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NFTs in 2021: a market analysis

Interest on NFTs reached an all time high in 2021. From big-time investors to your everyday enthusiast, many have taken part in this relatively new market opportunity. Users find themselves in a diverse ecosystem driven by community and shared interests, where possibilities for investment seem to be endless.

The following analysis is made possible by Chainanalysis, a blockchain data platform specialized in research for governments and companies interested in the crypto market. The data is a part of the 2021 Market Review which can be downloaded in full here.

From early crypto adopters to the general public, NFTs have seen a stellar rise in interest these past few months. Over $26.9 billion dollars in cryptocurrency have been associated to NFT transactions. The total and average values have seen a steady growth since January, with a significant rise in August. That spike can be attributed to the launch of Mutant Ape Yacht Club from the same creators of Bored Ape Yacht Club, which finds itself in the top 5 NFT projects in volume traded — according to The Capital.

Looking at the transaction volumes by the most popular collections we can see an interesting distribution. Many other collections followed the MAYC spike, though most of them saw a sudden rise in interest and soon enough dropped back to lower numbers. While some weren’t able to maintain popularity, CryptoPunk, which has been around since 2017, has seen around U$3 billion in transaction volume since March 2021.

As proof that NFTs have reached global interest, in the following chart we can see that no particular region makes up over 40% of monthly traffic on marketplaces. Between May and July, North America and Central and Southern Asia traded places as the most significant share, though both find themselves with a similar percentage by the end of the period analyzed. Latin America and Western Europe are also among the biggest players, with shares between 10 and 20%

Artists and collectors have a wide variety of marketplaces to choose from, though OpenSea is by far the most popular. With a steady rise since July, the marketplace went from only 193 active collections in March to over 2.300 by the end of October. Despite the overall web traffic of all marketplaces being well distributed around the globe, analysis shows that the USA accounts for a majority of OpenSea users.

Chainanalysis places NFTs as a more retail-driven market than cryptocurrencies, which means that a great majority of transactions are below U$ 10,000. Collector-sized transactions fluctuated between 6% and 19% in the period in question, while institutional-sized transactions barely reached 1% from March to October.

If we consider the volume of transactions instead of raw transfers, the chart changes drastically. Collector and institutional-sized transactions account for 63% and 23% of the volume respectively, while retail averages at a shy 11%.

Despite the significant share of retail transactions, data from the OpenSea marketplace shows that profit isn’t necessarily favorable for all. About 28.5% of NFTs purchased during minting turn a profit when sold on the platform, while flipping — buying in the secondary market and flipping their value — leads to profit 65.1% of the time.

An interesting aspect of the community surrounding creators is the practice of whitelisting. Artists will often reward active members by adding them to a whitelist, which allows minting purchases to be made at a much lower price. Those users are much more likely to profit from reselling their newly-minted NFTs, 75.7% of the time versus 20.8% of non-whitelisted purchases. Unfortunately 59% of the latter end up with a loss equal to or below 0.5x the initial investment, while whitelisted buyers are able to profit over 2x their initial investment 51% of the time.

It’s important to remember that these numbers don’t include NFTs that have never been sold in the secondary market after being minted. Meaning that the percentage of users that managed to turn a profit can rise in the future.

The full analysis, which can be found at Chainanalysis’ official website, goes into more detail about other aspects of the profits gained through NFTs. It’s interesting to notice that while experienced investors and novices spend similar amounts in the attempt to turn a profit, only the former see significant results. That can be attributed to more attention to market trends, the possibility to “sit” on an asset for longer and the ability to invest in a more diverse number of projects.

Another important aspect raised by the analysis is about the famed gas fees. Minting events are often disputed, some selling out within minutes. With many people trying to grab their share at the same time, not all are successful and whether a transaction goes through or not, gas fees must be paid. During the minting event of The Sevens collection in September, over U$ 4 millions were paid in failed transaction fees in a spam of little more than an hour. Nearly U$ 2 million of the total were made by single failed attempts by individual addresses, while more than U$ 500,000 came from a very small number of addresses making more than 100 failed attempts. If those were a case of bots trying to make mass purchases, the data is unable to show us whether the users managed to profit overall or if the money was simply lost. According to NFT Caviar, the largest single holder of the collection employed bots to purchase over 1,000 of the 7,000 NFTs.

Experienced users, be it a result of more time in the community or more sophisticated assets, seem to represent a big chunk of the profitable share in the NFT market. All in all, we are witnessing a steady growth and, while some strategies may result in better profit than others, we expect to see the market evolve and open up many more opportunities for artists, collectors and investors

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