2023 NFT Market Analysis: An Insider Look | CoinMarketCap

2023 NFT Market Analysis: An Insider Look | CoinMarketCap

2023 NFT Market Analysis: An Insider Look

We discuss the state of the NFT market, micro trends and liquidity, major projects and events, trader & whale analysis, NFTFi and valuation.


Table of Contents

  • Key Takeaways
  • CHAPTER 1 MARKET OVERVIEW
  • Roller Coaster in the NFT Market
  • The State of NFT Marketplaces and Wash Trading
  • CHAPTER 2 MICRO TRENDS & LIQUIDITY
  • Micro Trends in NFT Projects
  • Analysis of NFT Liquidity and Characteristics
  • CHAPTER 3 MAJOR PROJECTS & EVENTS
  • Trend Analysis of NFT Projects
  • Major Events of 2023 So Far
  • CHAPTER 4 TRADER & WHALE ANALYSIS
  • Distribution of Assets per Capita
  • Asset Analysis of NFT Whales
  • Most Profitable NFT Traders and How They Achieved It
  • CHAPTER 5 NFTFi & VALUATION
  • Development of NFTFi

Key Takeaways

1. NFT trading volume in Q1 2023 increased sharply but then declined. This was due to Blur’s incentives and airdrop. The number of NFT holders dropped to its lowest point in the last 12 months on April 19, with just 11,187 traders.

2. OpenSea had dominated the NFT royalty market, but Blur surpassed it in mid-February and remained on par with it in March. Blur’s optional royalty and zero gas fee approaches targeted price-sensitive users, making it the new leader in the royalty market share. The number of wash trades on Blur is gradually decreasing, indicating that real traders are settling down.

3. Affected by the bear market at the end of 2022, the profitability of the blue-chip decreased significantly in Q1, but some projects still performed well. BAYC has the strongest profitability in the seller’s market, and Azuki’s whales have increased by 100%, which is the most resilient blue chip this year. The whales’ trading continues to impact profit fluctuations, while an enormous gap exists between the rich and poor holders of projects.

4. There are various methods for generating income through NFTs, including buying high-quality NFTs at a low price and holding them for the long term, bulk-minting NFTs from niche projects and selling them at a higher price, and identifying profitable NFT categories for high-frequency trading. Profitable NFT traders can be divided into three categories.

5. The trading volume and number of Bitcoin Ordinals market in the past four months have been on the rise, but its trading volume only accounts for 0.02% of the ETH market. Due to the slow transaction speed of Ordinals NFT, high cost, and limited application range, Ethereum NFT still occupies an advantage in the application range and speed.

6. NFTFi lending market revived in the Q1, with loans amounting to about $25 million from January to March. ParaSpace accounted for the largest market share of the lending market, while NFTFi led in the number of NFT lending users.

CHAPTER 1 MARKET OVERVIEW

Roller Coaster in the NFT Market

NFT trading volume in the first quarter of 2023 saw a sharp increase followed by a decrease. Blur’s incentives and airdrop, along with the war on royalties with OpenSea, which will be covered later in the report, drove up trading volume of NFTs, which peaked at 74,550 ETH on February 22nd and declined gradually after March.

According to NFTGo, the number of NFT holders dropped to its lowest point in the last 12 months on April 19, with just 11,187 traders. However, the overall number of holders increased by about 12.62%, reaching around 4.3 million by April. It is worth noting that holders experienced a sharp spike in early and late February, which might be attributed to rising popularity of zero-fee of Blur and Yuga Labs ecosystems.

It is noteworthy that the recent decline in NFT transactions has accompanied a year-long trend of fewer buyers than sellers, indicating changing market behavior.

Many blue chip NFT projects experienced a decline in floor price over time, with Bored Ape Yacht Club’s floor price dropping by two-thirds from its peak of 153.7 ETH in April 2022 to below 50 ETH.

However, what we are witnessing in the NFT market is not a decline but the early stage of its second major cycle, that is lagging behind the overall crypto market. The average correlation coefficient between Ethereum (ETH) and the NFT markets is 0.76. It shows that the NFT market is not as volatile as the traditional cryptocurrency market. In most cases, the NFT market does not react immediately to much volatility. For example, when the price of ETH fell, many blue chip NFTs witnessed relatively small declines in their dollar-denominated prices.

The chart below, for example, shows that even if the market cap of ETH falls, the NFT market cap does not follow immediately and is more stable; the variance of the NFT market cap index is 1.35E+09, which is much smaller than the variance of the ETH market cap index of 2.99E+10.

Over the past two years, the NFT market cap and the number of NFT holders has increased by 10-fold. Despite this remarkable growth, the NFT market is still relatively small, accounting for approximately one-tenth of the total ETH market cap. Nonetheless, the continued expansion of the NFT market suggests a significant potential for future growth and adoption.

From the end of 2021 to the beginning of 2022, the NFT market was dubbed as the historical “NFT Bull Market.” However, since the second half of 2022, the market has largely been in a cooling-off phase. Given the community-driven nature of the NFT market, new concepts and trending topics will be essential to drive the next wave of growth.

Ethereum Dominates NFT Transactions

Ethereum remains the biggest Layer-1 for the NFT market in 2023 so far, followed by Solana, Polygon and BNB Chain. In April 2023 alone, Ethereum’s NFT trading volume was $514M, accounting for approximately 70% of the overall market’s trading volume, followed by Solana with a trading volume of $90M (12%), Polygon (7%), and other platforms at less than 5%.

Ethereum remains the leader in the number of NFT transactions, accounting for more than 50% of total transactions in 2023 YTD, with a monthly transaction volume ranging from 1 to 2 million. Solana has had a weak performance in early 2023 due to the mishaps in 2022, including irregular transactions on the network and the impact from FTX’s bankruptcy, together with the fierce competition from Ethereum, Polygon, and other new L1s such as Aptos. As a result, Solana’s trading dynamics are slowly decreasing.

The State of NFT Marketplaces and Wash Trading

Blur becomes the market’s new darling

OpenSea was the number one platform in terms of trading volume up until December 2022. However, soon after Blur’s launch, its volume surged and surpassed that of OpenSea.

The chart presented above illustrates the significant increase in Blur’s trading volume after its airdrop on February 15. Cumulative trading volume data from January to April of this year shows that Blur has outperformed OpenSea by 120%. Despite this, the number of independent traders on OpenSea is about three times higher than that of Blur, which has approximately 590,000 traders. This suggests that the majority of traders on Blur are professionals who trade with high frequency and average amount per trade. In terms of the number of addresses, OpenSea has only grown by 12%.

In addition, NFTGo provides GoTrading solutions that can help you build your own NFT marketplace aggregator swiftly and easily.

Unexpected wash trades

This phenomenon is not merely reflected on the short-lived boom in users attracted by the “airdrop incentive”, but over time, the number of transactions identified as wash trades on Blur is gradually decreasing, which means real traders are settling down. For instance, after the release of the airdrop, the percentage of real trades on Blur increased from an average of 86% in March to an average of 93% in April. The following chart illustrates the comparison between the original trading volume and the statistics after wash trades are cleaned.

From January to April this year, the percentage of real transactions on Blur and OpenSea is nearly tied and surpassed other marketplaces by a wide margin. These two marketplaces combined have dominated the current market in terms of data and social popularity.

Blur overtakes OpenSea in royalty market share

In terms of royalties, according to researcher Hildobby, it shows that OpenSea has long dominated the list. However, the tables have turned since mid-February when Blur’s royalty revenue surpassed OpenSea’s and stayed on par with it. In March, Blur and OpenSea remained the major takers of the lion’s share of royalties, but Blur hit its royalty peak of $1.7M on March 3 as well. On the other hand, OpenSea’s royalty revenue fell to a low of $300K at the end of February after peaking at $1.5M on February 20. The discrepancy shows that Blur is now the new leader in the royalty market share. The main reason for Blur’s win was its launch of optional royalty and zero gas fee approaches, which were targeted to the most price-sensitive users in the market.

Blue chip royalty volume surges as OpenSea and Blur engage in royalty war

Since the royalty war between OpenSea and Blur started in mid-February, the royalty volume of blue chips including BAYC, MAYC, Otherdeed, Azuki, and CloneX on Blur has grown rapidly. Many traders bid on blue chips with the purpose of gaining points so that they can get more Blur airdrops and tokens.

NFT marketplaces compete through lower fees

Since mid-February, the overall total marketplace fee among mainstream NFT marketplaces has dropped sharply. In response to the competition from Blur’s low fees and to attract more users for its own market position, OpenSea also announced a limited period of zero marketplace fee and optional royalty. The total volume of OpenSea transactions dropped from a peak of over $600K in January to a low of about $50K in March.

CHAPTER 2 MICRO TRENDS & LIQUIDITY

Micro Trends in NFT Projects

NFT Floor Price vs Illiquidity Analysis

In the past 6 months, almost 70% of the illiquid NFT projects had a floor price of zero. In the past 3 months, 50% of the illiquid NFT projects had a floor price between 0 and 0.5ETH. This shows that the market has low demand on the lower quality collections.

The floor prices of around 69% of the illiquid NFTs dropped to 0 ETH within a period of 6 months, compared to 48% within 3 months and 18% within 7 days. This indicates that more than half of the illiquid NFTs are likely to experience a prolonged state of no demand and have a floor price of 0 ETH in the long run.

Majority of the projects are within the 100-1000 ETH market cap range

Based on data from NFTGo, over 50% of the NFT projects have a market cap between 100 to 1000 ETH ($0.2M to $2.1M as of April 2023). Following this, the next category is the 0 to 100 ETH range, which has a total of 1550 projects. In addition, 125 projects hold a market cap of 100K ETH and above.

Top 1% of NFT projects take up over 50% of the total market cap

Analyzing from project distribution, the top 50 projects account for less than 1% of the total number of projects in the market, yet their market cap occupies about 52% of the total. This data tells us that the proportion of NFT projects and market distribution far exceeds the 80/20 rule, which can also be reflected through the distributions of whales and normal investors.

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