Chainalysis: Retail investors drive the NFT market

A new report from Chainalysis shows where we are currently in the NFT space and where we could go.

From a new report by Chainalysis shows that the NFT market is booming. According to the report, users have already sent cryptocurrencies worth at least 26.9 billion US dollars via ERC-721 and ERC-1155 contracts since the beginning of 2021. These are the two types of smart contracts on the ETH network that are related to NFT marketplaces and collections.

Who invests in NFTs?

According to Chainalysis, the NFT space is mainly driven by retail investors. Most NFT transactions are currently under $ 10,000.

“For those new to crypto, NFTs can be a more tangible form of property,” told Ethan McMahon, economist at Chainalysis.

McMahon also said that many people in the media and entertainment industries would “loudly display” their NFTs. As a result, beginners would be “more likely to focus on NFTs that suit their own interests”. In addition, the largest NFT marketplaces are user-friendly and offer the possibility of viewing and trading NFTs.

“Combine this with the temptation to sell an NFT with substantial profits, it would make a lot of sense to see NFTs as an accessible and attractive way to get into cryptocurrencies,” McMahon told BTC-ECHO.

However, the report also shows that the number of higher transactions is increasing. Accordingly, the proportion of transactions between $ 10,000 and $ 100,000 rose from 6 percent in March to 19 percent in October 2021.

Cryptopunks and Co.

According to Chainalysis, they are Cryptopunks still the most popular NFT series during the period under review, even though the collection has been on the market since 2017. The collection recorded a transaction volume of over 3 billion US dollars between March and October 2021.

According to the report, there are also some one-hit wonders in the NFT space. For example, the Hashmasks collection reached a transaction volume of over $ 380 million in the week of July 4, 2021. After that, the hype leveled off. Accordingly, the NFT series recorded an average volume worth only 21 million US dollars per week during the investigation period.

NFT strategies

For example, according to the report, flipping, i.e. reselling NFTs, would lead to higher profits. In the report, Chainalysis explains that marketplace data OpenSea according to only 28.5 percent of the NFTs bought during minting and then resold on the marketplace would make a profit. If sold on a secondary market, however, this percentage is 65.1 percent.

In addition, “whitelisting” is a possibility to acquire certain NFTs for a lower price. According to this, some NFT developers would advertise their projects early on and put followers on such a whitelist in order to enable early access to the collectibles with lower prices.

However, according to the report, a small number of shrewd investors are currently drawing most of the profits in the NFT space. For example, it would be possible to use bots during the minting process to force investors with less sophisticated investment strategies out of the running.