Hello, my name is Kevin, and I’m going to be writing a bi-weekly column called “NFT Market Analysis” at NFT Plazas, to help you better understand the data within the NFT market. Today, we’re going to look at a new report from Chainanalysis titled “The Chainalysis 2021 NFT Report”. While Chainalysis has long been somewhat controversial in the space, this report has some interesting data on the NFT market.
Over $27 Billion Dollars in Value Sent in 2021
ERC-721 and ERC-1155 contracts, the most popular types of Ethereum smart contracts for NFTs, received over $27 billion dollars from users in 2021. According to the stats, they are seeing significant increases in both total value sent and average transaction size, “…suggesting that NFTs as an asset category are gaining value as they attract new users”.
NFTs Have Achieved Global Popularity
If you have a look at this chart, you can see that North America dominated NFTs in January 2021, but by the end of the year, no region made up more than 25%. The numbers suggest that like cryptocurrency itself, NFTs are a global phenomenon.
Whitelisted NFT Minters Produce Outsized Returns
The practice of “whitelisting,” where a collection invites collectors to promote their project well before launch, and then gives them access to NFT mints sooner or cheaper than other users, produces outsized investment returns.
Collectors who are whitelisted into a project and later sell their freshly minted NFTs make a profit 78% of the time. Collectors who mint a token as a part of the normal project launch, however, only profit 21% of the time on later sales. This would unsurprisingly suggest that the earlier you are involved in any projects, the better your chances are for big gains.
Flippers Tend to do Better than Minters
This was somewhat surprising, at least to me. Participating in the secondary market of a collection, and attempting to flip NFTs, according to Chainanalysis’s look at OpenSea data, produces a profit 65.1% of the time. But choosing the collection that you participate in is very important. Over 2,000 collections on OpenSea have a secondary sale, but just 250 collections account for 80% of those sales. It might be easier to participate in an existing secondary market than to try and pick the right new project to mint for if speculation is your goal.
Another interesting trend is that the “hit rate,” that is the percentage of each trade that makes a profit, is very close for almost all NFT flippers. The most successful ones simply do more trades, and so their profits are higher. In the below image, flippers are grouped by the number of flips they have completed. You can see the discrepancy between Group 1 and Group 4 (with Group 1 having done the most flips, and Group 5 having flipped the least) isn’t that significant, it’s only the newbies at flipping that seems to have a lower “hit rate”.
Flipper Concentration is Real
Just 20% of user addresses on OpenSea account for 80% of secondary NFT sales, while just 5% of all addresses account for 80% of profits made on secondary sales. The most successful NFT flippers invest in a diverse array of NFT collections, too, with the top 20% of flippers investing in 28 unique collections on average.
Keys to Success
If you’re looking to make money trading NFTs, there are two primary ways to do that; flipping an NFT, and minting and then selling NFTs. If your goal is to to flip, make sure that you’re buying into a collection that already has a vibrant secondary market. If your goal is to mint NFTs and then sell them, try and get on the project’s whitelist, where your odds are much higher for success.
With both flipping and minting, the data shows that as you become more experienced, your odds of success (“hit rate”) may be higher. Trading anything to generate income is difficult, but this report appears to show that some people are very successful at it.
Personally I buy NFTs because I love them, but there is no wrong reason.