Bear Market NFT Investment Strategy

Written by: PANews

Recently, both STEPN and OkayBears have gained significant attention. We have seen the recent surge in SOL NFTs and Magic Eden's 24-hour trading volume surpassing OpenSea. How should we view this phenomenon? Will Magic Eden surpass OpenSea in the future? How can we identify blue-chip NFTs? How do we invest to seize these opportunities?

On May 27, 2022, Dr. Charles, co-founder of Euterpe, researcher Hua Ge from Huahua Research Institute, renowned KOL He Bine, K24 Ventures founder Diving Observer, and founder of Club of Goats crypto Huajiao were guests on a Twitter Space co-hosted by PANews editor Tongtong Bee and WAGMi Ventures partner Mark. They discussed NFT investment strategies during a bear market. Euterpe will provide a transcript of the conversation below, hoping to assist readers.

Host Tongtong: Although the overall market has been quite volatile recently, we see that NFTs continue to create lively scenes, stimulating more and more players, including many well-known investors and major companies like Li Ning from the sports brand and Greenland from the real estate sector joining this trend. Global e-commerce giant eBay has also recently announced a partnership with NFT platform OneOf to launch its first NFT series. So, how to invest in blue-chip NFTs and projects with potential is the main purpose of our Space event. I believe this event is also of great significance, and we have invited some influential KOLs and builders in the NFT field. First, let me introduce my partner, WAGMi Ventures partner Mark. Today, the two of us will co-host. Mark, could you briefly introduce yourself?

Host Mark: Hello everyone, I am Mark. I am the founder of WAGMi Ventures. I entered the internet space 17 years ago and then transitioned into the crypto space. I mainly focus on investments and incubation projects in the crypto world. WAGMi Ventures invests in promising Web3 projects, and we have noticed that NFTs have been very hot recently. We have also heavily participated in this NFT field, including early monkeys and recently popular projects like Bilibili and Moonbirds. I have written some insights over the past month on how to play in this space, which you can check out. Today, we have also invited some friends who play or work in NFTs, including my good friend He Bine, K24 Ventures founder Diving Observer, Dr. Charles from the copyright NFT platform Euterpe, Hua Ge from Huahua Research Institute, and Huajiao, founder of Club of Goats crypto.

Now, I would like to ask each guest to introduce themselves briefly and share the recent NFT dynamics they have been following.

He Bine: Good evening everyone. My experience with NFTs is similar to the previous dog-fighting model. Recently, I have been working with friends on a software for dog fighting, as long as it can cover the gas fees. During this time, I participated in Columbus with over 100 and Moonbirds with about 70 or 80, and the returns have been decent.

Hua Ge: Good evening everyone. We are Huahua Research Institute, one of the earliest KOL self-media teams in China. Our team is quite large, and we hunt in various areas including NFTs, public chains, DeFi, and GameFi. Please follow our Twitter for more updates.

Charles: Good evening everyone. I am Charles, and our project is called EUTERPE, an IP NFT platform. We mainly provide solutions for the copyright industry through NFTs. The NFTs we release will have IP, so we hope to offer a better experience and a new asset class for our NFT buyers. I graduated from Stanford, and my background is in law. Before this, I worked as a VC in Silicon Valley, and around 2017-2018, I started investing in the blockchain space. Later, I collaborated with several Stanford alumni to create the EUTERPE project. I am very glad to have the opportunity to communicate with everyone. Thank you.

Diving Observer: Hello everyone, I am Diving Observer.

Huajiao: Hello everyone, I am Huajiao. I am currently doing investment research, focusing on the NFT sector. I entered the space in 2015, but it wasn't until 2017 that I formally and systematically got involved. From what I understand, there are very few Chinese communities focusing on the Solana track. I can only see two. I am currently working on a Solana-focused community, shifting focus from Ethereum NFTs to Solana. I am very glad to have the opportunity to communicate with everyone. Thank you.

Host Tongtong: Well, welcome everyone. Let's get straight to the point. I believe many of you have been waiting for this. One of the biggest topics today revolves around the STEPN issue. I believe many friends present are quite concerned about this, so I would like to ask everyone to share your views on the crisis surrounding STEPN.

Charles: Okay, since STEPN has SocialFi, and our platform also has SocialFi features, I have been paying attention to STEPN. I personally believe that the decline of STEPN can be attributed to several reasons. First, the overall market trend has an impact. Generally, in such volatile market conditions, many coins will be affected. However, STEPN has dropped significantly, and the recent announcement regarding the shutdown of its operations in China is certainly a direct trigger. I believe that after this news, there will be a huge change in its future performance or short-term data and user base, which will have a significant impact. Second, in the long run, whether its mechanism design and various gameplay can continue sustainably is also a point worth noting. Any SocialFi or any "x to earn" model fundamentally relies on having a sustainable value proposition, continuously addressing who is paying, what the value is based on, and how to capture that value. This is fundamental. If this issue is not well addressed, it will be difficult to clearly explain what value the project or the entire system provides to society, the industry, or the market, and which side is completing the payment and providing that value, making long-term development challenging.

Diving Observer: Many people have various opinions about STEPN. Personally, I haven't thought too much about it. When it first launched on Bi, I was quite surprised and bought a lot at around 0.1u, later selling it all at 4u. Many old crypto enthusiasts think of STEPN as a copy of Qubao, but I want to emphasize that many so-called innovative models, including Axie, were actually designed by people who are not very well-liked domestically. I don't carry subjective bias regarding STEPN, but whether its economic model has inherent issues or if there are some negative aspects depends on the economic model itself. However, I still believe it is a good project. Even if it collapses, I still think it is indeed a very historic beginning for Web 3.0. Or let's not say Web 3.0; at least I think it is Web 2.5. Simply put, many projects that failed in Web 2.0, like Keep, although they did a lot, did not have a clear profit model. However, after improving, they might be able to generate profits or survive better using a model like STEPN. I believe this provides significant guidance for those transitioning from traditional internet to our blockchain industry. Therefore, I have always believed that regardless of external opinions, history may judge STEPN as having contributed more than it detracted from the entire blockchain industry. That’s my view. Thank you.

Host Tongtong: Yes, STEPN has indeed brought a lot of new traffic to the industry. Hua Ge, do you have anything to add on this issue?

Hua Ge: I think the decline of STEPN is mainly due to the closure of the Chinese market, but I don't think this is a systemic risk issue. Unlike Luna, where the economic system had problems, STEPN is just closing a market. The system itself currently does not have much risk. I feel that there will be some selling pressure in the short term, but in the long run, we can still pay attention to the project's development.

Host Tongtong: Thank you, Hua Ge. Now, Huajiao, could you share your views on STEPN?

Huajiao: Many of us have a path dependency, believing that STEPN will replicate the fate of Axie Infinity, meaning we think it will ultimately lead to its demise. However, I don't think every project is the same. STEPN has its unique points. If we take Axie as an example, the reason it ultimately collapsed was due to its GameFi or somewhat SocialFi nature. In my understanding, I consider all projects with financial attributes to be a form of a Ponzi scheme, which can be categorized into healthy and unhealthy Ponzi schemes. When a project starts well and enters a positive spiral, it becomes a healthy Ponzi. However, once any supply chain shows signs of issues or if supply exceeds demand, it enters an unhealthy Ponzi. We cannot prematurely judge a project's quality; I believe we can only let time tell. I have looked into the design of STEPN's entire economic model, and I think the biggest reason it could break out is that it is closer to Web 2. I saw some good ideas on Twitter today, suggesting that STEPN and all airdrop models are essentially Web 2, just cash discounting methods, but we use tokens to supplement this incentive. In conclusion, I think STEPN's exit from the Chinese market has both pros and cons. Some foreign groups may be more flexible. This is a personal opinion. As for the criticism regarding its crisis management or adaptability, including founder Jerry, I think these are inconsequential. I believe the current public chain landscape is set, and the underlying infrastructure is mostly in place. Therefore, the future competition will be about applications, people, and traffic, rather than capital. Capital is more about transitioning from Web 2 to Web 3. Personally, I still have a positive outlook on STEPN's future; it is still a very promising project.

Host Mark: SOL NFTs have recently surged, with Okay Bears increasing by about 50 to 60 times. What are the reasons behind this recent surge in SOL NFTs? Are there any guests who have researched this? I believe many friends are interested because Ethereum is too competitive, with transaction fees reaching dozens of dollars each time.

Huajiao: The entire NFT circle, from a broader perspective, is somewhat disconnected from the crypto circle. People who play NFTs do not really care about the opinions of crypto enthusiasts. Those who engage in NFTs have some fixed mindsets. In the crypto circle, more operations involve making money from certain projects and then using the profits to buy Bitcoin and Ethereum. In the NFT circle, funds generated from other small images are likely to be redirected back to blue-chip projects. This consensus will not change.

Why are there some hotspots emerging on Solana? First, I think it is because Ethereum has been heavily drained of resources, and the short-term market capital is in a vacuum period. Second, when market capital is in a vacuum, many people are eager to explore another backup or plan B. I believe this is understandable. Before Okay Bears was released, I had already been promoting it, saying that the upcoming weeks would be a very hot project. After Okay Bears was launched, we indeed saw some Bored Ape holders actively shift to Okay Bears. Following Okay Bears, there was also the emergence of Psychedelic Monkeys. I think the IP of monkeys is already very significant, and indeed, it has been largely absorbed by Bored Ape. Is there a fundamental difference between Ethereum and Solana? First, the utility of blue-chip projects differs between the two; Ethereum focuses more on PFP models, while Solana emphasizes utility. Second, the overall community on Solana is relatively dispersed. The difference between Magic Eden and OpenSea is that Magic Eden is more centralized; all major projects tend to launch on Magic Eden. However, OpenSea does not have a launch pad function, while Magic Eden does. This is a fundamental difference. Third, there is also the frequently criticized issue of the underlying network. Solana often experiences downtime due to its underlying network, which sacrifices some security for increased TPS. Solana has over 60,000 TPS, while Ethereum only has 3,000. It has increased speed but sacrificed some security, leading to frequent downtimes due to fewer nodes. These are the main points.

Mark: Understood. So, to summarize what Huajiao has said, the first point is that we are currently in a vacuum period, and the second point is the concentration of capital and IP explosions on Solana. Magic Eden's trading volume has recently surpassed OpenSea, with many hot projects launching on Magic Eden, and Solana's low gas fees and high turnover rates contribute to its potential for more significant surges. Are there any other guests who would like to share their thoughts on NFTs on Solana? Dr. Charles, have you engaged with Solana NFTs?

Charles: As Huajiao mentioned earlier, I believe Solana indeed provides some new and valuable ideas for the Ethereum ecosystem in many aspects, not just in terms of speed but also in offering new applications and value under new scenarios. In the Solana ecosystem, compared to Ethereum, new NFTs can provide hope for everyone.

Host Mark: Alright, are there any other guests who would like to share their thoughts on this issue? Hua Ge, do you have any research on Solana NFTs?

Hua Ge: My research is not deep. I first participated in Solana NFT projects at the end of last year when it was still under the public chain competition landscape. At that time, every public chain was quite similar, and I transitioned from Ethereum to Solana to participate in projects there. Overall, my experience has been positive because, compared to Ethereum, Solana excels in processing speed and transaction fees. I had some experiences with Solana ecosystem projects last year that ended in failure, and I haven't kept up with Solana NFT projects much since then. It was quite a painful lesson.

Host Tongtong: How do we identify blue-chip NFTs? What defines a blue-chip NFT project? What factors determine a blue-chip NFT project? What creates a blue-chip NFT project? What factors does the market consider when assigning blue-chip status to an NFT project?

Charles: A blue-chip project must have long-term value; we consider NFTs with this characteristic to be blue-chip. There are several points to pay attention to regarding long-term value. First, whether its artistic taste and style are truly classic and valuable. Second, the team—whether the creators, marketers, and developers have a good reputation and social capital to support the long-term operation and development of the NFT project. Third, it should be efficient enough to provide various rights, benefits, or unique experiences to NFT holders, or allow access to new products, or become exclusive members, or experience diverse virtual or real-world activities. I think this is very important. Fourth, is there a celebrity effect? Are there any celebrities who recognize the project or work? Our platform strongly agrees with this point; EUTERPE introduces many leading IPs, including collaborations with top musicians, singers, and agencies when we enter the music space. We hope to provide players with a sense of security by showing that well-known stars are also participating. Fifth, community—whether the community can gain recognition, invest significant energy in management, support, share, and provide value. I think this is also very important. Finally, I want to say that many projects need to have their uniqueness. For example, the early CryptoPunks were groundbreaking projects that gained widespread recognition and have a place in the history of the NFT market. I believe such value has the potential to be blue-chip NFTs. That’s my perspective. Thank you.

Huajiao: How to identify blue-chip projects? First, we need to position the project—whether it is a pure PFP project or a utility project. PFP projects focus more on FOMO, which is market heat. Blue-chip projects have four dimensions: First is the team and the capital behind it. For example, Moonbirds' founder has invested in Twitter and is a Web 2 angel investor, which gives him the capability to drive the project. Second is community operation, especially on Discord and Twitter, as these are important tools for promoting the project’s culture. I have seen many projects that are very famous in Web 2 but fail to understand how to operate in Web 3.0, meaning they cannot effectively promote their own works, which I believe is one of the most challenging parts of Web 3.0 operations. Third, project positioning—what problems do these NFTs specifically solve, and what innovations do they bring? Innovation is crucial for a project. Fourth, the overall planning of the project—what does its roadmap look like? Is there a detailed plan? If it is merely to sell an image, I think everyone should be cautious about such projects, as they may gradually lose focus without a stable goal, leading to what we call "slow rock." Ultimately, the project will fail. Fifth, it needs to be repeatedly validated by the market. It must continuously be validated by the market before it can transition from an ordinary project to a blue-chip project. That’s my perspective. Thank you.

Host Tongtong: Thank you, Huajiao. Both Huajiao and Dr. Charles mentioned that a project’s overall IP background, community operation, and team capabilities are quite important. I would like to add a point regarding the openness of copyright and the expandability of the NFT asset itself, which I believe are also crucial factors in determining whether it can become a blue-chip project. Regarding copyright, a successful example is Bored Ape Yacht Club (BAYC), which is why companies like Greenland and Li Ning are willing to collaborate with BAYC commercially. The most failed example is Crystal Punk, as the team initially retained all copyrights. After it was sold to Uber, Uber opened the copyright to Punk holders, leading to a price surge. Additionally, the expandability of NFT assets themselves is important. In the future, NFTs may have some cross-border interactions and new designs. I just wanted to add this point. Mark, do you have any questions?

Host Mark: We can clearly observe that a bear market may be approaching. How can we invest in promising NFTs?

Charles: Whether we are currently in a bear market is debatable because NFTs have a characteristic where many people do not purchase purely for financial returns. Many view them as art or collectibles, which have aesthetic value. Of course, as the market's trading volume or liquidity changes, the market will experience fluctuations. Initially, many projects and NFTs had false or overly high expectations, or bubbles existed. In the current market environment, some NFTs will showcase their true value, while others will see their bubbles burst and return to normal prices. That’s my view. In this market situation, we should focus on blue-chip projects—those with genuine long-term value. I believe this actually provides us with opportunities to purchase good projects. Thank you.

Hua Ge: Whether the NFT market is in a bear market depends on the broader environment. Currently, the global environment and various markets lack liquidity, and with liquidity tightening, the NFT market is likely to be in a bear market cycle. Regarding how to invest in promising NFT projects, first, the roadmap is crucial. We can assess the project's future planning and actions based on its roadmap. Secondly, is the project team exposed? Do we know about the team? Additionally, we should consider the community's activity level, such as Twitter interactions and Discord engagement. Generally, projects with active communities are more likely to have potential.

Host Mark: I would also like to add that I recommend several ways for everyone to participate in NFTs. First, try to get as many whitelist spots as possible, especially on Solana and Ethereum. You can chat in Discord communities to invite people because whitelists are relatively low-cost and have the highest safety margin. Second, pay attention to free mint projects. Third, catch the trends. Fourth, good projects tend to concentrate in the evenings.

Host Tongtong: What data should investors look at when investing in NFTs? What is the NFT investment manual for leveraging opportunities?

Hua Ge: First, holder data is important. Understanding who holds a project can reveal whether they are long-term holders, short-term speculators, or NFT whales—smart money. This can quickly inform you about the distribution of stakes. Secondly, supply data is crucial; the fewer the supplies, the easier it is for prices to rise. Additionally, participate in as many project whitelists as possible to minimize your holding costs, as this has the highest safety margin.

Host MARK: Recently, Magic Eden's 24-hour trading volume on Solana has surpassed OpenSea. How do you view this phenomenon? Will Magic Eden surpass OpenSea in the future? What breakthroughs can we expect from Magic Eden?

Huajiao: Before Okay Bears was launched, Magic Eden's transaction volume had already exceeded OpenSea by tenfold. In the first week after Okay Bears launched, its active user count also surpassed OpenSea. I summarize the reasons as follows: first, very low fees meet retail expectations. Secondly, there is a capital vacuum period on the Ethereum chain, creating a need for the next hotspot or different tracks to ignite interest. This led to a siphoning effect of capital, resulting in a surge in overall trading volume. As for whether Magic Eden will surpass OpenSea in the future, I think these are two different quantifiable domains. Magic Eden is primarily focused on Solana, while OpenSea is the absolute leader in the Ethereum NFT ecosystem. Various reasons indicate that both leaders dominate their respective fields. Although many projects challenge this, none have managed to dethrone Magic Eden. There are many projects on Ethereum that also cannot compete for the secondary market trading throne. I personally believe this landscape is already established. What breakthroughs can Magic Eden achieve? I think what everyone is more concerned about is whether it will issue tokens. First, the capital support behind Magic Eden suggests there is an expectation for token issuance. Magic Eden also collects fees; with such high daily trading volumes, some major projects might see daily trading volumes approaching 20,000 to 30,000 SOL, and that’s just one project. Magic Eden hosts many projects daily, along with its launchpad, so its revenue is sufficient. It has already issued NFTs, and it is possible that they will airdrop tokens to MagicDAO holders in the future, as the gameplay on Solana typically involves projects having their own tokens. Most of these are generated through staking NFTs. Some projects can empower their tokens, while others cannot, and those that fail to empower will eventually die. I think there is a possibility of token issuance. This is what I believe Magic Eden can do to achieve breakthroughs.

Host Tongtong: What do you think the future development of the NFT market will look like? Please share your views.

Charles: The forms of NFTs, or the media anchored by NFTs, will expand. Initially, we only had images, and recently there have been some text forms appearing. However, I believe that according to the development process of the internet, it started with images but quickly transitioned to formats like MP3 and MP4 streaming. More media forms will emerge; we cannot limit ourselves to just PFP files. Secondly, I believe there will be a deep integration with copyright. The essence of NFTs, or the essence behind their assets, should strongly relate to copyright. Whether an NFT has copyright directly impacts its value. If the NFT market is to develop long-term, compliance with copyright is essential. All NFT minting processes must have copyright, and there will likely be more development models and operational modes that combine with copyright, providing rights and participation opportunities for NFT holders. I believe this is a future trend. Additionally, the financial assetization of NFTs and their integration with DeFi will lead to more financial derivative play styles. Of course, this also involves many compliance pathways and designs. If these can be well resolved, combined with financial and DeFi designs, it will bring more vitality to the NFT market. Lastly, some application scenarios may become a very good infrastructure for the metaverse in the future, whether virtual assets or real-world mirrored assets can be presented as NFTs. Therefore, NFTs will be a very good entry point for future metaverse layouts. With real application scenarios, NFTs will find a very good positioning in the larger market, which is also why I have a long-term positive outlook on the NFT market.

Hua Ge: In the short term, NFTs mainly focus on digitizing art and virtual property to achieve rights confirmation. In the long term, the most likely scenario is to implement a physical asset chain through an oracle system, enabling it to carry more and richer asset value. From both a technical essence and future development perspective, NFTs are an inevitable trend.

Host Mark: What is the historical status of NFT art and its future value and development?

Charles: My first encounter with NFTs was in 2017, and I distinctly remember CryptoPunks, followed closely by CryptoKitties. Many of my friends and colleagues in Silicon Valley purchased them. Although the market quickly entered a cooling phase, we sold very few. Why? Because these NFTs still held artistic or collectible value. Setting aside how prices have changed later, merely holding these NFTs, such as the pixelated presentation of CryptoPunks or the early gameplay of CryptoKitties, reflects not only the aesthetic interests of the holders but also their stage of participation in the NFT art industry or their identity recognition. I think this is a very important aspect.

Subsequently, more mainstream artists and IP holders have been willing to bring their IPs into collaborative development, leading to an increasing number of mainstream artworks emerging. This includes new attempts to integrate with GameFi and SocialFi, as well as new NFT projects that combine with the metaverse. I believe the product has shifted from an engineer or geek culture to a mainstream artist culture, evolving from the initial display of images to the emergence of more multimedia forms. This is the historical trajectory I see for crypto art or NFT art.

Its value is also quite clear. First, it completes the rights confirmation of virtual property, solving the channels for collecting, investing, and utilizing virtual assets or virtual artworks. This is one of its values. Moving forward, the integration with real-world art will also provide a direction for future value. A critical point is that if it can truly integrate with copyright, allowing it to represent copyright rather than just being a piece of art or a copy, many people do not have a deep understanding of copyright when collecting crypto art or artworks. The work itself does not necessarily represent the IP behind it, which is something many overlook. In the future, if one day holding an NFT also represents holding the IP behind that NFT work, then the NFT holder becomes the IP holder, enjoying all IP rights. At that point, the NFT is no longer just an artwork; it becomes an asset of that IP. This distinction is very meaningful. A simple example would be in the music industry; if you only have a copy, it can only serve as a replica. If you do not hold the IP, it is akin to buying a limited edition CD or vinyl record. Its value lies in your ability to listen, collect, and resell, but your application scenarios are very limited, and thus its value is also limited. For instance, I recently saw a Michael Jackson album being sold on eBay for around $260 or $280 in the Web 2 era or the real world. However, you should know that the IP for that album could sell for tens of millions of dollars. The vast difference between these two values highlights that if our future NFTs can represent the IP rather than just a vinyl record, we believe their value will have a substantial foundation. This is also a direction for NFTs to provide value to the entire market and to us holders.

Host Tongtong: How should ordinary investors understand NFTs? How should they layout their NFT investments?

Hua Ge: The most direct way is to purchase NFT assets.

Secondly, invest in some NFT-related tokens, such as APE.

Another option is to participate in marketing activities of project parties to receive airdrops or whitelist spots.

If the first few methods are too simple and do not satisfy you, you can try issuing NFTs yourself to operate in the market. However, this has a relatively higher barrier to entry compared to the previous methods.