Signs of the NFT Bear Market

What is a bear market in the NFT space?

You have probably heard a few times that the NFT market is crashing down. That is nothing unusual for the crypto market as it is associated with frequent downtrends and periods of prosperity.  

We refer to these changing periods as the bear or bull market. If you are a crypto novice, we suggest reading this article to learn more: ‘What do the terms Bull & Bear market mean?’. 

Given that historically bear markets have been caused mainly by an external macro influence, the NFT bear market can be linked to the flattening of interest in the space. The current bear market started in the middle of 2022; even though we cannot know when it will end, typically a bull cycle comes afterwards.

A bear market can be defined by a prolonged period where prices drop. Since the NFT market moves and develops at a fast pace, such prolonged periods may be shorter than traditional markets. Therefore, the nuances of a bear market are represented by a timeframe, trading volume and prices drop.

What is influencing the NFT market?

A key factor that affects the NFT space refers to the overall crypto market since NFTs are closely linked to cryptocurrencies. Market trends in the crypto world can directly influence NFT prices. If the crypto winter is in full swing, the total NFT trading volume will likely decline.

Additionally, the broader economic ecosystem can also have an impact on these unique digital assets. For example, stock market performance or fluctuations in interest rates can influence investor behaviour and affect this new asset class.  

Consumers’ perception also plays an essential role; the relatively new concept of NFTs can vary based on public acceptance. Given that the whole crypto ecosystem is not entirely regulated, authorities worldwide come up with new laws that can trigger market uncertainty as well.  

The concept of Metas

To better understand all economic factors surrounding non-fungible tokens, it is useful to comprehend the role so-called Metas play in it. Meta refers to a particular pattern that typically arises suddenly and disappears. They answer the question of why there's always a shiny thing in the NFT space.

For example, one NFT project implements a feature that is doing good in the market. Once it becomes clear that this pattern is well-accepted, you can spot all these other NFT projects following the same pattern.  

This happens because hype plays a significant role in Metas. When a novel Meta emerges, it starts to feed off initial excitement; as everyone wants to be a part of it, it takes the market over.  

It is not certain yet what makes a Meta bubble burst; however, once the downtrend starts, it spreads at a rapid pace.

A cheat sheet for the NFT bear market

During the bear cycle, we have seen high-quality NFTs shed around 70-90% of their floor prices. The price drop can be so hard that it might be hard to believe that particular NFTs were trading at 3-10 times bigger prices. Amid the recent bear market, investors have been grappling with new challenges and uncertainty.

Many NFT projects are in the process of dying during the bear market. Most of them may not have what it takes to survive the winter. However, those that will come out are projects with strong fundamentals and market demand. 

Having said that, NFTs and blockchain technology are here to stay because they bring a wide array of innovation and utility to areas such as digital art, gaming and digital ownership.

You may remember this sentence one time - almost all NFTs will drop. The terrible news might come sooner or later. This article doesn't want to sway fears, yet to educate you on recognising the NFT bear market. Let's check the main signs of the NFT bear market.

Check the whale activity

All markets, either traditional or crypto, have something in common – the occurrence of whales. In terms of NFTs, these are big investors who own a lot of digital assets. Their buying and selling activities can influence the prices on the market.  

To gain more insight into the correlation between whales and the crypto market, why not read this article: ‘Crypto Whales Splashing the Market: Traditional Participants Swimming in the Crypto Sea’. 

For example, if you take a look at the popular Bored Ape Yacht Club market, you can notice that when crypto whales sell a lot of digital assets, the prices drop. Each instance of sharp price fluctuations typically aligns with significant sales by whales.

Simply put, changes in the market are moved by the actions of major players. The correlation appears to be a bit predictive, with whale trading typically preceding shifts in floor prices. By tracking whale activities, investors can be able to recognise market shifts. 

Keep in mind that there is a slight time lag; price drops usually happen after the whales start selling, and the market needs some time to adjust to the sudden increase in NFTs put on sale.

Imbalance on the NFT market

Let’s first define market imbalance – imagine you are at a yard sale, and people are trying to sell a lot of stuff, but there are only a few people looking to buy. When supply and demand are not in harmony, the market is off balance. 

When the supply is bigger than the demand, prices tend to drop. To sell assets, sellers need to attract potential buyers by providing the lowest price. If you spot this situation, you might think of getting ahead of the bear cycle. 

Unusual volatility increases

Let’s lay down an indicator that may be harder to spot. Usually when a market is full of liquidity, it indicates that it is in full swing; however, this could also be a sign that the prices could be falling down.  

Think of the crypto market as a social gathering; if a lot of people are coming and going, the event is in full swing with a high level of liquidity. Liquidity is typically a good thing, but sometimes it can be a sign of a downtrend as well. 

For example, if a particular NFT marketplace includes a lot of activity, it obviously has a substantial degree of liquidity. Yet instead of prices going up, too much activity could indicate a bear cycle. This happens when not enough buyers are present.

Asset accumulation

A sudden surge of short-term buyers with holding periods less than 24 hours typically aligns with a scenario on the market in which investors capitalise on the price reaching its lowest point. These individuals and investors alike take advantage of the price falling. 

Short term market fluctuations and activities of these quick traders usually suggest a sense of urgency and opportunism. 

Therefore, a fast return to average short-term holder numbers in the following days indicates that investors rapidly sold off their assets to reinforce their speculative objective.

Strategies for surviving the NFT bear market

Purchasing NFTs can be profitable, but it includes a significant amount of risk. These markets are highly volatile, and one way to mitigate risk is to always do your own research. Informed decisions that stem from thorough research make it easier to spot opportunities before investing.

If you want to survive on the NFT market, there are several strategies used by experienced investors that could help you in managing through the bear market. Investors who can weather the tough times and stay committed to a long-term perspective are generally the ones who reap the benefits.

Due diligence

Conduct due diligence research by examining different platforms. You don’t have to stick to just one NFT marketplace; instead, search for opportunities on a number of marketplaces. 

While this article doesn't present financial or investment advice, it is a general recommendation to diversify investments across emerging projects and marketplaces to reduce risks and increase chances. Diversification can also be achieved by investing in a variety of NFT categories such as gaming, digital art, virtual real estate, or music.

Additionally, when looking at blue-chip crypto projects, focus on rare tokens. They tend to hold their value better over tough times. However, always be prepared for market fluctuations, and don't invest more than you can afford to lose.

Bulk minting

Additionally, you can participate in the early minting process of novel projects by getting on their whitelist. This is called bulk-minting and enables you to mint NFTs before other users and potentially gain more profits. 

Some investors opt for direct bulk minting through contracts, a method that enables minting of broader volumes. However, this strategy requires a high level of knowledge and detailed information regarding NFT projects’ launches.

Strategic batch and decline-rate buying

This method corresponds to purchasing NFTs in bulk and buying more during the times of falling prices. Investors tend to segment their purchases into tiers based on price range, purchasing at each significant price drop to maximise potential gains.  

This can be done by setting alerts for particular collections. Investors can react rapidly when prices hit their target lows.

Bottom fishing

Bottom-fishing refers to a high-risk as well as a high-reward method. It includes making market-value offers for NFTs with the objective of obtaining undervalued assets.  

Keep in mind that this strategy requires in-depth market knowledge to identify opportunities, along with patience to wait for the NFT market to realise the real value of these NFTs.