5 indicators for smarter NFT trading
Data Source: Footprint Analytics — NFT Market Indicator Analysis
With NFTs still a nascent class of asset, pinpointing the factors that affect their prices is much more a still-developing art than a science. However, with more and more platforms like Footprint Analytics offering NFT data, this is starting to change.
In this article, we’ll go over some of the most reliable and useful indicators for NFTs.
Note: Indicators are not set-in-stone rules for trading. They’re just one set of tools to use after looking at an NFT project holistically, assessing macro conditions, and seeing the price trendline. Also, we recommend looking over the NFT Overall Market Sentiment and Performance.
This indicator can be used to track past and forecast future performance of the overall NFT market. As you can see from the chart below, NFT volume peaked in January, led by CryptoPunks and BAYC.
The floor price of these projects maintained bullish momentum in January, triggering expectations of higher quality projects and driving up market sentiment. As a result, when projects like Azuki and Clone X launched in January, FOMO sentiment went through the roof and sparked a market boom.
However, the impact of the bear market hit trading volume and market cap severely, and the data indicates continuing overall panic.
This indicator tells an analyst the number of unique wallet addresses buying or selling a collection or on a marketplace.
There are many usecases for using this indicator, including:
- Discovering buying and selling trends
- Calculating the ratio of buyers to sellers
- Assessing whether the market favors supply or demand
This indicator is an index that tracks the market capitalization performance of blue-chip NFTs. The main usecase is to track the long-term performance of top NFT collectibles. Just like the S&P 500 index, it covers a larger number of companies and the index reference is more accurate and has good continuity. Therefore, many investors use the S&P 500 index to see the overall changes in the stock market.
This index is highly correlated with the total market value of NFTs.
The leaderboard shows which assets have the highest market cap, trading volumes, floor prices and more. It can also quickly find out the top wallet addresses, and send the wallet addresses to the NFTBank (A portfolio management dashboard dedicated to NFT users) tool to check the profit and loss. So this indicator allows us to quickly discover the top collectibles or wallets.
In addition, Footprint Analytics can detect suspicious activity that may indicate wash trading. The figure below shows that the Dreadfulz NFT project has a wash trading behavior in the X2Y2 marketplace, where the same NFT (ID 164) buys back and forth between the same two wallets multiple times a day, with each transaction selling for around 300 ETH.
5.ETH Trading and WETH Trading
The NFT market is primarily denominated in ETH and almost all NFT transactions are completed by ETH or WETH, so we use this as one of the market panic selling indicators. Once the market becomes unstable, some NFT holders liquidate their NFT assets, and these actions cause many blue chip NFTs to shrink dramatically as the price of ETH destabilizes.
Summary
While NFT trading or investing is a leap and bounds from leaning on the quantitative science used in the stock market or even crypto market, there are several indicators which can help you gauge which direction an NFT collection is heading.
This piece is contributed by Footprint Analytics community.
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