The recent macro shocks in the Cryptocurrency market have transformed the sentiment around speculative assets. According to NFTGo.io, the NFT market sentiment has been down in response to this crash.
Amid the crash of the NFT market, it’s critical to develop novel metrics that reflect the uniqueness of the NFT market from other investing categories.
Let's explore one of the critical dynamics unique to the NFT market: Diamond Hand Holders.
NFTs have brought in new standards for evaluation and forecasting, while the dynamics present in the NFT market are highly unconventional and not yet fully explored. Diamond Hands is a useful model that has been widely recognized by the NFT community. Here are some questions that we need to consider:
Data sample and method
We have collected a sample of 20 high market cap collections that represent over 70% of the NFT market cap. This diverse sample provides a way to analyze the most valued collections unbiasedly. Objective analysis and the establishment of new metrics have been applied to discover trends that apply to the NFT market rather than a particular set of collections.
Forecasting requires deep analysis and research and development of novel metrics. The NFT market is driven by memes and stories, thus, these metrics should be reflective of the status quo and follow the latest trends in NFT social circles.
One of the key trends in NFT collections is the Early Adopter Curve. NFTs, much like startups and new products, start the engine by gathering a cellular network of early adopters. This cellular network defines the culture of the community to a large degree. In combination with a persistent and passionate core team, the NFT project can climb up the mountain of growth and exceed expectations.
This all stems from the early community. If successful, the cellular network begins to replicate and eventually outgrow its original size. This is the pattern that has been followed by many bluechip collections in this industry.
We have observed that after the initial entrance to the NFT market, a large community of minters is drawn to selling their NFTs. These NFTs usually generate profits for investors interested in short-term flips. However, the small percentage of minters that HODL the NFTs for a long time are valuable community members for the collections. The Diamond Hands are strategic investors with long-term horizons that benefit from significant upside compared with the vast majority of the minters. By analyzing the on-chain transaction history of NFTs, we can find a group of NFTs that have been held since the day of minting by their minter. If the on-chain transaction history for an NFT contains any sales, we disregard the minter of the address as being a Diamond Hand holder. However, Diamond Hands can still transfer their NFTs to other accounts (ie. An NFT vault).
Diamond Hands are the early adopters of a bluechip NFT collection that hold their NFT amid valuations going to the moon and the times of high selling pressure. Rather than following the crowd and selling their NFTs, they hold their NFTs.
Larger groups of Diamond Hands signal high conviction for the individual as well as the collective consensus of the early investors of the project. Across the NFT collections that we have analyzed, Meebits, CloneX, CryptoPunks, and Moonbirds had a large share in the holder community. To some extent, due to the short release time of some projects, the proportion of diamond hands is higher. We also put the years of the project in the figure. The charts below illustrate the percentage of Diamond Hands relative to normal holders:
It is not easy to become a diamond hand holder. On the one hand, you need to have the ability to judge potential blue-chip projects in the early stage, on the other hand, you need to experience the cyclical decline of the NFT industry. From our analysis, on average, only one out of five holders in a collection are Diamond Hands:
Some of the collections have demonstrated a small group of Diamond Hands relative to other collections from our sample. Some of them are very successful: BAYC, Azuki, PudgyPenguins, and Doodles.
Some of these collections are very successful despite their smaller count of Diamond Hands. However, other NFT projects have been revealed to have a large group of these valuable holders. The chart below illustrates a comparison of some of the most valuable NFT projects by market cap in their number of Diamond Hand holders.
There are a couple of hypotheses that can explain this observation:
Diamond Hands have observed the waves in the NFT ocean go up and down for a long time. Diamond Hand holders have been tempering their expectations through the pumps and dumps. These investors have managed to grow their capital. They are active believers in NFTs and continue to invest in high-value projects. Therefore, they have developed the best-in-class long-term strategy. In the following sections, we study the intersections of their portfolios.
We have analyzed the portfolio construction of the Diamond Hands for the top Bluechip collections: BAYC, Meebits, CloneX, World Of Women, and Doodles. These collections have gained tremendous value throughout their lifetime in the NFT market. Diamond Hands are the early adopters of these collections that have held on to their NFT to this date. These Diamond Hand holders have strong beliefs in these collections. Although there is only a handful of them, they are considered to be the most strategic NFT investors. Because they are determined to create long-term profits in the NFT market, they are the best source for insights about the NFT alpha only insiders know about. We first study the Diamond Hands portfolio construction on a per-collection basis. After that, we wrap up with the top NFT collections in all the bluechip Diamond Hands of the 5 collections. To analyze the portfolio construction trends of Diamond Hands, we collected the NFT collections that each Diamond Hand in the collection holds. Next, we calculate the frequency of each collection in the community of Diamond Hands. BAYC has 338 Diamond Hand holders. These Diamond Hands hold over 1777 unique NFT collections in their portfolio in total. But out of all these collections, most of them are only held by 1 or 2 Diamond Hands. The Alpha is in the collections that a large percentage of these investors hold. We can categorize the portfolio intersections into 3 clusters:
The Alpha collections are the ones that over 50% of the Diamond Hands hold. These collections are rare and tend to be highly valuable projects in utility. The Beta collections are the NFTs that 30% to 50% of the Diamond Hands have in their portfolio. Gamma collections are in the 20% to 30% of the Diamond Hands portfolio.
Back to the BAYC example, out of the 1777 unique collections, only 16 of them made it to the top 3 clusters: Gamma, Beta, and Alpha. The table below demonstrates the NFT projects in each cluster.
The data shows that 20% to 30% of the Diamond Hands in the BAYC collection hold NFT collections such as Bonsai and Parallel Alpha. The Beta cluster displays a 30% to 50% tendency for BAYC early investors to hold Otherdeed, Sandbox, and Art Blocks. Finally, ENS rules the collections with over a 60% dominance in the portfolio of BAYC Diamond Hand investors.
We can apply the same analysis metrics to other blue-chip collections. For example, the data for Doodles shows similar trends in ENS dominance. The findings for Doodles also display collections seen in the BAYC community as well. Projects such as Parallel Alpha.
For World Of Women, The Art Blocks collection is also in the Gamma cluster. World Of Women Galaxy, an extension of the original collection, is held by 181 people from the Diamond Hand community.
However, the number of overlapping collections for Doodles and World of Women is smaller than BAYC. The lower number of overlap signals a higher diversity of investment strategies within the Diamond Hand community. In cases like CloneX, portfolio overlaps were only found in Beta clusters. 4 out of the 5 collections in the Beta cluster for CloneX were extensions of the same project and founding team.
In CryptoPunks, two collections were present in the Alpa cluster: Meebits and ENS.
ENS and Art Blocks
Out of all the five blue-chip collections analyzed in this section, ENS was either in the Beta or Alpha cluster. This shows the state of ENS as one of the most valuable NFT-as-a-service collections. ENS has been growing rapidly over the past weeks and many of these bluechip holders are willing to pay large prices for matching their ENS names with the ID of their bluechip NFT. ENS has also been one of the highest utility NFT projects in the space and Diamond Hand holders acknowledge the added value. Art blocks have been another recurring collection that has existed in one of the three clusters of 3/5 of the sample collections.
The airdrop effect
It is common for the founding team of these collections to airdrop new NFTs to their holder community. Diamond Hands by nature have strong conviction in the founding team. They are willing to hold their NFT at the peak of valuations and in the valleys of quiet markets. Their conviction allows them not to sell even the NFTs they received for free from the founders. As observed in CryptoPunks, RTFKT, and World Of Women investors, many of them still hold the airdropped NFTs to this day.
We analyzed the distribution of Diamond Hands and saw notable differences in various NFT projects. Our observations revealed the portfolio construction strategy of these seasoned investors that have been through several Winters and Summers in the NFT market. Lastly, we closed with trends and overlapping collections across this community.
The NFT market has been in a sideways state for some time. Currently, the majority of the market consists of speculators continuing to dream of audacious possibilities and others predicting long-term bursts of a bubble. Conversely, Diamond Hands are the long-term strategic holders that see a bigger future for NFTs.
Note: The above information is for informational purposes only. Investing in digital assets such as NFTs and cryptocurrency brings with it a high degree of risk. Please consult with a financial advisor before making any investment decisions. NFTGo does not provide financial advice and is not responsible for any losses incurred as a result of investing in digital assets.