Exploring Blue-Chip NFT projects: Traders, Curves, Timing, Costs, Profits
0x7bA5
April 12th, 2022

Making profits in the NFT market is often related to many factors. When considering whether or not to buy a $10K project, trade behavior, timing, trading costs are all critical. This article illustrates some of the most prominent trends across multiple NFT collections.

By using NFTGo.io's indicators and Blue Chip NFT Analysis, we will explore the following questions:

  • Trader: Why focus on holder distribution?
  • Timing: What are the trading signals? How do holding periods and profit affect each other?
  • Trading Cost: How do expenses and profits correlate in NFT investments?
  • Trading Curve: What is the market hype curve like?
  • Trading Profits: How to leverage cost basis and profits for blue-chip collections?

Trader

Holding Amount Distribution

One of the indicators to consider before purchasing a project is ownership concentration. If some investors or project owners hold a substantial amount of NFTs in a project, it can be detrimental to the project as they can affect the price simply by selling under the floor. Especially you should know about the holding amount percentage for 51-100.

Holding Amount Distribution of frankfrank, Data Source: NFTGo.io
Holding Amount Distribution of frankfrank, Data Source: NFTGo.io

Unique Holder

Unique holders are also a key metric that you can easily find in NFTGo.io. Picture this: no one wants to sell their last NFT when an NFT project is well developed and each holder is a potentially active community member who is capable of promoting the project to a greater extent.

Unique Holders of Azuki are 5462, Data Source: NFTGo.io
Unique Holders of Azuki are 5462, Data Source: NFTGo.io

Trading Model

Trading Model for PFP Projects
Trading Model for PFP Projects

Before discussing the timing, we can divide the price development stage of most projects into four parts, namely the incubation period, hyped period, cooling-off period, and growth period. Each stage has representative events, and we have only listed some of them in the above figure.

Most of the project parties have made the project almost skip the first stage and reach the peak through a series of methods such as creating topics, whitelisting before the public sale, closed-door hunger marketing in the Discord community, holding daily community activities, and promoting cooperation Raffles by popular project officials. Some projects will fit parts of the curve. The growth rate of the first phase depends on many factors, including the image created and celebrity endorsements.

However, when the hype begins to subside, flippers and paper hands will make their first sale which short-term holders will follow. This is considered a normal phenomenon. Also, this is the time for project developers and their community to manifest consensus. To make the value curve rise again remains a trial for project developers and the implementation of their future roadmaps.

Timing

The market sentiment signals buying or selling

The Barometer section reflects the current market sentiment toward NFTs. Here you can see the number of buyers and sellers within the past 24 hours, as well as the number of addresses that have made profits and losses and what those aforementioned numbers are. Our NFT Market Sentiment is calculated based on volatility, trading volume, social media, and google trends. The lower the score is, the cooler the market is.

Data Source: NFTGo.io
Data Source: NFTGo.io

Generally speaking, about 95-99% of traders would lose money in the market. Perhaps it would be beneficial to trade in the opposite direction with most traders. Green represents the percentage of buyers, while the red bar represents the percentage of sellers. If most traders are long and the market is hotter than ever, it might be time to wait and see. If most people are expecting asset prices to fall and the market heats down, it might be time to consider buying. When the ratio of accounts on both sides approaches the maximum value, which might mean that the market may turn around.

Data Source: NFTGo.io
Data Source: NFTGo.io

The Best Time to Sell

How long should I hold? Unfortunately, there really is no answer to this question. Since some NFT projects ultimately go to zero, you need to think about the value of the project, the team, the style, and various other factors before buying into a project. But we can take a look at the holding periods of 6 top projects to see how holding periods affect ROI.

Holding Period Distribution Of NFT Projects; Data source: NFTGo.io
Holding Period Distribution Of NFT Projects; Data source: NFTGo.io

The data illustrates that projects with a lifetime of more than 5 months have a large share of long-term holders. These holders have held their NFT for more than a period of 3 months to one year. The fast-paced NFT market suggests that there could be various market movements during a period of 3 months that would trigger a buy or sell signal, but these investors have decided to hold on to the pumps and dump in prices.

ROI Analysis based on Holding Period

It’s often the case that after an airdrop, floor prices in the secondary market are higher than the original mint prices. This can trigger a huge wave of early adopters to sell their newly minted NFTs to capture the upside. We have tracked the minters who have sold their NFT in the secondary market to analyze how longer holding periods have impacted the profit generation for minters.

The chart below demonstrates the impact of a longer holding period for minters; The ROI is calculated using the same method mentioned in the previous section. We have grouped each sell event based on the holding period of the seller and averaged the profits of each group.

The average of Returns On Investment (ROI) Of Minters Based On Holding Period; Data source: NFTGo
The average of Returns On Investment (ROI) Of Minters Based On Holding Period; Data source: NFTGo

URP Analysis based on Holding Period

We can use the unrealized profits metric to compare the profits generated from the minters who have sold their NFT to all the owners that have held their NFTs for a period of time.

The Unrealized profits metric is used to gauge the profits that could be gained from NFT assets based on the current position of the market. We use the following metric to calculate the unrealized profits of a given investment.

Unrealized Profits (URP) = max(Avg Price, Floor Price) -  Buy Price

Just like before, we have categorized the owners based on their holding period. The chart below shows the average unrealized profits of each category.

Average Unrealized Profits (URP) Of Owners Based On Holding Period; Data source: NFTGo.io
Average Unrealized Profits (URP) Of Owners Based On Holding Period; Data source: NFTGo.io

The charts generally illustrate a similar trend for current owners and minters. However, there are a few notable insights unique to each project.

Trading Profit

In the primary NFT market, it’s often the case that regardless of rarity, all NFTs are minted at a certain fixed price, minters who buy into an NFT drop take the risk of the collection going to zero but they can also benefit from higher than average returns. To research each group’s profitability, we’ve calculated the profits of minters based on the following criteria:

Defining Profit For Minters

The profit from selling an NFT in the secondary market for the first time is equal to the difference between the mint price of the NFT and the selling price.

The mint price (in ETH) declared in the smart contract is multiplied by the average exchange price of ETH/USD in the mint period. Furthermore, the selling price is calculated using the same method. After both prices are evaluated to USD, the difference is calculated.

Defining Profit For Traders

The profit from trading an NFT is calculated using the simple formula below:

Profit = SellPrice - BuyPrice

Benefiting from lower costs, being an “early buyer” or “Flipper” is often seen as the main way to invest, and this concept is widespread in all investment fields, including NFTs. However, early buyers are also taking the greatest risk by betting their funds on brand new NFT projects. We compared the profitability of NFT primary and secondary market transactions and calculated the profits of blue-chip projects Minter and Trader.

ROI Share Of Minters And Traders for blue-chips; Data source: NFTGo.io
ROI Share Of Minters And Traders for blue-chips; Data source: NFTGo.io

As the project matures, secondary market traders will also gain more and more profits. Therefore, it is understandable to miss the mint, and the more important thing is to grasp the rhythm of blue-chip projects. Although traders do not buy NFTs at the lowest price, they can still enjoy more profit margins. Moreover, as the project matures, Trader's market share will increase.

Trading Expenses

Looking at the correlation of holding value and holding period with profit, we observe repeated trends across multiple blue-chip or potential blue-chip NFT Collections. Purchase cost is another factor we need to consider. Since some people tend to buy their favorite NFTs with the highest rarity, the average price of most Top 10 NFTs will exceed the floor price by 3-8 times.

By comparing the average buy price and floor price, we can see the distribution of holders' chips within each Collection. For some Collections, there are very few low-priced buyers in the project, and there has been a round of internal turmoil. But for other collections, the holding cost of most people is still very low, so the psychological price in the face of decline may also be lower.

Cost Basis VS. Floor price; Data source: NFTGo.io
Cost Basis VS. Floor price; Data source: NFTGo.io

Comparing the profitability of NFT projects

Leveraging the past sale data and the current price performance of each collection, we have studied the average profitability of each collection in our dataset. Based on the metrics discussed earlier, both realized and unrealized profits have been taken into account. The average profitability metric reflects the current state of the collection as well as its past data. The below table is a leaderboard of the most to the least profitable collections in our dataset.

Profit leaderboard of Six NFT collections based on average ROI
Profit leaderboard of Six NFT collections based on average ROI

The results indicate high profitability for CryptoPunks on average. Azuki and Doodles have a very close average ROI and mfers seems to have been capturing almost half as much as the fifth rank, World Of Women.

Conclusion

At a first glance at the NFT market’s growth, it might seem like the potential for maximum profits has already been taken away by the early adopters of Blue Chips that have bought a Punk of 0.02 ETH when one Ether was less than $100. However, the data from NFTGo shows us that there are unlimited strategies for profitable NFT investing today. We explored how investing in profitable NFTs is not bound to only a single secret formula. Depending on the risk-aversion of the investor, there are multiple routes to take:

Minting promising NFT projects early on gives huge leverage to the investor. However, the leverage comes with a huge risk cost. The higher-than-average returns on investment are only possible through taking the risk of devouring capital. Meanwhile, market timing is important no matter what your strategy is. Good timing can make the difference between millions of profits or losses.

NFTs are as valuable as the market says they are; It might take years for NFTs to become digital goods with intrinsic value. The current NFT market is driven by speculation and expectation. Depending on your risk tolerance, you may decide to ride the wave with the latest meme trends or stick to fundamentals.

Arweave TX
3fko7icb2eyTTMF3nmQ-jaHuvxxnguPsPvR6Th0gAuA
Ethereum Address
0x7bA5A3b11E3002267e3b9aE8D786C1716a4a85E4
Content Digest
u0V1Ovn59g8nClayLtwB54LXaXeojAeFYsUXm4en9MY