- In a high anxiety environment, investors tend to gather around blue-chip value.
- ETH price drop presents an opportunity to own blue-chip NFTs
- Stablecoin yields are still preferable to traditional bank accounts.
- Sometimes, it is better to do nothing than to sell at a loss in a crypto bear market.
According to the latest Financial Times survey, 68% of economists now believe that we are entering recession by 2023 or shortly after.
By the end of 2022, the Federal Reserve should increase the interest rate to 3.4%. This reset of the economic policy to combat inflation significantly raises the cost of capital.
Not to mention the just-in-time (JIT) chain supply disruption lingering from lockdowns and soaring gas prices at above $5 per gallon. Consequently, all markets are in a freefall.
Year-to-date, even the safe haven blue-chip stocks of the world’s wealthiest companies, represented by the S&P 500, lost -23.4%. Just 10 top companies of the index lost over $1 trillion in the last week.
S&P 500 (SPY) vs. Ethereum (ETH) vs. Bitcoin (BTC): TradingView
Likewise, if blue-chip stocks are in a historic downturn, so are the cryptocurrencies. This was made even worse by the DeFi contagion, which was caused by Terra’s $44 billion meltdown.
Celsius Network is one of the biggest crypto lending platforms. It was the first to get infected because its yields were based on Ethereum staking (stETH). This had a further suppressive effect on ETH itself, the main crypto behind NFTs.
Overall, the global crypto market lost an astonishing $2.1 trillion since April, which is the market cap range it held in January 2021.
Global cryptocurrency market cap, source: coinmarketcap.com
We are seeing the same reset to January 2021 with NFT sales as well. At under $10 million weekly sales in June, this marks a reversal to the end of 2020.
Daily NFT volume: Dune.com
The question is, how are blue-chip NFTs handling the entry into the crypto bear market? And more importantly, what can NFT traders do to leave it unscathed?
Blue-Chip NFTs: Down but Still Holding Up
As their name implies, non-fungible tokens are illiquid assets. They rely on scarcity — the lack of liquidity — to maintain their price. This should not be confused with market liquidity. Which is shown by trading volume, or the number of buyers and sellers who are willing to trade.
This is important to keep in mind because the crypto bear market is caused by whales reducing their involvement. And as they do, the market becomes less liquid, as shown by the fact that there are fewer active whales compared to the blue-chip index.
Overall, NFT blue-chip holders have lost an average of 40% since April because of:
- ETH-leveraged liquidations
- Terra-born DeFi contagion
- Geopolitical uncertainty
Some were hit harder than others, with top ones like BAYC withstanding the blow the best, at 27% loss. Moreover, given that ETH lost 71% value year-to-date, the most valued NFTs were the ones that contributed most to the selloff.
Going from an average floor price of Ξ96 in May to Ξ86.8, BAYC NFTs contributed 85% of all blue-chip sales in the last week. The rest is split up evenly between CryptoPunks, Art Blocks, Otherdeed, Nouns, and Azuki.
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Overall, the drop in ETH value had a severe impact on profits and losses (PnL) metric — buying price minus the selling price.
This also means that new buyers are most likely to take advantage of the BAYC dip. While leaving other blue-chip NFTs on the sidelines in the crypto bear market.
This is predictable as panicky investors exit the market, leaving others to prioritize the biggest NFT players. A similar dynamic is happening in the blue-chip stock market as well.
Even with all of that, it’s important to remember that the number of buyers and sellers on the NFT market is still high compared to two years ago, when the numbers were very low.
That army of traders is biding their time for the next bull run. In the meantime, here are some tips to weather through the crypto bear market.
1. Pick a Stablecoin for Steady Yields
You may be asking, why would anyone get involved with staking after Terra and Celsius. First and foremost, avoid all algorithmic stablecoins. Even though they are over-collateralized, they are anchored to the network’s native token and not audited physical cash, in a 1:1 ratio..
We have all seen how that turned out for Terra’s UST as it was backed by LUNA. Likewise, TRON’s USDD, overcollateralized by TRX, is also having trouble maintaining its peg to the dollar.
Instead of trying out algo stablecoins, choose stablecoins that have been stable in the worst market conditions.
This is not Tether (USDT) but USD Coin (USDC). It is fully backed by cash, under the custody of the FDIC-insured Silvergate Bank. Run by the Centre consortium, which consists of:
- Coinbase, and
USDC recently upped its transparency by submitting weekly audits of its reserves.
2. Go Back to DeFi Roots
With robust stablecoin picked, it is then a matter of selecting the proper platform for stablecoin yields. Due to current liquidation contagion, one should obviously avoid:
- Celsius Network
- Nexo, and
These are not decentralized platforms, although they take advantage of crypto assets. Instead, check out classic DeFi platforms like:
- DyDx, and
Although their USDC APYs are much lower than on centralized platforms, they are still drastically higher than if you just hold your money in a bank savings account (0.07% APY).
With an inflation rate of 8.6%, it is more important than ever to have your money work for you.
Lastly, to avoid impermanent loss (IL) in liquidity pairs, avoid volatile asset pairing. For example, a stablecoin to stablecoin liquidity pair, such as USDT/USDC, would represent minimal IL risk.
3. Taking Advantage of ETH Drop vs. Blue-Chip NFTs
As noted in the previous sections, a fall in ETH price results in greater PnL losses. Meaning, if one blue-chip NFT previously cost Ξ10, there is now a big difference from when Ξ1 was at $2,500k and now under $1,000.
Many traders will be thinking that this is the time to get a hold of blue-chip NFTs that were previously unavailable. This includes BAYC, CloneX, Art Blocks, and others. Even rising stars on the way to blue-chip statuses, such as Goblintown, should be considered.
Also, the lower price of ETH makes fractionalized NFTs even more attractive as the cheapest way to own blue-chip stocks. Platforms like:
offer vaults full of the most popular NFTs at a fraction of their normal price. Therefore, one should consider the ETH price drop as the silver lining of this crypto bear market.
4. Ditch NFTs With Unclear Roadmaps
Do you own NFTs in the hopes they will become blue-chip? Has the team followed through on that roadmap, or even overdelivered? Or has it all been just theoretical? If the latter is the case, then this is a good time to follow through on red flags and sell them.
At the same time, one must keep in mind that a crypto bear market makes all market participants take a pause, including the dev teams.
Now that that’s out of the way, if you have a bunch of low-value NFTs with questionable uses, the ETH price is probably never going to be this low again.
For this reason, it would be smart to sell them and put the money into lower-cost blue-chip NFTs or fractional ownership.
5. Resist Crypto Market Withdrawal
Many traders are seeing huge losses in their portfolios for the first time. However, this is nothing new.
In fact, not only is the crash nothing new, but every wealthy crypto guy became so because he invested during the crypto bear market. After all, how could one get massive gains in a bull market when the prices of all assets are high?
Did you know that all big companies in the NFT market — OpenSea, Larva Labs, Dapper Labs, Yuga Labs — built their foundation during the crypto bear markets?
If you are not sure if your investment in digital assets will pan out, it is often better to do nothing than sell at a loss. Of course, this applies to sound tokens with a detailed roadmap, team engagement, and proven utility. Not dubious meme coins that rely on social media vaporware.
Crypto Bear Market = Risk Mitigation
If this is your first time going through a bear market. It is important to take a step back and look at historical charts and how people have adopted new technologies. There are always some bumps on the road. However, it is up to you to perceive those bumps as temporary obstacles instead of fatal chasms.
This is the difference between panic selling at a loss and having productive patience. With this mindset, one should take a good look at their portfolios and decide which assets are most dependent on pure speculation in a bull market.
Clean those up and reallocate into now-cheaper blue-chip NFTs or cryptocurrencies with a clear roadmap and utility.
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