgence. Good projects may not necessarily fall, but bad projects will definitely not rise—of course, this excludes some short-term gambling-like MEME projects.
We may not be able to know some news firsthand, but the data is definitely the most accurate and true reflection of market sentiment. In this regard, we can go to some data platforms (such as NFTGo) and keep an eye on some important data indicators, such as market sentiment indicators, the number of traders, profit and loss ratios, and the trading volume of whales. Once the data shows abnormal changes, we can spend more time investigating the reasons and make judgments as soon as possible.
Every bear market is difficult to endure, but compared to the “blockchain” that was called a scam by many people five years ago, the current bear market is much gentler – because there are always people building, at least we believe that the bull market will come back, rather than questioning whether the track will disappear.
So, in the first winter of NFT, what can we do to better prepare ourselves for the bull market? Here are a few points for your reference.
The first point, watch more and act less.
The most painful thing about investing is losing money when the bull market arrives. The projects that still have heat in the bear market are mostly MEME-like projects with strong gambling characteristics and very low profit-to-loss ratios. However, because the market has been inactive for too long, impatience may arise and it is easy to FOMO in and deplete ammunition. We can easily see wealth myths online (such as PEPE’s 100,000-fold return), but there are very few familiar people in reality. The probability of getting rich overnight is very low. Giving up fantasies and being down-to-earth is the path to wealth accumulation for most people (although being a 10U war god is not impossible).
Therefore, in the bear market, we must manage our funds well and watch more and act less.
The second point, in the bear market, always remember that primary market > secondary market.
Even projects like Ordi that created myths of thousand-fold returns in the bear market, most of the users who bought in the secondary market are in a trapped state – because when you know about a project, it is likely already at a high level (previously, NFT Labs reprinted an article “xxx” in the early days of BTC Inscription, and those who followed and operated should have made a lot of profits). Even if you are bullish on a project in the long run, it is best to wait for the FOMO sentiment to pass before slowly bottoming out. Projects that take off in the short term will always have a landing time, after all, most big players also need to sell their holdings.
In the previous bull market, I suggested that everyone try to obtain white-listed mints rather than buying in the secondary market, and this is especially true in the bear market. In addition, innovative projects with first-mover advantages have more collectible value and their prices are more capricious, such as Punks on the ETH chain, Sub10k on the BTC chain, and so on.
The third point, keep an eye on innovation.
Whether NFTs can truly have some use cases is only a matter of time, because this actually depends more on the popularity and acceptance of encryption and blockchain in reality. But even in the bear market, NFTs are always innovating and progressing. For example, the recently released ERC6551 protocol (one of its authors, Benny, is also the inventor of ERC721) allows an on-chain NFT to contain coins, SBTs, and other NFT assets and package them together. This can bring many new narratives and use cases, such as the sovereignty of PFP NFTs, equity NFTs, and virtual item attribute splitting.
Based on these protocols, there may also be some groundbreaking applications (such as interesting applications that customize unique NFTs for each person based on their personality), which may trigger a rebound in the market. It’s always a good idea to stay informed. The information gap in understanding new things is likely to be the source of your first pot of gold.
Every bull-bear transition will have people entering and leaving the market; this essentially reflects the difference in long-term investment judgment. Therefore, all you need to do is to pay attention to innovative products in the race track that you believe in, and with patience for long-term learning and appropriate trial and error, you will soon have your own investment strategy.
Also, it should be noted that the popularity of NFTs is currently much higher overseas than in China. Recently, events such as the explosion of the slogan “For the Culture,” controversies caused by the new edition of DeGods, and interesting projects like Milady, frEns, Punks2023 have all happened overseas, with little attention from domestic investors. Therefore, it is necessary to have an international perspective. Sometimes, when you lose confidence, looking at the (NFT) world from a different angle will bring clarity.