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Market Place Analytics - Understanding the Basics
Hard Money, Easy Math.
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Before you dive in, I’ll be using this report to source this document with some extraneous sources cited through hyperlink. This is going to hopefully paint the picture over who is buying NFTs, what they can buy, and where to buy NFTs.
Who is buying?
NFTs may be one of the least institutionally invested sectors in Crypto and other alternative markets. “Market Makers” and institutional investments make up 0.6% of the total investments.
See that dark blue line at the bottom? That’s the institutional investors, AKA hedge funds, venture capitalists and investment firms, if this was replaced with a stock market chart, it would look something like this:
In the stock market, 85% of the volume of trades on the NYSE is done by institutional investors. Notice the “collector’s” category, that’s people that spend $10,000 to $100,000. I imagine that “collectors” likely make up more of the volume than regular “retail”. Retail investors are your average citizen investors. Something else, that’s more interesting is that just 5% of all addresses account for 80% of profits made on secondary sales. Somewhat unsurprisingly: The most successful NFT flippers buy and sell significantly more NFTs than other investors, with the most successful buying and selling 135+ NFTs.
What’s getting bought?
In 2021, there were $44.2 billion dollars spent on ERC-721 & ERC-1155 tokens. ERC-721 are standard NFT contracts. ERC-1155 is the newer iteration of NFT smart contracts, that can be fungible, non-fungible, or semi-fungible. One thing this doesn’t account for is ERC-20 contracts.
ERC-20 = Token. Certain games, DAOs, or projects have utility tokens or financial tokens within their ecosystem. Utility Tokens are tokens that are created by a project or team that legally has 0 value outside the ecosystem. This is done to avoid being deemed a “security”. The “liquidity pool” has to be established by the community and the team will only be able to oversee distribution. The liquidity pool is the total exchangeable funds that exchanges can draw from. This is vitally important because messing with security and taxes will likely be a death sentence for a project. This may not seem like much, but ERC-20s have BILLIONS of dollars in net worth.
One, in particular, $SAND, an ERC-20 token that supports the Sandbox ecosystem had $1,145,462,944 worth of volume in the past 24 hours. Now I can understand why this report left some of these tokens, they “legally” have no value or maybe should be considered a “cryptocurrency”, but I have to wonder how much higher token values may go. $AXS, another ERC-20, is used within the Axie Infinity ecosystem and has a market value of $4.2 billion, which is comparable to $SAND’s $4.3 billion. Together two ecosystems have a pool of just under $9 billion dollars. Now you have about $53 billion dollars surrounding the NFT ecosystem and that’s not counting other major tokens.
A common source of friction to get into NFTs is the price of the barrier to entry. For instance, minting or buying an NFT at .1 Eth can cost $200-400 depending on Ethereum. What if you want to invest in an ecosystem, but can’t afford an entire NFT? There are several ways around this, but the first I would suggest is to consider buying their ERC-20 token (if available). If the ecosystem is successful, you’ll be able to switch it back to Ethereum through an exchange like Uniswap. More than likely, you’ll be able to use that token within the ecosystem for goods and services or possibly for an NFT itself.
Where to buy?
The best way to buy NFTs is through a marketplace. There are dozens, maybe hundreds of places to buy Ethereum NFTs. Coinbase has recently announced that soon you can buy NFTs straight off their platform, which will remove a barrier of entry for millions of people, this will likely cascade to other Crypto marketplaces in the future.
OpenSea is the OG of the space. They are the most popular and well-recognized NFT marketplace. This is where most NFT transactions take place. But oftentimes, OpenSea is jokingly referred to as BrokenSea because, like many things in the NFT space, the site is still being established and needs better infrastructure. LooksRare has that new car smell, it seems to have much greater community support, only time will tell as it lacks overall listings but it seems to have a much more reliable website and tech. Not only that, you can buy $LOOKS, an ERC-20 token, and invest in the ecosystem!
In short, individuals determine the space. Not only that, there are MANY individuals moving a little in hopes of making a lot. There are early movers determining a lot of the traffic and volume in the space. Next time, I’ll be providing what strategy the most profitable traders use, from data and personal experience.