February 2022 Market Insights | ArenaCFx

Macro recap

The market continues to play along with the Federal Reserve’s tune as Chairman Powell showed a hawkish stance by indicating a high likelihood of a rate hike next month and a reduction of the balance sheet. Despite trading upwards on that session, the SP500 and NASDAQ ended up shedding all the gains and closing the session flat, with the Dow Jones seeing losses and bond yields for the 10-year treasury rising ten bps from 1.78% to 1.88%, indicating the market’s risk-off behavior. Interestingly, BTC has outperformed equities by 18% and held the $35,000 support level since January 21st. This market behavior could indicate a fresh flow of USD into the largest crypto by market cap. Since January, the implied volatility (IV) in the BTC options market has increased, reaching 63%, close to its December 2021 peak.

Theme of the month : Defi 3.0? AVAX L1? DEX options?

But why a risk-off market rotation into, arguably, a less liquid and more volatile market such as NFTs?

NFTs are a unique market sector because they have significantly increased the interest and participation of non-crypto natives in the space. NFTs have become a means of tracking provenance and ownership as on-chain assets, helping creators and artists solve an age-old problem and begin to monetize their work at scale. Further, we are starting to see metaverses imbue value and utility into NFTs through gamification and financial incentives such as lending and staking. Different Web 2.0 companies have quickly observed these characteristics and are starting to actively get involved in this market segment to increase brand recognition.

  1. Valuing first movers: Crypto-natives, degens, Millennials, and Gen-Zers alike tend to be biased towards valuing the first movers such as Crypto Punks, ETH rocks, and ArtBlocks. These projects have rewarded well-thought-out communities in the long term. We saw this trend following other L1 chains projects such as Solana, Fantom, Avalanche, Harmony, and Binance Smart Chain. The highest value NFTs on the respective L1s were similarly created not long after the launch of these chains. As L1s continue to grow, we have yet to see if new “origin” NFTs continue to accrue value at such multiples.
  2. Profile pics and Avatars: We are seeing the growth of internet “real estate” through our increasing presence across social media platforms. As our online activity becomes more intertwined with our digital reputation and social status, we will naturally start to seek new means of building our online recognition and so-called digital personal brands. The latest example is the use of NFTs as profile pics. The Bored Ape Yacht Club (BAYC) has captured the attention of athletes and celebrities the world over, creating a cult-like following of the NFT collection through its exclusive community.
  3. Play-to-Earn (P2E) and Metaverses: One of the hottest sectors in the market, blockchain gaming, has utilized NFTs in creative ways such as bootstrapping liquidity via staking in-game NFTs. Users can also employ NFTs for other gaming experiences such as borrow/lending and in-game swaps. Naturally, NFTs associated with the most popular metaverses and P2E games should see the most sustained value growth.
  4. Traditional art and NFTs: As the NFT space absorbs more air in the room, more of the “TradArt” industry will rotate into the NFT space as volume and sales follow. NFT art will likely be more difficult to assess in terms of valuation; however, the work of well-known artists should see solid performance due to their existing clout and network effect. (We are already seeing this in the space with Banksy’s NFT selling for millions of dollars )
  5. NFT marketplaces: Lastly, another way to get exposure to this market is via NFT marketplace tokens such as OpenSea, DoinGud, Rarible and LooksRARE. These platforms benefit from the trading fees of NFTs, so the higher the NFT volumes, the higher the price of their governance tokens (assuming revenues and token valuation are tied to activities such as burning activity or other marketplace-specific mechanisms)

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Arena Crypto and Forex

Arena Crypto and Forex

We focus on great values to deliver the highest quality experience and security for our users and the community. Visit us at https://www.arenacfx.com