It goes without question that there has been an influx of excited investors piling into Web3 and this is despite the decrease in total volume sales in the last seven days. Since the start of May, the total market capitalization for nonfungible tokens (NFTs) rose to over $19.4 billion with the total volume exceeding $1.2 billion in the last seven days.
Although volumes are lower than usual, spectators are quick to wonder whether the projects launching are delivering workable products given the amount of liquidity that pumps into them. Although this is not always the case, NFT investors are making their assessments based on roadmaps, announcements and projections that the team shares. However, given the speed at which the nascent NFT sector is moving, detours and roadblocks are to be expected when investing in NFTs.
Notable projects and blue-chip status NFTs like Cool Cats’ Cool Pets, Axie Infinity and even Bored Ape Yacht Club (BAYC) have slightly deviated from their intended plans, slightly curbing its users' enthusiasm. While this clearly worked out well for BAYC, it is important that investors understand that investing capital on the promise of a roadmap could ultimately lead to disappointment.
The unpredictability of growing pains
It’s exciting to stumble on a project that appears to be blue-chip caliber. The project might tick all the boxes and the team has proven to have previously developed a working product, the art resonates with diverse groups of people. If the community is strong and rallies around their conviction toward the project and it’s backed by a desirable roadmap, then investors feel convinced that they’ve stumbled on a winner.
Of course, all of this is no guarantee of success.
Take for example, Cool Pets, which launched on Jan. 31 and intended to roll out its play-to-earn (P2E) game, Cooltopia. A few technical setbacks delayed the roll out and resulted in many NFT traders losing faith in the project. Adding to this, on April 29, Chris Hassett, the former CEO of Cool Cats NFT, stepped down from his role and the company is now in search of a replacement.
Often, the biggest deterrent to a projects’ success are unforeseeable events that may create logistical problems but it’s important to note the difference between “good” and “bad” problems. For example, the acceleration of growth can create stress in a project's ability to safely scale, but often puts a target on it.
Axie Infinity wasn’t immune to a socially engineered hack resulting in a $625 million hack that represents one of the largest cryptocurrency exploits in history.
As it stands, the Ronin bridge that transfers funds to the Ethereum mainnet, is closed. Meaning, users’ capital is currently locked on the Ronin network until a full audit is completed. This unforeseeable event has left investors with their capital locked, and their in-game tokens on a steep downtrend. In light of this, the community morale has seen some of its hardest days with investors voicing their opinions on how to proceed.
Market cycles can impact morale
The acceleration of growth can not only place a target on a project, but it can also lead to too many chefs in the kitchen experimenting with new ideas. Often, when a project's user-base grows, so do the number of opinions on what is best for the future and sustainability of the community and the project. Here is where speculation begins to brew and expectations begin to form.
Yuga Labs’ The Otherdeed digital-land NFTs went down as the most anticipated mint for 2022 thus far, with speculated value propositions upward of $110,880. Most of these values were attributed to rare Koda NFTs, which were randomly dispersed on Otherdeed lands.
Since the mint was originally priced in ApeCoin, secondary marketplace, OpenSea supported APE as a form of payment for future listings. The Otherdeeds sold for an average price of $25,629 pre-veal but plummeted to $15,510 post-reveal, alongside the decline in price of APE.
Although many Web3 investors expected this mint to blow others by the wayside, they did not expect the overall crypto and NFT markets to head into a downward spiral. In the last seven days, Ethereum has dropped by 15% and with most NFTs being Ethereum-based, their prices have also taken a hit. Solana (SOL)-based NFTs have also been sorely impacted with SOL trending nearly 40% downward in the last seven days.
NFT traders also highly anticipated the mint would boost the NFT market with liquidity. While liquidity was injected into certain collections, the overall total sell volume for NFTs has dropped by 40% in the last seven days. These figures suggest that the market could be entering a cooling period.
With much of the market appearing in red, NFT investors are finding themselves in tough predicaments. Some investors extended leverage far more than they could cover and are having to force sell their assets at a loss to cover margin calls and liquidations. Others are rationalizing the negative slope to retail investors panicking because of interest rate hikes in the United States.
The WAGMI “we’re all gonna make it” mantra that grew popular among NFT investors is being tested and traders are having to grapple with market cycles that are not decorated in all-time highs and monumental volume. A positive is that oftentimes during these lulls, builders are born. More experienced investors use the anticipated market dips as times to “stack and survive,” by adding to their portfolios and riding the current lows back to new all-time highs.