Why competition between NFT marketplaces is good news

While crypto is in a bear market, the one sector that has weathered the storm relatively well is NFTs. A new report estimates that the global NFT market will be worth $231 billion by 2030, growing at a compound growth rate of 33.7% over the next eight years. However, this quarter the NFT market has been on something of a rollercoaster ride, but in terms of trading volume and sales compared to Q2 of 2021, they are up 533% and 59% respectively. In addition, metaverse NFTs also had a good quarter, with trading volume for ETH-based pools increasing by 101%, while Polygon MATIC/USD collections have unfortunately decreased by 26%. Overall, there has been a 96% growth, according to DappRadar.

If the positive trend whets your appetite to get involved in NFT trading, then you are not alone. The recent crypto bull market was like an electromagnet for investors flocking to NFTs. Either to try to get in early by getting whitelisted on a project and then selling when that particular project was published, or buying them from another user before selling them on one of the growing number of marketplaces. As reported in late 2021 by leading crypto analysis firm Chainalysis, “NFTs are far from a safe investment” however: “Transaction data from the OpenSea market shows that only 28.5% of NFTs bought during minting and then sold on the platform result in a profit . However, buying NFTs on the secondary market from other users and flipping them results in a profit 65.1% of the time.” In plain English, this means that your average NFT buyer will probably be out of luck when it comes to making money on a newly minted or secondary market NFT trade.

If these headline numbers haven’t scared you off, what can help you see the forest for the trees when it comes to trading NFTs? A little context may help to begin with; namely the commercial pressures of the bear market and the competition between NFT marketplaces means this could be a good time to up your NFT trading game.

NFTs are traded on NFT marketplaces, which are well-organized platforms for selling digital collectibles. As a rule of thumb, NFTs are sold at a fixed price, while others are auctioned off. Opensea is by far the largest NFT marketplace, with a 90% market share by dollar trading volume across multiple marketplaces in 2021. But what has changed in recent months is that OpenSea’s market share has started to decline. In response, OpenSea has enhanced its service with the launch of Seaport, an open-source trading protocol that enables the trading of multiple NFTs at a time. And with OpenSea’s purchase of NFT market aggregator Gem, it is likely that they will go up against Uniswap, which recently acquired NFT aggregator platform Genie. Finally, despite the failure of Coinbase’s NFT offering, eBay has both acquired marketplace KnownOrigin and, in partnership with OneOf, recently announced its first foray into the NFT space with the launch of a sports-themed series featuring iconic athletes.

What hasn’t changed is the fact that most NFTs are released in collections. A collection is a group of NFTs that are all different but share some characteristics. Bored Ape, the most popular NFT collection, has a total sales value of approximately $2.5 billion. While the top ten NFT collections had over $15 billion in trade value in 2021, accounting for approximately 60% of the total NFT market. That a few collections dominated a large part of the market is most likely due to the preference of NFT investors to trade within collections. They do this because it is easier to value an NFT in a collection when there are “similar” NFTs to compare it to. Experienced investors know where the money is, so they trade NFTs within these pools.

These NFT traders speculate and identify a specific pool of liquidity, trade and keep turning until they make money. The truth is that most speculative traders do not profit from trading NFTs. Information is key, and traders who have information about the collection of liquidity are more likely to make money. Immediate tradability of non-fungible tokens will lead to higher liquidity. NFT marketplaces can cater to a variety of audiences – from hardcore traders to more novice traders – enabling greater exposure of assets to a wider range of buyers. In the same way that the ICO boom of 2017 gave birth to a new asset class powered by instantly liquid tokens, NFTs are expanding the market for unique digital assets.

NFTs also help expand the market for collateral in DeFi lending. A DeFi lending and borrowing platform requires collateral. These securities are usually the crypto holdings. With the introduction of NFT, other types of assets can now be used as collateral. For example, a piece of art or real estate can be tokenized as NFTs and put up as collateral.

Another factor we have to consider is fraud in the NFT sector. We have seen many bad actors sell and trade NFTs they do not own or have access to. I believe that it is crucial for every NFT trader to do their own research to find the best collection to trade. Simply put, the NFT sector is still growing and there are still certain gaps to fill.

Market liquidity is still concentrated in a few NFT collections, and a trader must be able to identify those collections where the demand is to make money. I’m also about to publish an in-depth guide to NFTs in a new book, said I think the NFT market is only going to get stronger in 2022. “The growth of NFTs on rival platforms to Ethereum like Solana SOL/USDand the competition with OpenSea from players from DEX leader Uniswap UNI/USD to e-commerce king eBay, shows how dynamic this sector is. Despite the collapse of the broader crypto market with the Luna Terra collapse, demand for NFTs shows no let-up. I was also struck by how GameStop’s new marketplace that launched just a couple of days ago is already doing well, with 3,167 ETH also in trading volume.”