Data Interpretation: NFT Diamond Hand Investment Strategies and Trends During Market Downturns

Written by: NFTGo

Recently, the macro changes in the digital asset market have also impacted the NFT market. According to data from NFTGo.io, the current sentiment in the NFT market is relatively cold.

NFT Market Sentiment; Data Source: NFTGo.io

As the trading volume in the NFT market declines, many people are selling their NFTs to clear their positions. However, there are still some steadfast holders in the market. This article will explore one of the data indicators in the NFT market: Diamond Hand Holders. Before delving into this model, we need to answer the following questions:

• Who are Diamond Hands?
• What is the investment strategy of Diamond Hands?
• How do Diamond Hands view the current changes in market sentiment?

Data Sample and Methodology

We collected the top 20 Collections by market capitalization as our data sample, which together account for over 70% of the NFT market's total market value. Based on a diversified data sample from top Collections, we attempt to establish a universal data analysis indicator applicable to the entire NFT market.

Early Adopter Curve

To reasonably predict NFT trends, it is essential to study and apply emerging evaluation indicators. The NFT market is driven by memes and storytelling, so one of the primary tasks of evaluation indicators is to comprehensively and accurately reflect the current trends within the NFT community.

The Early Adopter Curve is a significant indicator reflecting the dynamic trends of NFT Collections. Like startups and new products, NFTs also require a network of early investors to open up the market. This network largely defines the cultural atmosphere of an NFT community. With a group of early users and an excellent development team, an NFT project takes its first step.

If successful, this network will self-replicate and develop into a larger network. This is also the path to success for many blue-chip Collections in the NFT space.

Everything starts with the initial group of people.

Diamond Hands

We have observed that typically, shortly after an NFT is issued, the Minters within the network tend to quickly buy and sell the NFTs they minted early on. While it is difficult to achieve exaggerated profits, the trading risk is low, and these traders are referred to as paper hands. Diamond Hands refer to those who are optimistic about and firmly hold onto a particular NFT project for the long term, enduring volatility and ultimately achieving higher returns.

However, for a Collection, a small number of long-term holders (HODLers) are often the most valuable community members. Diamond Hands are a group of strategic investors with a long-term investment vision. By analyzing on-chain transaction history, if the on-chain transaction history of an NFT includes any buying or selling activity, we do not consider its holding address as a Diamond Hand; conversely, it is considered a Diamond Hand. (Since holders often have multiple wallets, we included cases where Diamond Hands transfer their NFTs to other address accounts, i.e., NFT Vaults.)

The large group of Diamond Hands represents the high recognition and collective consciousness of early investors in the community. In our data sample, the proportion of Diamond Hands among holders of Meebits, CloneX, CryptoPunks, and Moonbirds is relatively high, with a striking ratio compared to normal holders. Due to some projects being released for a shorter time, the proportion of Diamond Hands is higher. We categorized NFT projects based on their survival period in the secondary market, as shown in the figure below:

Data Source: NFTGo.io

Becoming a Diamond Hand is no easy task; it requires the ability to judge potential blue-chip projects early on and to endure the cyclical downturns of the NFT industry. Through statistical data, we found that, on average, only one in five holders is a Diamond Hand.

Data Source: NFTGo.io

In the data sample, projects like BAYC, Azuki, Pudgy Penguins, and Doodles have a smaller proportion of Diamond Hands compared to the previous projects.

Data Source: NFTGo.io

The distribution of Diamond Hands varies among different Collections, but we can see that the proportion of Diamond Hands does not have a strong direct correlation with the market performance of the Collection. There are also some Collections with a small proportion of Diamond Hands but excellent market performance. The following figure shows the proportion of Diamond Hands in some high market cap Collections.

Data Source: NFTGo.io

From the above figure, we find that some projects, like Moonbirds, are founded by well-known NFT teams/holders and have a relatively short founding time. Additionally, Meebits and Moonbirds also experienced a phase of free minting from the original project, resulting in a relatively high proportion of Diamond Hands. Projects like BAYC and Azuki were not widely recognized from the beginning but gained recognition as they developed. During this process, many early Minters exited the project too early and can no longer enjoy the appreciation benefits brought by the project.

Bull Market and Bear Market

In the following sections, we will delve into the investment portfolios of these Diamond Hands:

• Investment trends of blue-chip Diamond Hands
• Investment strategies of Diamond Hands
• What are the Alphas?

Unveiling the Investment Portfolios of Diamond Hands

We analyzed the investment portfolio structures of Diamond Hands in several blue-chip Collections, including BAYC, Meebits, CloneX, World Of Women, and Doodles. After a period of development, these Collections have achieved considerable success in the NFT market, and as the earliest investors, Diamond Hands have witnessed the growth of these Collections through their held NFT assets.

Diamond Hands have a strong sense of belief in the Collections they invest in. Although their numbers are small, they are regarded as the most strategic NFT investors, uncovering long-term potential profits in the NFT market. This is precisely why Diamond Hands have become the best way for us to understand NFT Alpha, helping us uncover many Alpha insights.

First, we analyzed the investment portfolio structures of Diamond Hands across different Collections and summarized the holdings of blue-chip Diamond Hands in other top Collections among the aforementioned five Collections.

To obtain more accurate analytical data, we collected the holding data of each Diamond Hand in different Collections and calculated the frequency of each Collection's appearance within the Diamond Hand community.

Statistics show that there are 338 Diamond Hands in BAYC, and among their investment portfolios, the total number of other independent NFT Collections involved exceeds 1777. However, in reality, most of these Collections have only one or two Diamond Hand holders. Based on the holding situation of Diamond Hands in different Collections, we can categorize them into the following three types:

1. Alpha
2. Beta
3. Gamma

We refer to Collections where over 50% of Diamond Hands hold other Collections as Alpha; these Collections are quite rare and have extremely high practical value. Collections held by 30%-50% of Diamond Hands are called Beta, while those held by only 20%-30% of Diamond Hands are referred to as Gamma.

Data Source: NFTGo.io

Taking BAYC as an example, among the 1777 Collections mentioned above, only 16 have cross-holdings. The specific distribution is shown in the figure below.

Data Source: NFTGo.io

Data shows that among BAYC's Diamond Hands, 20%-30% hold NFT Collections like Bonsai and Parallel Alpha, 30%-50% hold Otherdeed, Sandbox, and Art Blocks, while the number of Diamond Hands holding ENS exceeds 60%, dominating the holdings.

This evaluation standard also applies to other blue-chip Collections. For example, we found that the data for Doodles Diamond Hands also shows the same trend, with ENS holders dominating, and the Beta and Gamma situations are very similar to those of BAYC.

Data Source: NFTGo.io

In World Of Women, Art Blocks only ranks in the Gamma tier. World Of Women Galaxy is a second-generation derivative Collection of World Of Women, founded by 181 members from its Diamond Hand community.

Data Source: NFTGo.io

However, in the Diamond Hand groups of Doodles and World Of Women, the overlap of holdings is relatively less compared to BAYC, indicating that the investment strategies of Diamond Hands are more diversified. The investment overlap of CloneX Diamond Hands occurs only in Beta-type Collections, and among the five Collections, four belong to projects produced by the same development team.

Data Source: NFTGo.io

Currently, in the Alpha category of CryptoPunks, Meebits and ENS are the two Collections that appear.

Data Source: NFTGo.io

ENS and Art Blocks

We conducted an in-depth study of the investment portfolios of Diamond Hands in five blue-chip Collections and found that ENS appears frequently, never dropping out of the Alpha and Beta categories. It is evident that most Diamond Hands own their own ENS domain names. In the past few weeks, ENS prices have also surged. Additionally, Art Blocks appears frequently; in three of the five Collections we analyzed, Art Blocks has a holding rate of over 20% among Diamond Hands. Art Blocks allows users to mint NFTs in the style of their favorite artists through the concept of "random artworks," making it one of the popular generative art projects today.

Airdrop Effect

Generally, development teams periodically distribute new NFTs to the holder community. As the most brand-loyal type of users among holders, Diamond Hands are willing to hold a portion of NFTs, whether during valuation peaks or market lows, even if these NFTs are obtained for free from the project team. Through observation, we found that many investors in projects like CryptoPunks, RTFKT, and World Of Women still retain some NFTs obtained through airdrops.

Conclusion

In this article, we analyzed the distribution of Diamond Hands across different NFT projects and found significant differences. We also revealed how these experienced investors adjust their investment portfolio structures during bull and bear markets in the NFT space. Finally, we studied the investment trends within the Diamond Hand community and analyzed the overlap of Diamond Hands' investments in other NFT projects across different Collections.

For some time, NFTs have been in a consolidation phase, with some users hoping to get rich overnight, while others are skeptical about the NFT market, believing that a bubble will inevitably burst in the long term. In contrast, Diamond Hands will HODL during bear markets, becoming long-term strategic holders who see the grand future of the NFT market.