Welcoming Spring: Knowing When to End your Crypto Hibernation
2021 was THE year for NFT. The technology got mainstream adoption, went viral, and became a hot topic that everyone and every company was discussing. This year has been a different story, as every sector of the economy has struggled with aggressive rate hikes from the FED coupled fears of recession that always just seem to be on the horizon. Bear markets are always difficult times for speculative assets, pushing the crypto market into the dreaded ‘crypto winter’. Like a bear in hibernation, many have liquidated their collections, causing the floor prices of many top NFT collections to plummet, as many choose to sit on the sidelines as the NFT market deals with its first ever bear market.
Unfortunately for creators and investors, the end of a crypto winter isn’t as easy to predict as the actual winter, leaving many feeling cold to a market that was just one of the hottest investment sectors a year ago. Yet, some argue bear and bull cycles are crucial for any asset looking to create long term stability, something clearly lacking from crypto, which remains volatile compared to most other asset classes. In the short term, this bear cycle will inevitably lead to pain and distress for many NFT collections, with many dying off as the market digests an oversaturated space dealing with an economic downturn. Fortunately, there are several things that investors and creators can do to find value during a bear market cycle, and many of the most successful investors of the next bull run will be those individuals that knew how to take advantage of the market at one of its lowest points. Let’s go over some ways we can find value in the current NFT sector, both in the short term, and going forward.
Creators
Creators need to prioritize long term planning during difficult market conditions. Many creators will feel discouraged as their hard work and time isn’t rewarded the same as it has been in the past. Truth is, valuable assets and collectibles can weather any market. Whether it is good art, or a rare item, creators need to find ways to focus on value to attract buyers. What is the community like? Does the NFT provide any extra utility? What is the supply you are minting compared to the demand?
Focus on Utility
Many still hear the word ‘NFT’ and think of digital collectibles. Truth is this is just one way in which the technology is used. This can be a viable way to invest, as many digital and non-digital collectibles and works of art have stood the test of time in retaining value, but compared to other investment vehicles, values tend to fluctuate greatly. This is why most people invest into a 401k instead of buying a Rembrandt as a form of wealth preservation.
A good way for creator’s to create extra value is by adding some form of utility to their NFT. These can be real-world benefits such as exclusive access to events and goods, or on-chain benefits such as air-drops and governance votes. For example, Johnny Walker recently entered the NFT space with a special line of Johnny Walker Blue NFT. Buyers of said NFT were able to burn the NFT and receive a special edition bottle designed just for the project. Additionally, the NFT allowed holders special access to VIP events during Art Basel in Miami this year. In another leading project, Bored Ape released their own on-chain token ApeCoin last year, airdropping thousands of dollars worth of tokens for free to anyone that held a Bored Ape NFT.
Community
A very exciting aspect of web3 community building is that as a project progresses, holding that project’s NFT or token can bring additional benefits that real world collectibles don’t offer. Creators must focus on utility to retain strong communities. NFT projects that struggle to offer incentives because of a down market, can still promote community growth and loyalty by offering governance to NFT holders in key votes to determine the direction of the project.
It is common in a recession for investors to stick with assets that continue to produce yield. Investors do this by investing into dividend earning stocks for example. Web3 communities can offer similar respite for investors, justifying holding the asset in a bear market since, even though its value has declined, the NFT continues to provide extra benefit by holding it. The goal as a creator therefore is to add utility to stabilize your project’s market until the next bull cycle. Bear markets can create cascading effects that bring the floor price lower than they should be, and creators need to find ways to stabilize their collections’ price action to prevent long term FUD.
Investors and Buyers
Investors interested in NFT need to understand both the macro and micro market conditions. For one, this is the first bear market the NFT sector has dealt with. What makes it even more troublesome is that it is in the middle of a broad economic downturn as many post covid asset bubbles pop. From used cars to housing to equities, investors need to keep the macro market conditions in focus, as they currently are the biggest drivers of what is happening in the NFT space.
Bear markets are when the most profits are made, and investors need to not let current market fears capitulate what are otherwise good buying opportunities. Blue-chip NFT are the best place to start. Projects with a proven community, selling volume and desirability can be bought at huge discounts in the current market. Focus on proven artists, NFT creators with a track record of creating NFT of value, and be careful of speculating too much. Bear markets can take even the most well designed projects down before they get started.
Conclusion
Like a bear in hibernation, many are hoping for the end of crypto winter, slowly living off their stored fat from the last bull run. But even a sleeping bear must eventually come out from its den to feed again. When that time is exactly, will only be known after the fact, meaning both creators and investors need to hunker down, stay safe, but watch for the first seedlings of spring that could start to grow at any moment.
About Pikasso
Pikasso is a firebase infrastructure for NFT apps and games, creating an easier way for projects to create NFT, all on low-cost layer-2 ecosystems. Pikasso saves users the time needed by using a no-code platform to create NFT, with an improved UX/UI, and marketplace generator for each NFT project, all while bridging the gap between web2 and web3 content.
