Deconstructing Top NFT Projects: Traders, Curves, Timing, Costs, Profits

Source: NFTGo

Profiting in the NFT market is often related to many factors. When considering whether to purchase a 10K project, the project itself, trading behavior, timing, and transaction amount are all crucial. Using the metrics from NFTGo.io and taking some well-known NFTs as examples, we will explore the following questions:

Traders

• Why pay attention to holder distribution?

Trading Curve

• What are the market hype and heat curves like?

Timing of Transactions

• When to identify trading signals? What kind of relationship exists between holding period and profit?

Transaction Costs

• How many times do the transaction costs of the Top 10 differ from the floor price?

Trading Profits

• Among blue-chip projects, which have the highest average profits?

Traders

Distribution of Holdings

One of the indicators to consider before purchasing a project is whether the holding concentration is too high. If large holders or project teams hold many NFTs in the project, a concentrated sell-off will affect the price and thus have an adverse impact on the project. You can check the distribution of holdings for any project through NFTGo.io, especially observing the proportion of addresses holding "51-100" NFTs in the project.

frankfrank holding distribution; data source NFTGo.io

Number of Unique Holders

Unique Holder is also an important metric, and you can view the number of unique holders for each project on NFTGo.io. Imagine that when an NFT project is doing well, no one wants to sell their last NFT, and each holder is a potential active community member who can promote the project more widely.

Azuki has 5462 Unique Holders; data source NFTGo.io

Trading Curve

Before formally discussing timing, we can divide the price development stages of most projects into four parts: incubation/explosion period, frenzy period, cooling/settling period, and development period. Each stage has representative events, and we only list a portion in the above image.

Most project teams create topics, pre-sale whitelists, closed-door hunger marketing in Discord communities, daily community activities, and collaborations with Raffle on official project Twitter to almost skip the first stage and reach near the peak. Some projects will fit certain stages of this curve. The growth rate in the first stage depends on many factors, including:

Current market total trading volume environment, interaction heat among Discord community members in channels and voice, interaction heat of non-partner content on official Twitter, project team's native Crypto Native index, which further divides into past achievements of artists, past experiences of community MODS, frequency and quality of AMAs, innovation and novelty of the roadmap, imaginative upper limits, opening effects, celebrity endorsements, etc.

However, after the hype peaks, Flippers and Paperhands will sell off, and short-term holders will also choose to sell, which is a normal phenomenon. Once the hype phase fades, it is time for the project team and community consensus to show. How to make the value curve grow positively again tests the project team's ability and the implementation of future roadmap planning.

Timing of Transactions

Market Heat = Buy and Sell Signals?

The market heat section reflects the current market sentiment towards NFTs. You can see the number of buyers and sellers in the past 24 hours, as well as the number of addresses in profit and loss. The NFT market heat is calculated based on volatility, trading volume, social media, and Google Trends; the higher the score, the higher the market heat.

Data source NFTGo.io

In addition to market heat, the current ratio of buyers to sellers can also guide trading timing. In forex and stock markets, we often see the Speculative Sentiment Index (SSI), which has always been one of the most important indicators for real-time trading.

Generally, about 95-99% of traders will lose money in the market. Perhaps trading against the majority of traders will yield profits. Green represents the percentage of buyers, while the red bar represents the percentage of sellers. If most traders are long, and market heat is unprecedentedly high, it may be wise to wait and see. If most people expect asset prices to fall and market heat decreases, it might be time to consider buying. When the ratio skews extremely to one side, the proportion of both accounts approaches the maximum value, which also indicates that the market may turn.

Data source NFTGo.io

Best Exit Timing

Holding Period Distribution

How long should one hold? In fact, this question is unsolvable. Before buying a project, you need to consider various factors such as the project's value, team, art style, etc. However, we can look at how different types of top projects affect ROI based on holding periods. The following chart shows the holding period distribution of NFT holders across six projects.

Holding period distribution statistics for NFT projects; data source: NFTGo.io

Data shows that, except for the mfers project, other projects with lifecycles exceeding five months have a significant proportion of long-term holders (i.e., holding time between three months to a year). Typically, after minting NFTs, due to FOMO sentiment in the market combined with project development, the floor price in the secondary market for quality projects will be much higher than the initial minting price, which may prompt many early buyers to sell their minted NFTs, cashing out before buying other NFTs. Over three months, the NFT market has actually experienced significant fluctuations, from the peak at the end of January to a gradual easing, but diamond hands in good projects will occupy a certain proportion.

ROI Distribution Based on Holding Period

We grouped transactions based on the holding period of sellers and calculated the average profit for each group. The following chart illustrates the impact of holding period on Minter profits.

Summary chart of average ROI based on holding period; data source: NFTGo.io

URP Distribution Based on Holding Period

We use the Unrealized Profits (URP) metric to compare the profits obtained by minters selling NFTs and the profits holders gain from holding NFTs over a period of time. (*Unrealized Profits = max(average price, floor price) - purchase price)*

Similar to the previous section, we also categorize NFT holders based on holding period. The following chart shows the statistical data of unrealized profits for each category.

Statistics of average unrealized profits (URP) based on holding period; data source: NFTGo.io

From the chart, it can be seen that for quality projects, the longer the holding time, the more profits will be gained. If you are not a HODLer, you can choose to exit at the peak of hype when market heat reaches its peak, but if you firmly believe that the project can continue to generate heat, HODL.

Transaction Costs

We see that timing is one of the most important indicators. From the correlation between holding value and holding period with profit, we observe multiple repetitive trends among blue-chip or potential blue-chip NFT collections. Purchase cost is another factor we need to consider. Since some people tend to buy NFTs they like or those with higher rarity, the average price of most Top 10 NFTs will exceed the floor price by 3-8 times.

By comparing the average purchase price and the floor price, we can understand the distribution of holders' chips within each collection. For some collections, there are very few low-priced holders left, indicating that the internal market has already gone through a round of washing. However, for other collections, most people's holding costs are still very low, so their psychological price points during a downturn may also be lower.

Floor price vs. average purchase price; data source: NFTGo.io

Trading Profits

Primary vs. Secondary Market Returns

Thanks to lower costs, being an "early buyer" or "Flipper" is often seen as the main way to gain investment profits, a notion widely held across all investment fields, including NFTs. However, early buyers also take on the greatest risk by betting their funds on new NFT projects. We compared the profitability of trading in the primary market versus the secondary market for NFTs, while calculating the profits gained by Minter and Trader in blue-chip projects.

Statistics of investment return shares for Minters and Traders in blue-chip projects; data source: NFTGo.io

As projects mature, secondary market traders will also gain more profits. Therefore, missing the mint is not necessarily a bad thing; what’s more important is to grasp the rhythm of blue-chip projects. Although traders may not buy NFTs at the lowest price, they can still enjoy a considerable profit margin. Moreover, as projects mature, the market share of Traders will continue to grow.

ROI Ranking

Using past sales data and the current price performance of each series, we studied the average profitability of each series. Both realized and unrealized profits have been considered based on the previously discussed metrics. The following table ranks the six projects from highest to lowest profit.

Ranking of six NFT Collections based on average ROI

The results indicate that CryptoPunks has a high average profitability. Azuki and Doodles have very similar average investment return rates, while the average investment return rate of mfers is half that of the fifth-ranked World Of Women.

Conclusion

Many people feel that the maximum profits in the NFT market seem to have been harvested by early buyers of blue-chip stocks. In the past, one could buy a Punk for less than $100. Early minting of promising NFT projects helps in investment but also carries risk costs; only by enduring certain risks can one achieve above-average investment returns.

However, regardless of the strategy taken, timing is crucial. In addition to the points mentioned above, trading characteristics, such as the choice of rarity, should also be considered. If you wish to maintain high liquidity, you may choose to hold NFTs near the floor price, as they will respond more quickly to growth.

Currently, the NFT market is still driven by speculation and expectations. You can choose to follow meme trends closely or select art styles you like. The NFT market is continuously evolving, but truly bringing intrinsic value digital products may still require the test of time. According to NFTGo data, there is not just one way to invest in NFTs; there are multiple paths to choose from based on your risk preference.