2021 has been a breakout year for many crypto market segments. DeFi, stablecoins, and layer 2s displayed unique innovations that propelled rapid user growth and capital inflows.
But, nothing comes close to NFTs.
They present ample opportunities for users, small businesses, and enterprises to create new business models to boost the value of their existing products and services and explore new markets. Non Fungible Tokens (NFTs) also offer newer ways to invest in and fund projects.
The rise of the metaverse strengthened the case for NFTs, turning skeptics into people who see long-term value. People no longer view NFTs as images taken from the Internet or as something that can be saved by right-clicking. The value proposition of NFTs takes many forms now. Exclusive events, access to community, games, and a lot more evolving over the last year.
Before we move forward, let’s see what the current state of NFT markets looks like.
Making Sense of NFTs in 2022
NFT market was worth US$338 million in 2020, and it has grown by 800% in 2021 to reach US$490 million. As of the first quarter of 2021, the total transaction volume of the NFT market has exceeded US$331.5 billion, an increase of more than 2627% from the previous quarter.
In April, the total market value of NFT exceeded US$30 billion for the first time, setting a record high.
Experts predicted that NFTs would slow in 2022. But that did not happen. We had another impressive run in the NFT space before macro uncertainties took over early this year.
Though we are technically in a “downtrend,” NFT markets continue to show resilience, with mainstream adoption from brands, companies, and institutions.
Here is a quick breakdown:
Think of them like Amazon if you have never used an NFT marketplace or explored any. The only difference would be the goods. Amazon sells goods and allows businesses to list their products. Similarly, NFT marketplaces bridge the gap between a seller (can be a designer or an artist) and a collector.
NFT marketplaces saw explosive growth last year with an increase of over 20x worth over $22B and continue to rake in billions in trading volume every month. The biggest NFT marketplace is OpenSea, with over 800,000 total users. OpenSea features a ton of NFT collections launched on Ethereum and Polygon blockchains.
Though OpenSea is levels above others, there is one marketplace drawing more attention in the NFT community. It is called LooksRare.
A recent blog from Coinbase elaborates on the comparison between LooksRare and OpenSea. LooksRare gained prominence in a short period because it incentivized users for trading. It resulted in a slight drop-off in users and trading volume for Open Sea.
If an asset class grows 11,000% in a single year, who wouldn’t want to explore and see how it benefits them?
Metaverse is the play everyone is betting on. As NFTs lay the foundation for metaverse, brands, companies, and venture capitalists are taking notice.
The most recent indication of a full-blown recognition of NFTs in the funding round raised by Yuga Labs creators. With top VCs from Andreesen Horowitz, Coinbase, Monday, and Animoca Brands, the founders of Bored Ape Yacht Club raised $450 million, making it the most significant funding round in the history of NFTs. The investors’ belief in BAYC comes from its community culture and founder’s ability to create a metaverse and a media empire run by its users.
We have also seen Nike acquire one of the most coveted NFT projects in RTFKT. They plan to expand the IP of RTFKT with more cutting-edge innovation that comes at an intersection of gaming, creativity, and culture. Nike’s rival Adidas also dipped its toes in the NFT world. In late 2021, Adidas launched their first NFT airdrop and, in early 2022, joined hands with Prada to create a fashion NFT collection.
Retail vs Institutions — Who is Driving the NFT Market?
According to the Chainalysis report, the NFT market is driven by mass retail participants who spend less than $10,000. Also, 80% of the NFT transactions were done by retail buyers. So it is clear everyone is waking up to the craze of NFTs and looking to get some skin in the game.
The remaining 20% of the transactions are done by prominent NFT collectors and institutions. These investors were spending anywhere between $10,000 and $100,000, with few notable collections like BAYC and CryptoPunks hitting new all-time highs and collectors spending upwards of $250,000 to be a part of the most exclusive NFT communities. People who spend this kind of money accounted for 1% of the total NFT transactions.
If we look at the comparison from a volume standpoint, we can see that retail share is negligible compared to collectors and institutional players. The institutions combined with collectors make up 90% of the transaction volume.
Emerging Trends to Watch out for
Those who catch an emerging trend early on, manage to reap astronomical returns. Just look at what Bored Ape Yacht Club has done for its holders. So, when something new is brewing, it is better to notice and dig deeper.
Here are a few trends you can start monitoring:
The music industry is infamous for being unfair in terms of commercials for the artists. Music NFTs plan to change that narrative by solving the problem. In 2021, music NFTs generated over $80 million from direct sales, according to Water and Music. We also see big-name artists like Snoop Dog launch his album as NFTs. He has already raised over $44 million with his Stash Box NFTs.
It is costly to set up a gallery house or exhibition to showcase your work in the traditional world. But in the digital world, anyone can set up their gallery with zero limitations. We believe more artists and collectors will consider NFTs to showcase their work moving forward. Even if one wants to do a real-life event, setting up is much easier and cost-efficient because there is no transportation cost, and no one has to worry about physical damage.
NFT Collateralized Loans
NFTs at times, are highly illiquid and are subject to lots of volatility. So unless you sell, you can’t access your capital. But this changes with NFT collateralized loans. With an intersection of DeFi and NFTs, new protocols offer loans and accept NFTs as collateral. This would provide a perfect bridge to the real world for collectors to borrow capital and explore other investment opportunities while retaining ownership of the NFTs.
NFTs for Real Estate
NFTs allows you to turn the real estate property into an indivisible unique token, and blockchain provides traceability and proof of ownership of the token owner.
It is essential to recognize the growth of NFTs and where we are headed in the coming years. But we cannot ignore what’s happening behind the scenes. There are many challenges to overcome in the NFT space that are making life harder for everyone involved.
Let’s see what they are.
Main Challenges to Overcome
In the Web3 landscape, protocols and marketplaces try to accelerate user growth by giving out incentives for actively using the platform. Although it is an effective method to create a passionate community, it also encourages bad actors to take full advantage of the incentive model.
That is what is happening currently with new-age NFT marketplaces. Platforms incentivizing users for trading NFTs are observing a high percentage of wash trading activities.
In the capital markets, wash trading is also called round trip trading, meaning the seller and buyer of shares are the same. With respect to NFTs, users can create multiple wallets and engage in back-and-forth transfers to artificially increase the trading volume.
Let’s understand wash trading by taking LooksRare as an example.
In a study by bitsCrunch, the team found out that LooksRare has performed quite well since its launch, as its platform does have several good features that are beneficial to NFT traders. However, out of their impressive $5.73 Billion Sales volume, data has shown that a staggering $1.74 Billion (33%) of it was earned through wash trading.
To make things look even more suspicious, the breakdown of these wash trades shows even more astounding numbers. Using data, it is determined that despite the sales volume, only a small percentage of NFTs and people were responsible. We have found that the total sales volume was made up of 62,500 trades of 39,800 NFTs and between 41,300 unique wallets. Of the 62,500 transactions, 4,500 of them were wash trades using 620 NFTs between 1,450 wallets.
The reason behind LooksRare’s rapid growth is its trading rewards model. Whenever someone makes a trade (buy or sell), the platform rewards them with $LOOKS tokens. They also introduced a staking model with a high annual yield of 600%. After the halving event, it was reduced to 170%.
If we take a collection like Meebits, we can see that traders took advantage when LooksRare launched. As the collection did not have a creator fee enabled, they made transactions without paying a platform fee. As a result, the transactions on LooksRare ended up being more than OpenSea.
Here is a difference between NFT sales with and without wash trading activities:
Lack of Real-Time Analytics
If you think crypto is hard to keep up with, you will definitely struggle with NFTs. There are hundreds of collections launching every day on different platforms. You have to track so much data to identify high-potential projects. If you only consider social media numbers and any hype-related data, you will fall prey to scams or pump-and-dump schemes.
So, what is required? To be successful in investing or trading NFTs, it is necessary to have real-time analytics tools. A lot can change in a few hours in the NFT space. So if you can track in real-time how the floor price is moving and have easy-to-understand illustrations, any NFT enthusiast can crack the code and be more informed.
When OpenSea enabled users to mint NFTs, it made it easier for impersonators to plagiarize and create duplicate art pieces. It also revealed that more than 80% of the items created with free minting tools were plagiarized works, fake collections, and spam. While they did remove the feature and set a limit, it still doesn’t eliminate or reduce fraudulent activities.
As the NFT space matures and mainstream adoption increases, it will only worsen. So it is crucial to have a platform that can verify NFTs and determine whether it’s fake or original.
The illiquid nature of NFTs makes it challenging for collectors to value their NFT assets properly. To solve this fundamental problem, we need to see NFTs collaborate with DeFi. Some emerging concepts taking new forms are fractionalization, pricing oracles, NFT-native dexes, and derivatives. We can see improved price efficiency and liquidity with more participation in these areas.
So all of these challenges need an immediate solution because investors are spending their hard-earned money on NFTs without knowing the complete picture. There are few tools available in the market, but there isn’t any platform capable of solving all problems at once and at scale.
This is where bitsCrunch comes in…
bitsCrunch: Empowering NFT Ecosystems
bitsCrunch is an AI-powered data analytics platform for mass NFT ecosystems. It aims to become the guardian of the NFT space. bitsCrunch provides accurate data insights about the NFT markets that deal with art forgery, incorrect asset valuation, and wash trading.
The AI models of bitsCrunch help users visualize the inner workings of an NFT collection from all directions. It is a one-stop-shop for users who want to stay updated on the latest collections and effectively track different data points. bitsCrunch NFT platform also has a product suite that serves both users and companies.
The first user-oriented product from bitsCrunch is Unleash NFTs. It is a real-time portfolio tracker and dashboard. It helps you understand the true value of your NFT holdings without having to visit different blockchain networks and marketplaces. Every NFT in your wallet, irrespective of which blockchain it belongs to, can be managed effectively using Unleash NFTs.
Scour – AI Watchdog
We have discussed previously how wash trading can manipulate the markets and cause artificial pumps and dumps. bitsCrunch introduced Scour, an AI watchdog that can accurately flag spoofing transactions and filter out wash trading volume to address this problem.
On top of filtering wash trading, bitsCrunch ecosystem also provides data on trends in wash trades, most wash traded collections and sales activity on primary and secondary markets. This will immensely add value to NFT collections as they can easily identify whether an NFT collection is actually seeing genuine interest from the communities.
The illiquid nature of NFTs causes massive price swings. Even in top collections. So it is important to consider different real-time factors to buy NFTs at a fair value. To help investors with accurate suggestions and price estimates on NFTs, bitsCrunch launched Liquify.
Crunch Da Vinci
Crunch Da Vinci provides asset forgery solutions. Similar to how Scour flags wash trading, Crunch Da Vinci flags copycats, forgeries, and bootlegged digital arts. The process to verify an asset is the same as Liquify’s price estimator. All you have to do is enter the token ID/URL link of an NFT.
How do These Products Work?
bitsCrunch blockchain platform is built on the basic foundation of Artificial Intelligence and machine learning to find patterns of wash trade, understand on-chain and off-chain behavior, price movement of an NFT token and also continuously detect other issues or opportunities to help the NFT ecosystem and the communities around it.
bitsCrunch extracts data sources from different blockchain networks like Ethereum and Polygon and feeds the information to its analytics platform. Then, users and other NFT companies can plug their systems into the bitsCrunch platform to access all the products.
The intelligence layer uses the on-chain and off-chain data, figuring out market behavior price movement of an NFT token, and continuously detecting other issues or opportunities to help the NFT ecosystem and the communities around it.
The cognizance layer is for storing consolidated insight data on NFTs that will then be used to provide a wide range of NFT ecosystem securing services to different customer groups.
BCUT Token Utility
bitsCrunch is building an ecosystem of tools and products to protect investors from all kinds of NFT exploits. Its native token, $BCUT, fuels this ecosystem, and users have to hold a certain amount to redeem any feature or API access.
For users to create a custom dashboard, they have to stake a fixed amount of $BCUT tokens. The same applies to other services as well. In the case of Liquify and Crunch Da Vinci, users will be needed to pay an additional fee for each time they use the service.
A detailed breakdown is illustrated below:
Progress Made so far
The team at bitsCrunch made great progress over the past year, from fundraising from industry leaders to product execution and testing. Out of the four main products, bitsCrunch has developed two of them, Liquify and Crunch Da Vinci, to an MVP level. The other two products are ahead in the development cycle, with Scour (wash trading solution) integrating with Polygon chain and Unleash NFTs ironing out the kinks based on our (investors) feedback.
bitsCrunch also added one of the largest marketplaces in the NFT ecosystem as a customer and extracted data on Ethereum and Polygon. In 2022, the team plans to explore other chains like Avalanche and Solana.
In terms of community growth, the team has done a fantastic job launching a global ambassador program. They have increased bitsCrunch digital footprint to nine countries and will continue to add more members to the program. In return for adding immense value to the community of bitsCrunch, the ambassadors will be rewarded with BCUT tokens.
Finally, we have also seen incredible progress made on expanding the bitsCrunch ecosystem. In Q1 2022 alone, the team successfully added more than twenty ecosystem partners. Some are GenShards, MarvelousNFTs, IQ Protocol, and Pandora Finance.
It has been incredible to watch bitsCrunch grow to new heights. And the road ahead is even more exciting. In 2022, the team plans to release all the products for both public and commercial use.
First, we will see beta versions of Unleash NFTs and Scour services API. A new subscription model for mass markets will be released in the second quarter. In addition, there will be ecosystem expansion with more partnerships in the NFT space.
Liquify (NFT Fair valuation tool) beta version will go live in Q2 2022. The tool will also be integrated with many current and upcoming NFT lending protocols.
In Q3, bitsCrunch will focus on introducing analytics related to blockchain gaming and metaverse. In addition, the platform will add a forgery detection tool. bitsCrunch has plans to further decentralize by launching a community DAO where people can vote on progress and direction of bitsCrunch.
In Q4, bitsCrunch will have the whole product suite live and will be expanding more into different product verticals like NFT marketplaces and launchpads to create a full-fledged ecosystem.
Our Investment Thesis
At GravityX Capital, we believe the functionality of blockchain technology continues to expand and spawn new market sectors where we focus on products that can create value for the end-user. One of the sectors thriving with mainstream acceptance is NFTs. We observed how NFTs took over the crypto markets and onboarded millions of new users who had never heard of cryptocurrency. So NFTs are truly market-expanding technology and will continue to drive adoption.
However, we also recognize that the number of bad actors is increasing daily in the NFT space. On top of that, wash trading inflates the prices of assets and manipulates the market. These are serious problems that could limit the potential of NFTs. So creators, investors, and companies must be equipped with the right tools to eliminate any illicit activity and be informed on all trends.
bitsCrunch is developing a unique product suite using AI and ML practices to fill that void. Combining blockchain technology with AI will introduce a new set of tools that are more effective and accurate than the existing ones. We are confident that bitsCrunch will play a significant role in the NFT space by protecting the NFT ecosystem integrity, creating impactful insights from the convoluted data sources across various ecosystems, and seizing a huge market opportunity.