NFT Indexes Quarterly Report - Q2 2022

Overview

Nansen has constructed six indexes that are differentiated baskets of NFT collections, tracking the performance of different categories of NFTs denominated in ETH. In this report, three key insights emerged when analyzing the Nansen NFT indexes: 

1. Blue Chip NFTs led the trend reversal in June. However, there is little evidence to support the likelihood that this trend will sustain.
2. Analysis of the Monthly Returning and First-time buyers of NFTs on ETH shows continued growth in market participants actively buying NFTs, highlighting the development of NFTs as a sector. 
3. In the recent rebalance of the Blue Chip-10 index, Chromie Squiggle was categorized as a Blue Chip constituent for the first time, while Meebits made a return to the index.
4. Art NFTs (denominated in ETH) demonstrated the biggest increment in June. 

1. Blue Chip NFTs led the trend reversal in June. 

The broad market sentiment is that we are transitioning from an inflation and rate shock to a recession shock in the macro cycle. Although the last week of June saw a bear market rally within the broad crypto market, it appears that this uptrend started earlier in the NFT market. All Non-Fungible Token (NFT) sectors recorded a bounce in June (when measured in ETH), except for Gaming NFTs at the end of Q2 2022. 

In particular, the Blue Chip-10 (ETH) index’s movement revealed that Blue Chip NFTs led this up-trend as early as 5 June 2022. Blue Chip-10 index reported an increase of 23.6% at the end of Q2, leading the NFT market. In June alone, the Blue Chip-10 index reported a 17.9% increase in the 30 days (see Figures 1 and 2). The in-flows into Blue Chip NFTs highlight the continued ‘risk off’ sentiment by NFT market participants.

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2. Chromie Squiggle made it into Blue Chip for the first time, while Meebits made a return.

At the end-of-quarter rebalance on the Blue Chip-10 index, Chromie Squiggle (an Art Blocks Curated NFT) was added to the Blue Chip-10 index for the first time, while Meebits made a return to the Blue Chip-10 index. Chromie Squiggle and Meebits replaced NFT World and World of Women in the Blue Chip-10 index.  

The estimated floor price of Meebits NFT at the end of Q2 was approximately 4.5 ETH, with notable Smart NFT buyers purchasing the NFT between 19 to 25 June (see Figure 3). Although there was a slight increase in the number of Meebits transactions and unique buyers during this period, the transaction activity remained low compared to Q1 (see Figure 4).

At the end of Q2 2022, the estimated sales floor for Chromie Squiggle NFTs was approximately 8.5 ETH, with consistent transaction volume and significant buy-in for Smart NFT Buyers (see Figure 5). On 21 June, 50 Chromie Squiggle NFT transactions were processed involving 41 unique buyers (see Figure 6).

3. Art NFTs (denominated in ETH) demonstrated the most considerable increment in June 

Performance of the Art-20 index (ETH) was in-line with the phenomenon of Chrome Squiggle meeting the criteria for the Blue Chip-10 index. The Art-20 index (ETH) demonstrated the largest recovery in June with a 33.1% increment. At the end of Q2, Generative Art NFTs account for most of the Art-related NFTs in the index (92% in market capitalization, see Figure 7).

A notable Art NFT collection consistently performed in Q2 was The Currency by Damien Hirst. At the end of Q2, The Currency was trading at 7.69 ETH. The collection started with physical art in 2016, exploring the boundaries between art and currency. Market participants of The Currency were issued with NFT art where they chose to either hold the tokenized (digital) form of the art piece or the physical artwork.

Market Interpretation

In the recent re-balance at the end of Q2, only 306 NFT collections met the set liquidity requirements for inclusion in Nansen NFT Index Methodology. This characteristic hints that this up-trend may not sustain. Such characteristics of the NFT-500 (ETH) index reflect the broad NFT market, with transactional activity such as volume, transaction count, and user count remaining low in June (see Figures 9a, b, and c). However, it is noteworthy that analysis of the Monthly Returning and First-time buyers of NFTs on ETH shows a strong recovery in Returning Buyers in June and remained relatively stable for First-time buyers of NFTs (see Figure 10). Recent free mint events could drive one explanation for the recovery in Buyers. It is essential to note that when one connects their wallet to do a transaction, there is a risk to their wallet; especially when the contract is not known. It is therefore important to examine the contracts before minting. Some notable free mints that performed well in Q2 include GoblinTown and Moonrunners.

Analysis of the updated composition of the NFT-500 (ETH) index showed an increment in the weighting of Social NFTs by market capitalization (ETH). In contrast, the weighting of Gaming NFTs in the index decreased (see Figure 11). In a measure of the Buyers to Sellers’ wallets who transacted the NFT collections within the NFT-500 (ETH) index, we see that the ratio declined at the end of May 2022, implying a drop in buyers and an increase in sellers. However, this ratio recovered slightly in June and remained relatively stable(see Figure 12).

During Q1 2022, the Nansen NFT-500 (ETH)’s daily volatility was 2.4%. However, this volatility increased when we extended the analysis to include Q2’s data (see Figure 13). Almost all NFT Indexes (Blue Chip-10, Social-100, Game-50, and Metaverse-20) showed an increase in volatility, in line with the broad market, except for the Art-20 index, where there was a decrease in Art NFTs’ volatility. The volatility of the respective NFT sectors remains to differ vastly, continuing the observation in Q1 2022. Additionally, in line with our previous quarterly report’s insight, the Metaverse NFT Sector remains the most volatile. 

Concluding comments

The second Quarter of 2022 witnessed several ‘big rocks’ in the crypto market such as Celsius’s suspension of withdrawals and the announcement of a debt restructuring plan and the continuation of Three Arrow Capital’s woes. Within the Ethereum (ETH) DeFi sector, we are witnessing a dramatic deleveraging event with a sizable investor base realizing historically significant losses. Nansen NFT indexes (ETH) reveal that NFTs’ trend reversal started earlier than the broad cryptocurrency market. A ‘risk off’ sentiment is still highly evident in the NFT market and the limited liquidity in the NFT market hints that this uptrend might not sustain. However, analysis of the Monthly Returning and First-time buyers of NFTs on ETH shows continued growth in market participants actively buying NFTs, highlighting the development of NFTs as a sector.