What if it’s not just shilling? What if the Green Candles actually speak through us? Put another way, are we simply following a rollercoaster ride where free will is limited?

Green Candle Brain Disease (GBDC) is a diagnosis for this condition. The green candle happens before the narrative. Your free will is limited. The narrative is merely the brain attempting to tell a story about what has already happened on the chart. The Twitter timeline is a secondary effect.

I am going to propose a framework around GCBD that I have found helpful in understanding crypto. It’s going to seem obvious because it is obvious. However, the implications of it and the operation of it are distinct from how we often think about crypto behaviors.

Crypto Market Dynamics (aka Behavorial Economic Structures of Control)

Consider the broader global economy, the ebbs and flows of it have various markers and dynamics. It feels impossible to control outside of small impacts, predictions, beliefs around long term trends or global scenarios. The idea of the market as a kind of god is reoccurring. Although we know it is a sum of human behavior, there is a tendency to treat it as unruly, uncontrollable, beyond our individual will. These are all somewhat basic challenges or tensions within mainstream economic thought.

We often have a similar belief system in crypto despite the pool of participants being far smaller. We know the patterns: after a BTC halving this happens, during the bull market that happens, when an ATH occurs there is X% growth over so many days. These things feel like uncontrollable patterns despite the fact that we often are directly witnessing the day to day activities of the ~1M+ people that drive the market. There are a number of ways to explain why this is the case.

Rather than debate economic theories on why this arises, let’s simply assume that there are patterns to what occurs here. And those patterns can be measured and observed with some level of consistency. This will establish the ground layer for the Green Candle Brain Disease thesis.

Let’s look at a recent case study: DOGE in 2021.

2021 Memecoin Case Study

It’s 2021. The Cycle is kicking up. Bitcoin and Ethereum are ramping in value, new capital inflows are becoming consistent…

Let’s take a look at what happened to DOGE.

1. BTC starts moving up in Dec ‘20

2. BTC accelerates into Jan ‘21 and then has a small pullback

3. DOGE sees significant growth during BTC pullback (20x vs June ‘20)

4. BTC begins ramp with choppiness into peak from April to June

5. DOGE has spike towards the end of BTC peak in May / June (220x)

6. DOGE slow decline for balance of Cycle

If you recall this moment, you may start thinking of various narratives surrounding why DOGE picked up… It was memetics! It was fun! It had a strong culture! Elon Musk tweeted about it!

However, what’s interesting is that a majority of the narrative about “why DOGE” occurred in mid February. The actual run up on price of DOGE had started in January and had largely stabilized by the first week of February. Is this a cabal? Is this simply influencers shilling their bags?

Sure, I think you can claim any of these things. Before coming to some of the conclusions in this writing, if I asked myself “why did DOGE go up so much in 2021,” I would start to think about: memes, attention, accessibility, trader cultures, and influencers pushing it.

This would miss, however, the key thing that enabled DOGE to run in 2021: being the closest available Green Candle at a moment of market euphoria.

Capital Flows & Green Candles

Let’s go back to a framework that many of us in crypto know: the BTC —> ETH —> Alt rotation.

The rotation is the description of the flows of capital from BTC to other coins that typically occurs during a crypto economic “Cycle.” What it describes is something behaviorally straight forward: investment flows into the largest most established asset first (BTC) and then to increasingly smaller and more risky assets next.

I won’t go into proving this in detail, but there are plenty of places to go see the supporting data that this seems to occur consistently thus far.

Let’s see how this works in 2021 with our DOGE example.

Notice how small the purple line is? DOGE printed a huge candle and tremendous returns as we recall from our earlier chart. However, the actual dollars needed to drive that outcome were small. $2B in real capital entered DOGE from Jan to Feb, but almost $100B had entered into BTC/ETH at that point in time.

Market psychology has flaws and often is not true to life, but it can form a helpful story about what’s going on here.

You are a degen, you’ve been overexposed to crypto throughout the bear market. New capital begins flowing in and it’s sustained for a couple months. The market is excited about Bitcoin again, your 2 BTC and 1 ETH portfolio more than doubled in size. You’ve seen this before and know it’s going to be a big year.

You take some profits and decide to rotate it into alts… You won’t rotate a lot, just a couple thousand dollars… maybe 5% of your profits. It’s fun, why not buy a lottery ticket?

What actually has the potential to drive a big green candle and print a 20x return in short order? What’s a fun throwaway thing to bet a little money on with your newfound wealth?

Fulfilling a Desire for Big Green Candle: Capital’s Requirements Early in the Cycle

If you want a big Green Candle, a crypto token needs to fit criteria like:

• Relatively small marketcap

• Has dynamics that lead to rapid price volatility (upwards preferably of course)

• Able to be traded by a wide population of crypto natives (who also just received a crypto cycle stimulus check)

What had all of these criteria? DOGE in 2021.

• Market cap in Dec ‘20: $0.35B

• First $2B of capital inflows raised the marketcap to $8B in a week (~20x vs Dec )

• Next $10B of capital inflows raised the marketcap to $50B in two weeks (~140x vs Dec)

• Can be traded with ubiquity

And the criteria that doesn’t really matter? Foundations, sustainability, long term viability, meaning. You’re trying to have fun, look for a big win in the casino.

We considered the psychology of this from the perspective of a degen, but now consider it from the perspective of capital with a goal of being productive, driving short term growth. One hundred billion dollars enters crypto for the first time in a while — it’s been a long bear. Why wouldn’t some of it leak into a smaller cap where it can instantly accelerate it? Especially in a moment where BTC and ETH is correcting or taking a moment to breathe.

There are only so many choices of where this capital goes that fulfills our criteria above. And this criteria isn’t a permanent one. It is what is desired in euphoria, where the long bear has thawed and new found money has hit old wallets.

Capital flows before thought, creating GCBD

Capital only needs the attributes of size, impact of inflows, and ubiquity to drive the outcome it desires. The choice of which coin fills this role is arbitrary. That is why this is not a trading exercise.

This understanding won’t tell you what coin to buy. It will simply tell you what behavioral economic regions are likely to stimulate the Green Candle. And from the Green Candle comes Green Candle Brain Disease — the sudden utterance of narratives explaining what has already happened.

This is just one example, but I find it helpful to follow the thread with DOGE from end to end. What’s also interesting is that the other coins that fulfilled similar short term roles had similar movements at different parts of the cycle (some to disastrous outcomes).

The narratives explaining why DOGE went up ignore the reality that a significantly broader set of coins actually went up with similar fervor that shared no narrative similarities. The underlying similarity is a market cap size, ubiquity and ability to print a green candle.

I should clarify that the DOGE example is an extreme. The beginning of the cycle desires the most short term extreme green candle without a sustaining logic. Later in the cycle, we see the emergence of more complicated, sustaining, and opportunity for more thought. That is to say the flows of capital become more mature.

However, foundationally, the same Green Candle Brain Disease phenomenon occurs where the narratives discussing these things are occurring AFTER they print their green candles. And I think it’s important to establish that these are not simply shills for bags.

I’m not the first to formulate this, in many ways traders have some of these core principles embedded in their intuition.

2024 Near Term Implications

There is much more to consider here that I won’t get to here, but it will be an area of continued investigation. I think the important part here is to reframe how we read, interpret and discuss what is happening in crypto.

When the Twitter TL is overwhelmed with narratives — whether right or wrong — we can use this to better understand when GCBD has taken control.

Here are the implications I think most relevant now as of March 2024:

• Do not assume that the narratives about meme coins, attention and so on are what is driving them

• Do not build a long term assessment of the space or the future of the space based on Green Candle Brain Disease generated narratives

• Know that the flow of capital looks for the most short term locations early in the cycle but matures later

To draw our parallels to 2021, let’s look briefly at WIF, PEPE, and DOGE. Again, recall the narratives we are currently seeing. Is it really true that WIF is the future of memes and Solana is the chain of the future? Or is it the case that WIF had more potential to satisfy a big green candle than DOGE or even PEPE?

This is made even more extreme when we think about scenarios that fragment capital and enable even larger green candles. BOME is an excellent example of this. The secret sauce of BOME?

The BOME liquidity pool was so small compared to the demand that only $40M in net purchases (capital in flows) was required to bring it to $1.4B market cap. Yes, that is one of the most efficient “green candles” one can imagine. And yes, that is only possible as a short term blip because what goes up $1.4B in a day driven by only $40M must (at some point, perhaps) come down.

And again, remember, it’s not that BOME was special. It is that BOME was ready to receive capital and print a big green candle in a short term way. More capital actually flowed to plenty of other things (including PEPE), but the narrative forms around the Green Candle.

Conclusion

There is a lot to dive into here that I still need to work up. And in some ways this can make the space seem hopeless. The optimism of this framework, however, is to know that the flows will continue. What is “true” now of the space will not be true in another several months. There will be good things funded alongside the dumbest possible things. And it’s okay to have fun with the dumb things as well of course.

This moment will pass and another movement of capital will occur. The entirety of the 2024 cycle will not be dominated by memes or shitcoins. We are simply feeling the reverberations of capital flows entering the degen’s brainstem and forcing them to speak.

I will suggest that most of the approaches, thinking, and goals of the last cycle should be abandoned for progress towards something new: to legitimately pursue experimentation, art and culture as a serious endeavor in crypto while you do your degen activities. This is, in part, a long form rant so be wary.

Before we proceed further, let’s recap the key insights of the last three chapters:

1. Users & Scale:

   1. There are likely ~650K users who spent $6.5B on NFT mints last cycle

   2. The small number of participants spending larges amounts mean mainstream adoption was not a major driver of NFT market volume

2. Trapped in a Casino:

   1. The NFT user participation curve (high to low) follows a typical pareto rule: top ~20% drive ~80% of the volume

   2. Crypto is difficult to leave and occupies people’s lives, driving extremely high “retention” even during the bear market

   3. The more you spend, the more likely you are to stay in crypto / NFTs

3. Mausoleum for a Burned Ape:

   1. A vast majority of the spend was in BAYC lookalike projects (IP / PFP)

   2. Ultimately, narratives collapsed leading to disparate segments to be combined

   3. Over-financialization was a key driver of the above with a “airdrop” style minting model offered to holders driving an unsustainable project business model (e.g. ~$400M in Otherside mint fees) as well as an increasingly exhausted holder base

   4. There was a surprisingly high density of countless rugs, low effort projects, and middle of the road copycats that followed the leader in narrative collapse

   5. However, there are sparks of meaning, true interest, and value that were established during this period

As we take in these facts, the question is posed… What do we do? How do we push forward towards a future that is better?

The answer is simple: We must refocus on building a culture that is adequate for the future we see in crypto.

We appear to be at the start of the next “Cycle” for crypto as I write this so now is the time to get it right.

Chapter 4: Against the Mainstream

It’s time to create a culture that takes seriously the futuristic vision of crypto

Do you take crypto seriously as a transformation of the world and society?

If yes, then why do we constantly look backwards? Why is our culture represented by NFTs that look backwards — towards retrograde cultural objects?

A Cycle Obsessed with the Approval of 2000s Era Forms

The wins of NFT’s great broader cultural moment are often seen as: a Macy’s Day parade, Eminem, a t-shirt at Old Navy, playerless digital worlds, an “art world” focused exclusively on 20+ year old formalist work, Sothebys sales, Time's Square billboards, and, of course, Access to an Exclusive Party.

On their own, these things are fine. There’s nothing wrong with using familiar, albeit culturally aged forms to draw attention to something new. I enjoy some of these things even! But maybe not every project receiving the majority of capital in the space should look and feel this way?

If I look at our list of “top” NFT projects (not platforms), this problem should be apparent…

Most of these projects are fundamentally looking backwards:

• Apes = “IP Brand” — primarily showing up as Mall T-shirts, Blunt Roll brands and featured by paid celebrities of Gen X appeal

• Otherside, Pixelmon, & Meebits = “Game / Metaverse” — primarily showing up as projects with no integration into any actual product or relevant broader culture; Meebits are a dupe of the more popular Roblox, Pixelmon — a rug masquerading as the most obvious brand to copy (see: Palworld), and Otherside is a (Fortnite-esque?) open world game that no one asked for.

• Azuki / RTFKT = “???” — in some ways, more forward thinking, largely thanks to vagueness around what it is other than a “Brand;” however, losing their path the more “Drops” are dropped in order to keep up the financialization

• VeeFriends — does the below look like the future to you?

  

Why am I brutally attacking all of our collective “bags?” I’m not actually. I think it is completely fine for these to be projects in the NFT world. The Janus face is a powerful metaphor, it actually gains strength by looking in both directions at once.

However, our issue is this: we gave all the money to things that are backward looking. And then we told ourselves those things are the future and celebrated having a non-marketed, generic NFT IP available at a Times Square event as a “huge win.”

Any of these brands can win big and maybe could even somehow gain scale and relevance with mainstream consumers via these things… It’s “possible” I guess. But what happens after that? We have a great brand that can live in a mall. Isn’t the mall dying? Isn’t the retail outlet completely irrelevant for the future we are going towards?

Aren’t these things already RAPIDLY being disintegrated by our actual “competition:” Fortnite, Roblox, TikTok, Instagram, OpenAI, indie games, and others?

Here’s what we are missing:

1. You don’t need mainstream adoption when you can already get significantly more money than a mainstream consumer can ever spend

2. The future of crypto is inherently tied to a digital first future — not just in “2021 style throw a QR code on a physical object” but in every aspect of how that would shape reality

3. The material conditions of the prior two statements create the opportunity to shape a unique and new world that can, if it chooses to, leave behind vestiges of “legitimacy”

Vampires of the Casino

We are chasing Dad’s “institutional” favor when we already have more money, power, influence than Dad. Why else would major projects take on various older B List leaders from struggling industries?

The old world is a vampire. Those who flocked to crypto first were the hungriest and closest to dying without new blood: Billboard, Sotheby’s, Macy’s, TIME magazine, and so many more.

We have more money than we know what to do with. And the number only goes up. Why wouldn’t walking corpses thirsty for capital show up to suck on the blood of the young, beautiful yet immature dude?

Would you sell your soul for five minutes on local TV? I thought you believed this was the future. Or are you fearful?

Against Mainstream Adoption

Oh… it’s all about the mainstream right? Some “exit liquidity” will be unlocked by the Old Navy Apes. I’m sorry the children buying the $10 toys will not be your exit liquidity.

Let’s dwell for a moment on the idea of mainstream adoption driving “exit liquidity.” The narrative often goes “retail is our exit liquidity, we need to be able to sell to them”

This totally misses the entire reason why crypto and NFTs are so powerful. We established earlier that there is no one in the retail CONSUMER world that actually needs to show up to “buy our bags.”

Crypto is a magical community because it is a hot ball of money falling from the sky at everyone’s doorstep. This is often ugly. This is often disturbing. It often feels unjust, but it’s a fundamentally different reality:

Money that enters crypto can come from anywhere.

Here’s the difference between the old and the new paradigm: everyone who has crypto benefits from gain in its value immediately. While there is much more complexity and it is certainly not always a good thing, this is a fundamentally different paradigm.

How did a brand new NFT market full of scams, junk, t-shirt brands, and (sometimes) strong culture destroy Sotheby’s volume in a single year? Because no one needed to beg one of five rich people for money. There are significantly more rich people throwing their money around within the ecosystem. And if you don’t like the current batch of rich people, don’t worry just wait a little bit and new ones will arrive.

It’s a bit brutal to look at it this way, but it’s important. Why does this happen? Why doesn’t this happen in the normal world? Won’t crypto eventually become more stagnant and create billionaires that dominate the space?

Maybe, but there’s a secret here. Recall our stats from earlier…

We saw that crypto retention was 70%-80% amongst heavy usage NFT wallets. I think this number will get higher in a bull market as people return to get a piece of the action, but it’s good to be conservative. And then we have our most startling face from chapter 1: more than 50% of NFT project mint fees go back into the NFT ecosystem.

Those who buy into NFTs, crypto continually put the money they receive back into the space. Yes there is always going to be some amount pulled out to live and exist in the real world, but a significant fraction bounces around the overall ecosystem.*

*Note: someone needs to do a “life of a dollar” exercise for ETH… from inception to current state tracking 1 ETH and all of the hands / transactions its involved in

Enough of the Vampiric Boomer Fantasy

A hijacked future of crypto expressed in a Coinbase ad: Maybe you too can be a Boomer if you buy Bitcoin!

Now could it all be a bubble? Of course. Is crypto necessarily the future? Who knows.

When you look at it as bouncing money, a culture that encourages you to participate, an entire world that you can stay within… you better understand why the bear market is just a temporary slow down in the activity. There really aren’t the massive “exits” you expect.

So if all of this is true, why the hell are we looking to the old path more than the future? I’m asking this question earnestly. We are focused on justifying our existence by looking to institutions that are dying. We can respect them. We can enjoy them. We can even wax nostalgic about partnering with our favorite childhood Pizza company. But we should not, we cannot be led by them.

Because their goal is simple, to take as much money as possible and have it leave the crypto space.

A billion users in crypto is bullshit. Mainstream adoption is bullshit. Being Boomer 2.0 is bullshit.

Here’s what matters:

You don’t need mainstream adoption when you have a trillion dollars.

You find a trillion dollars in destroying institutions, raiding them, forcing them to die.

Did I mention that trillion dollars is dispersed across a large group where the primary way of culturally interacting is by buying, selling, trading, and doing things with that money?

And did I mention these people aren’t leaving?

Crypto is in control.

What’s the solution? Experimentation, Culture, Art

After lecturing you on why everything that we just did was wrong, I’m not going to provide a grand solution. I think it is simple: Crypto is the ground to bring about a different culture for digital experimentation and art.

The financial components are the ground level, the miasma we breathe. It’s not new, the core thesis of all of this is a networked computer made of money.

The protocol wizardry, the technical challenges, and much more will naturally occur. We are good at this, and we should continue to be excellent in this.

We need to unstuck our money from the Boomer fantasy of 2021. This will happen naturally. The casino will suck the money out of the hands of the last 2021 Cycle Boomer without our interference.

What we need for 2024 is credible and real discourse, difficulty, debate, arguments, thought about what can be done here. And disproportionately that focus needs to be cultural. Culture that does not imitate old forms, old regimes or look for old institutional approval.

How can crypto bring about a new art world? (to steal a phrase from 113)

We can still make money. We can still trade shitcoins. We can still have fun. But…

Let’s leave some space for serious work. Let’s make sure a large amount of the capital also goes towards things that can sustain more than a year of life. Let's look and push for PROGRESSION instead of repetition.

There are so many pockets of this already brewing that it feels wrong to name only a handful as examples.

The cultures that have formed an identity that are not just hyperfinancialized will win in the long run if they remain committed to pushing the boundaries of their area of engagement. And I don’t mean to win economically… if you believe in all of this the money will come to the entire system naturally.

So does this mean we should pay attention to ArtInfluencerPunk420? No, we are not in 2021 anymore. It’s time to start thinking and stop buying. Create a culture without a singular authority to become a mouthpiece for. And god forbid you have the opportunity to become an authority — remind people not to mindlessly repeat you.

We need experts, we need boundary pushing, we need things that can produce a new canon of thinking in all domains. You have the time, you live here. Go learn things. Go take it seriously. Push.

What’s next on poof.gripe?

This is the close of my NFT 2021-2023 cycle work. As we enter into 2024 in a serious way, I’ll be starting to produce new work here in two directions:

1. A glossary of emerging concepts that may aid in understanding how different structural aspects of crypto may impact our ability to act in more productive ways — starting with the concept of Green Candle Brain Disease

2. Ongoing data and analysis on what’s actually happening as we enter different parts of the cycle

Subscribe now

Share

We spent well over $7B on minting NFTs and with secondary sales. Many of these had no future, and we should have known better, but there is a silver lining somewhere in this pain… I swear.

This is the chapter that will make you feel angry, sad, and confused about why we minted so much garbage. Prepare yourself.

Preface

I started this work almost 8 months ago to analyze and come to terms with the rollercoaster of ‘21-’23 for NFTs. I published two longform Twitter threads that covered some of the analysis in this document.

I had assumed that a large number of projects would start to lose steam and being able to assess what narratives had failed as well as what the future might entail would be timely alongside that. Well, after 8 months of waiting, we have finally gotten through the slow decline of ‘21 era NFTs.

The decline in confidence in BAYC (standard bearer for the ‘21 cycle) together with other recent news has led me to dust off this work.

The goal here is twofold:

1. To learn from the good, bad, and ugly of ‘21

2. To point towards the potential of NFTs in ‘24 and beyond

There will be a total of four chapters that I will release over this week. This post covers chapter 3, chapter 1 should be read first which you can find below:

1. Users & Scale: ~650K users spent $6.5B on NFT mints

2. Trapped in a Casino: The majority of users & funds never leave crypto

3. Mausoleum for a Burned Ape: IP narratives dominated with glimmers of hope for Art

4. Against the Mainstream: A new path for “NFTs” in ‘24 and beyond

Chapter 3: Mausoleum for a Burned Ape

The IP and metaverse narratives are beyond dead — it’s time to wake up

The 2021 to 2023 NFT cycle was insane. We all know it. We all have war stories. You couldn’t buy and sell projects fast enough. You had some inkling that things were not going to continue to go up forever, but you just had to keep up with the market.

It wasn’t just nihilism. A lot of the projects people were buying, they legitimately believed in. Some of it was new, some of it seemed excited, and some of it contained promises that couldn’t be delivered. I think it’s important to declare that all of the foolishness was not just nihilism. There was a real belief in some of these objects.

One way of looking at it is the “Green Candle” effect — a concept I developed in thinking about market narratives in 2024 — to describe the way that exuberance towards a certain product in crypto produces a real feeling of belief in a narrative.

Another way to look at it is that crypto recruits people to suspend their disbelief. This isn’t merely a cult-like behavior, instead it is a kind of superpower. Could you believe that people could value a digital object that represents your identity in the metaverse? Yes I can believe that. And I don’t think people fundamentally are wrong for thinking this way, but it was the first time many were encountering it and signal vs noise was difficult to see through.

And then of course, there was nihilistic trading too. All of this is a slow wind up, but I want to take away some of the gut reaction to simply say the ‘21-’23 cycle was stupid.

The fact that the cycle was possible reveals the power of crypto even if we may now reflect and, hopefully, learn from some of the stupidity.

Now, let’s look at the cold hard facts.

The Narratives: IP, Metaverse, Art, Utility

As I looked through the 4,269 projects that generated over 100 ETH in mint fees and royalties, I was surprised by how neatly most projects fit into one of these four categories: IP, Metaverse, Art, or Utility.

This should be somewhat intuitive if you experienced this market first hand. Let’s take a look at the list of top projects just to give some context.

A few things stand out here as you start to look at the top 25 who collected roughly $2B:

1. Art platforms had a surprisingly strong presence in the top slots

2. IP and PFP was a key narrative but was disproportionately dominant in the below top 50 category

3. Metaverse was disproportionately pushed by larger organizations

4. Pixelmon, the most iconic rug of the cycle, is the only true “gaming” project on the chart (perhaps Otherside could be this as well)

So, the IP narrative that dominated… Was it authentic? Was it arbitrary?

Yuga represents the hype and mega financialization of the entire 2021 narrative as well as an attempt to become All Narratives.

The PFP and IP narrative was “easy” and flexible. PFPs had been established as the key form for NFTs with Punks. The added “spin” was IP rights and savvy Web2 style Twitter marketing. And when it worked… you had a storm of narratives, primarily grounded in “mainstream adoption.”

We all know this intuitively. And it’s easy to pick on Yuga Labs.

What’s interesting, however, is that over time these narratives warped. Yuga Labs needed to rise to the massive valuation, and that means selling more stuff. What do you sell? You sell against all of the narratives.

So what do we get?

• Paid airdrop model to generate outsized ETH, expand reach, extend dominance of liquidity amongst holders

• Acquire competitors that have legacy, genre defining, historic credentials

• Take on tertiary markets / segments (metaverse, gaming) as a hypothetical organic “business model”

The path of Yuga Labs mirrors the shift of the entire space towards a money printer for holders, executives, VCs, and anyone who will give it time of day. When expectations for return are high, what do you do? You work to sell more and more to the 600K degens with the $7B to spend.

The 2021 values of open permissionless digital collectibles turned into 2022’s mint maxing, metaverse, airdrop, profit maxing. The four categories stated earlier are made less and less relevant. By the end of the cycle, everything is everything.

Consider CryptoDads which came out in 2021 with the somewhat laughable concept of “Bob’s Burger rip off for dads in crypto.” This is them now:

So, something happened where all of the categories blurred… I’m picking on Yuga, but recall that this happened with Larva Labs and Meebits. Why do Meebits exist? Why are the Meebits dancing? Why do they look so ugly? No one knows, but there’s a metaverse and that sounds like a good thing to sell.

I often find myself getting caught in the trap of trying to “refute” these narratives… Could you really ever create a sustainable business selling IP based toys or generating $STEAK yield? Maybe, maybe not, but this is largely a trick. The metanarrative has collapsed and is anything or everything — “if you’re in Metaverse, pivot to IP.”

Now that we have established that the “categories” may not be important. Let’s focus on looking at the long tail because this is the interesting part.

Good, Bad, and Ugly: It’s Actually Permissionless

Normally when there’s a giant monopoly with infinite money and all of the attention… it becomes really really hard for any of the little guys to compete.

Here’s the beauty and terror of permissionless systems:

Despite a small pool of participants, a large number of projects were able to get traction as we all know. There’s good, bad, and total scams. Let’s take a quick look at some random projects from our list.

Looking at the various projects on the list should elicit some memories — good or bad. I think one of the interesting parts of the cycle is the ability for ANYTHING to receive interest and attention. There was a recipe for sure and a lot of that recipe was gate kept by an influencer class. But there were still break outs that feel good to see… And some weird experiments that might be funny enough to feel okay.

It’s easy to obsess over the frustrating ones (Pixelmon, Raid Party, CPG Pop), but consider that there are interesting experiments that got enough money to have a small team live on for a year or two. This is a secret power of crypto.

So, where’s the big reveal? Where’s the witch hunt?

It’s not here, but there is something that is important… It’s time to put the Ape to Rest.

Towards a Future… Prelude to Chapter 4

If NFTs have a future, they require progress. They require development. They need a culture. They need a form of progression. Crypto is all encompassing, it’s a world. We stay in crypto for a reason. That reason is beyond “just money.”

If this is going to be a World of its own, it needs to carry seeds of long term futures.

NFT projects need resistance to the narrative collapse function where it all becomes shitcoins with seventy levels of utility and narrative.

There are signs of true long term thinking, visions and culture being landed on chain in all kinds of places…

Consider Cryptoadz anti-financial ethos, Terraform’s systems proto-futurism, Art Blocks or Super Rare’s cleaving of massive funding, Goblintown’s performance, the experimental young artist minting new work on Manifold, Larva Labs landing CryptoPunks, Parallel developing a quality TCG against all odds in this industry, emergent SWAG on Solana, Autonomous Worlds onchain, and of course dear to my heart, WAGDIE burning everything down.

There are infinite areas of experimentation and cultures that can resist the hype and churn. They may or may not accrue value, but we are here to live — not just create financial returns.

What if a larger fraction of this money went to people creating sustaining and meaningful work here? Can we have 30% spent on interesting, thoughtful, reasonable work? 40%? 50%? 60%?

The best part is that we control our own destiny. There is no invisible hand of the market. There are 600K people who live here. Let’s build something meaningful, and there may even be room for the old narratives as well as new ones.

We don’t need to dwell on 2021. It’s time to place the Burned Ape into the Mausoleum. It’s a place of respect and reverence for those whose time has passed.

ApeSquad Laser Eyes Golden Volume Rainbow Class of ‘23, Out.

I started this work almost 8 months ago to analyze and come to terms with the rollercoaster of ‘21-’23 for NFTs. I published two longform Twitter threads that covered some of the analysis in this document.

I had assumed that a large number of projects would start to lose steam and being able to assess what narratives had failed as well as what the future might entail would be timely alongside that. Well, after 8 months of waiting, we have finally gotten through the slow decline of ‘21 era NFTs.

The decline in confidence in BAYC (standard bearer for the ‘21 cycle) together with other recent news has led me to dust off this work.

The goal here is twofold:

1. To learn from the good, bad, and ugly of ‘21

2. To point towards the potential of NFTs in ‘24 and beyond

There will be a total of four chapters that I will release over this week. This post covers chapter 2, chapter 1 should be read first which you can find below:

1. Users & Scale: ~650K users spent $6.5B on NFT mints

2. Trapped in a Casino: The majority of users & funds never leave crypto

3. Mausoleum for a Burned Ape: IP narratives dominated with glimmers of hope for Art

4. Against the Mainstream: A new path for “NFTs” in ‘24 and beyond

Chapter 2: Trapped in a Casino

Or put more nicely: crypto is a culture and way of life

When the market is “bearish,” there is a belief that everyone has left. There’s less activity. The number isn’t going up. Things aren’t WAGMI anymore.

The reality is quite different. A vast majority of the heaviest users of crypto remain. And those heavy users hold a majority of the actual spending power. Now they may go “dormant” or transact less often, but the data would say they rarely “quit.”

To see this, we will start with a simple user segmentation to understand who the most valuable wallets in the ‘21-’23 cycle really were.

We placed every ETH wallet into a bucket based on how much secondary NFT volume they spent in 2021 and 2022.

The NFT “users” we identified in Chapter One map quite well to higher activity (>2 ETH spend) wallets. Additionally, we start to get the early shape of a segmentation curve.

For those less familiar with segmentation, we will now use these “buckets” of wallets to track their behavior in different ways.

Let’s go a bit deeper now and look at the actual total spend on secondary markets across these different segments. For ease of charting, we will only look at wallets with spend >0.1 ETH.

You can see that roughly ~600K wallets (those that spent >=2.0ETH on secondary) drove 95% of the total NFT volume over this time period. This lines up well with our earlier “guesstimate” on users.

Additionally, something else a bit more surprising appears… The top 6% of wallets account for 76% of all NFT volume over this time.

Just for fun… let’s double click into the wallets in that red box.

Probably nothing surprising here… There are some serious whales who spend huge amounts of NFTs. Recall that this is mostly at a time where washtrading had minimal incentives and the obvious washtrading is easy to filter out.

Before we go further, let’s dwell on this key insight. It’s nothing shocking, but it’s important:

Effectively all of the NFT volume is driven by heavy users. This is not surprising or unique to NFTs as we will cover later, but it is important to remember this. The “mainstream” consumer that is often being chased after who will “buy your bags” will never have anywhere near this spending power. The idea of the mainstream consumer who appears during the bull market is merely a signal for the heaviest, wealthiest crypto natives to double down on their commitment. This is not a flaw, this is part of the resilience of crypto to continue to resurrect and reappear when you least expect it.

What we are seeing above is actually typical of the statistical distribution of users in systems like crypto… It’s often called the Pareto principle.

From Wikipedia:

Mathematically, the 80/20 rule is roughly described by a power law distribution (also known as a Pareto distribution) for a particular set of parameters. Many natural phenomena distribute according to power law statistics.^[4] It is an adage of business management that "80% of sales come from 20% of clients."

Essentially, many systems with “consumers” end up in a power law distribution. It’s often talked about as “80 / 20” per the above.

NFTs are no different. See below for a table version of the data for my nerds out there… This time we look only at the wallets that have spent >2 ETH (or the top ~600K wallets)

Surprise, ~20% of wallets do 80% of the volume. Now here’s what’s surprising… this is in a huge market, worth billions of dollars. And these are individual collectible goods.

What’s startling here is that there is such an immense concentration of wealth to enable a relatively small number of wallets to be able to drive so much volume. And it’s not simply washtrading or manipulation.

The more you dig into these wallets the more you find some of the familiar faces from CT as well as some holders who seem to just be happily sitting on their Apes, Penguins, Yetis, Fidenzas, Rug Radio Tokens, and more.

So we identified the relative scale and size of the largest spenders and their import... Let's put this in context now. When we talk about adoption, when we talk about toy sales, IP deals, brand deals, Jimmy Fallon talking about Apes, and so on...

There is an assumption that ADOPTION has driven the volume. Or more naively, that ADOPTION IS driving volume. While it has the potential to drive some volume (10M users spending 0.05ETH = ~$12B volume), it has had minimal direct impact on the current state of affairs.

This is important since the primary price thesis was based in a narrative of "new money" coming in from presumably "new users." This isn't what's happening. Existing users and "early adopters" who are deeper into the system simply gain conviction in spending more.

When I say Trapped in the Casino, I’m pointing towards something uniquely interesting and potent about crypto. While the implication so far has been negative, there’s actually something secretly powerful about the foundational dynamics in crypto that make it also a potent area for unique experiments.

Let’s take a look at what happened AFTER the NFT bubble popped… What happened with these users… Did they quit? Or just go dormant?

We look at our same segments (NFT volume based on ‘21-’22)… but this time look at whether or not they did anything on ETH in H1 of 2023.

The relationship of spend to “retention” is not surprising fundamentally. For a variety of reasons, this is a common pattern: the more you participate in something the more likely you are to continue to participate. What is surprising, however, is that this retention is so strong over a period of time where people felt the market was “dead.”

Let’s take a look at just NFT transactions… just to be a little bit balanced.

It’s still very strong.

Let me frame this again… Those heavy spenders, people who spent millions on NFTs, just stayed in crypto. They didn’t cash out and go to the beach. They didn’t run away because they lost everything. They didn’t leave crypto because their bags were down (in 2023) potentially -90%. They are still here.

And if you don’t think this is surprising, let’s compare to the adoption curve of almost any other subscription model which has… a very very low cost of participation.

Netflix retention beats out the ~600K NFT wallets. Okay sure. Mind you Netflix has one of the best retention rates of any system or model.

But… Top 20% of NFT wallets (who spent… literally $40B)… they beat Netflix.

You have people who literally have the ability to trade $40B in two years with the same level of addiction to crypto as the average American has to Netflix.

This is what I mean by “Trapped in the Casino.” Now, I originally intended to do an analysis looking at gambling and mobile gaming behaviors in comparison to crypto. There are a lot of similarities. I’ll share this one quote from an excellent book on online poker:

Natasha Dow Schull is worth reading for anyone looking to get a better understanding of how gambling and addiction function. There are lots of mechanisms in crypto that play on this urge, but I think it’s important to zoom out as well…

This isn’t just a game. It’s not just Apes. It’s not just an IP deal. It’s not just posters on your wall.

It’s a world where participation in a digital culture is all encompassing. It’s a world where your ability to be social (transact) is reliant on your presence and liquidity.

For all of the talk of human greed in crypto, the people who should “make off like bandits” sure do seem to stay here forever.

Think about those who “rugged” for millions, think about the 50% of NFT project funds that went back into NFTs, think about your own experience. We want to stay here and not “just” for the money.

In closing, some key points:

• Cryptonatives and early adopters drove the NFT market

• New entrants have value but primarily as “excitement” drivers for existing users to double down

• Participation is sticky, the more you play the more you stay

In the next chapter, we will take a deep dive into the actual projects of the ‘21-’23 cycle. While I am ending this chapter on a slightly positive note… get ready because you are in for a nightmare remembering the best and the worst of the ‘21-’23 cycle. See below:

I started this work almost 8 months ago to analyze and come to terms with the rollercoaster of ‘21-’23 for NFTs. I published two longform Twitter threads that covered some of the analysis in this document.

I had assumed that a large number of projects would start to lose steam and being able to assess what narratives had failed as well as what the future might entail would be timely alongside that. Well, after 8 months of waiting, we have finally gotten through the slow decline of ‘21 era NFTs.

The decline in confidence in BAYC (standard bearer for the ‘21 cycle) together with other recent news has led me to dust off this work.

The goal here is twofold:

1. To learn from the good, bad, and ugly of ‘21

2. To point towards the potential of NFTs in ‘24 and beyond

There will be a total of four chapters that I will release over this week. The chapters are as follows:

1. Users & Scale: ~650K users spent $6.5B on NFT mints

2. Trapped in a Casino: The majority of users & funds never leave crypto

3. Mausoleum for a Burned Ape: IP narratives dominated with glimmers of hope for Art

4. Against the Mainstream: A new path for “NFTs” in ‘24 and beyond

Chapter 1: Users & Scale

Get ready, this one is mostly data and charts.

The adoption curve is a critical concept. We often think about going “mainstream” with NFTs, but I would ask us to take pause and reflect on where we actually are in adoption.

What we will find is that the population of users actually buying and selling NFTs was relatively small indicating that we are still in the very early innings for this market. And not only that, but the users themselves, have a tremendous buying power.

Let’s take a look at what happened in the NFT market with a focus on the total amount of money spent on NFTs as well as the total number of users.

Let's get grounded on some key facts:

• $6.5B was spent on minting ETH NFTs between 2021 to 2023

• $1.5B was collected via royalties and marketplace fees

That’s a huge number. While the trading volume is also an interesting metric, I think it’s important to get grounded on how much money we know directly went from users to projects, owners, and platforms. Volume can make you think that, perhaps, high frequency or washtrading exaggerated the size of the NFT market, but true mint and marketplace fees give us a good handle on money that went out of users hands.

How many users actually participated in the market then during this time?

"Users" as a metric in crypto is typically fraught. We know it's easy to spin up new wallets, and metrics can be inflated. We are seeing this more than ever in 2024 with airdrop farming, DAU inflation and more.

The real question, however, is a more approximate one: Is it a million people? Five million? Half a million? If the number is in the tens of millions, we are likely in an early adopter mode. If it’s in the 1-3 millions, we are probably in the “innovator” phase of adoption.

As a starting methodology, we use a simple segmentation to first see how many individual wallets exist that bought or sold (traded) NFTs 3 or more times from 2021 to 2023.

The output of that work is a single number: 2.1M wallets. Now we have a cap, there are AT MOST 2.1M users.

How do I know those ~2M wallets are really users though?

We can look at Ethereum's monthly average wallets and compare to how many non-zero wallets there are. Over the last 2.5 years, the cumulative number of non-zero wallets doubled while "true users" is likely about flat.

If we apply that logic to the NFT wallets... We should likely cut our 2M NFT wallets number in half to get to a rough sense of "users". So now we have a maximum of ~1M NFT users over the last 2.5 years.

Of course, this starts to beg more questions… What is a user? What if someone quits? Who is really active?

There are two numbers that are important: 1) Total unique users reached 2) Weekly active usage Let's take a look at weekly active usage of NFTs. Unfortunately, our best usage metric is “has bought or sold NFTs in last week”... For most of 2022, there were about 250K weekly wallets.

While there is more nuance, I think 250K is a good general "bottom end" of the user number. Sure, there could be bots and multiple wallets, but 250K weekly usage during a sustained period of time feels like a good number of real active users at a minimum.

Alright, so where do we land? There are between 250K to 1.0M unique users who participated in ETH NFTs.

For short hand going forward, we will cut it somewhere in the middle and say there are ~650K users. 650K souls trapped in the Crypto Casino of NFTs.

Now, we will pressure test our spend number and see if it makes sense.

$6.5B on mint fees across 650K users.

~$10,000 spent per person on mint fees.

Seems like a ton right? Well maybe. Let's go deep on this.

How do we think about liquidity entering a market? And who GETS the money in the end? Where did the $6.5B of mint fees "go?" And how do we think about the slow illiquid nature of NFTs?

$10K per person seems like a lot for individuals to spend on minting NFTs. And we know the $6.5B number is a fact. So how do we deal with it?

Let's define WHERE money has the opportunity to leave the market.

1. Minting: theoretically spent on "operating costs" / taken out of market

2. Royalties: same as above

3. Marketplace fees: theoretically spent on operating costs of the marketplace

4. Gas fees

5. Traders who exit

We will take a deeper look at number 5 later. We will also skip gas fees as it's not interesting for our needs. So let's dig into 1-3. Since all of these are based on market conditions, let's start by looking at the timeline of volume for the NFT market...

Dollar value of NFT volume on ETH L1 was $44B over the last 2.5 years

2021: $17B 2022: $23B 2023: $4B (thru 6/13)

So, first check... if $6.5B was spent on mint fees alone, does it make sense that the volume could be 6-7x that? Maybe! Let's look at a few other things...

So I go back to our pie chart... $6.5B in mint fees $1.5B in royalties and marketplace fees $8B that was definitely spent.

But what if some of the $6.5B in mints are spent back into the market? Really, does that make sense?

Well... Nansen did great work on tracking what happened to NFT mint proceeds both in 2021 and 2022. What we see is actually surprising... And it's a sign of behavioral patterns we will revisit later. Here's where the money went in 2021 (through August)

In H1 2021, 18% of the money definitively went back into NFTs. Okay that's something, but take a look at this... In H2 2022, a full 50% of mint fees were put back into the NFT market DIRECTLY.

Let's pause here for a minute. 50% of the mint funds from projects were used to buy MORE NFTs. Some of that is likely bad behaviors (inflating your own project’s floor etc). However we should really digest this: Over only 6 months of time 50% of project funds got degened back into the market.

So back to our quest to see how much money was really there to be spent... I'm going to take a leap and assume that this 50% will hold for all project funds and over most of the peak of the NFT boom from the middle of 2021 to end of 2022.

Remember projects took in a total of $7.3B in mint fees and royalties: 2021: $2.1B 2022: $4.4B 2023: $0.8B If 50% is "spent back" into the market... and then marketplaces take $0.7B... Then the true liquidity "leaving" is roughly $4.4B.

So our 650K people spent a ton of ETH trading back and forth, but at the end of the day $4.4B showed up and was purchased... without just being "recycled." Is that real? Did these people show up with this money and put it into the NFT vending machine?

Well let's just look at their wallets... probably should have done this first!

The wallets that satisfied our criteria (were active NFT traders) had over $3.9B in LIQUID assets IN their wallet in Jan 2022. This is ONLY looking at USDC/T and ETH.

So, what have we established?

There are likely 650K users who have participated in ETH NFTs. There was $6.5B spent on mints and $1.5B on secondary fees. Of that, projects dumped 50%(!) back into buying more NFTs.

Closing

This chapter is technical, but important as it frames a lot of the key metrics that we will continue to come back to.

The next chapter is below: “Trapped in a Casino” where we will find that users rarely leave crypto and that a very small number of users make up a majority of the heavy volume.

Each month: a new L1 chain, a new L2, a new token, an old chain, a recovered archaeological chain, an old NFT, a new NFT, a new Ordinal, a new fully centralized website with TOKEN POINTS will take hold and absorb the narrative. And then in a month you’ll forget and move on to the next thing.

The swarm is here. The new paradigm will be a swarm of gnats.

The gnats live in the “alt” portion of the cycle

We discussed the idea of rotation in our previous post.

Consider the core principle here: money flows from the market into BTC first and then ETH. From there, it goes to “alts.”

I will contend that generally “alts” mean everything that is not ETH or BTC — not strictly a particular class of tokens. What does that mean?

Historically, alts were a narrow scope… Yes Solana may be better than AVAX. Doge might be a meme. Litecoin is… something? But generally the idea of alt rotation was a means of getting more growth out of your ETH/BTC gains.

Alt seasons have historically been short lived — typically last 1-3 months. As we discussed in the previous article, it requires significant injections of capital to make ETH and BTC holders feel ready to double down on something else. But when that foundation is there, the scale of capital from ETH/BTC can drastically grow any smaller cap asset class. This cannot last forever as eventually the smaller asset class is saturated; however, those participating can make significant returns.

But let’s not forget the scale…

A little bit of capital goes a long way…

Let’s look at the numbers to put it in context… Between BTC/ETH/Stables in 2021-2022, the market added nearly +$600B in realized cap in a year.

When things are flatlining (2023), you don’t spin off your new found money into new smaller things. You take less risk. But when there’s $600B flowing in, who cares…

What’s a mere $50B to put into Solana? What’s another $10B into some L2 that won’t last a year? $6B into NFTs? Seems cheap!

And what’s better than seeing the huge green growth on those numbers when that huge capital stack hits a new “alt?”

For context… the recent ~$30B yeeted into Solana was a 300% on Solana. Surely Solana is the future!

What you will note is that in 2022, there was enough capital flow into ETH/BTC to drive into an “easy” $70B for Solana. Right now, what we are seeing is likely pre-empting the bull run too rapidly. Capital is being thrown into Solana, but is happening too rapidly compared to the overall market. It may stick, who knows, but likely is too much for now.

Now, we know we are likely in the early innings of a pre-bull… So what does this mean for the future?

2024: A million gnats

In the 2021-2022 crypto cycle, there were a number of new exciting places to rotate money into… Think about where the rotations were… We had NFTs, Solana, more shitcoins than ever, L2s (Arbi,Poly), gaming (Ronin), etc. A more “expansive” conception of alts is helpful here as each ecosystem becomes its own sub-market.

It’s not to say that these are merely trends or fads (some were), but the rush to engage in these mini markets becomes its own game and place of immense growth. Despite all of that, there was still more or less foundational aspects of ETH being developed as well as other chains. Even BTC went “back to the future” by finding ways to create a sub-market to capture ETH users (Ordinals etc).

As we head into 2024, it’s more advanced. It’s easier than ever to make things on chain. It’s extremely low effort and low cost to spin up an ETH L2 on OPStack (Base, Zora, others). Solidity is better understood. An entire new ecosystem on BTC is well established. People have figured out hype fueled “applications” of PWA. There are new wallets. There are old ponzis in new clothes. There are POINTS!

So what are the gnats? Who the fuck knows. You can’t see an individual gnat. It’s a swarm. It’s up!!!! Go go go go!!!!

The future will be rotation into all of the stupid new platforms as fast you possibly can. There are now 30 narratives to choose from and they all start at a $50M cap… AI? Cryptogaming? Art? It’s all happening all the time. Imagine what would happen if they got $1B of the fun money. And at any time, the wheel of fortune could land on YOUR gnat!

Is this good? Probably not, but it does mean to prepare for the Cambrian explosion of gnats looking to steal some delicious bites of capital. Infinite musical chairs every day. At the same time, it also means to set expectations. Take a step back, breath, see if you are telling others that something is sustainable that may not be, etc. Or you can simply ignore them and wave them away. Sometimes it’s nice to go into your hole and focus.

Epilogue

Random poorly digested thoughts on the lack of free will in crypto…

One thing that I am constantly thinking about is how discourse and thought in crypto are driven by market conditions. It’s easy to say that emotions drive trading, but it feels quite different than that.

I am starting to come to the conclusion that thought doesn’t occur in crypto. Not in a critical or “stupid” sense, in a real sense. The green candle comes before thought or discourse. By the time you are talking about a narrative, you’re already just lizard braining to the green candle. And I don’t believe this is always intentional or bagholder bias. I think it’s a reflection of the existing market dynamics.

Green candles are a direct pathway into the autonarrative nervous system.

That’s it for this one.

tl;dr There are a ton of places that money will flow and it’ll be hard to keep track of them in the upcoming bull cycle. It’ll be worth taking a step back and considering what’s long vs short term when you are faced with the Cambrian explosion of narratives.

Subscribe below for more garbage like this…

Subscribe now

Share

We are so back. Crypto is up. BTC over $40k. NFT volumes are up!

The next NFT bull is here right?

It’s probably coming, but not quite here yet.

I rarely look at dailies, but given the price action… Let’s take a look at our handy core metrics dashboard for NFTs through 12-4-2023:

As I shared in my earlier post, I believe year over year wallet activity is the most important metric to understand building health. We want people who were out of NFTs to come back in to signal true “bull” activity. So far, people are just spending some of their money in anticipation of this it appears.

And while I have you, here’s what the weeklies look like (about the same):

So, how do we figure out when NFTs will come back? When will there be more onchain activity? If you did the homework from last week’s post, you’ll be slightly ahead of the curve (if not, just continue on…).

Capital Flows and Mania

Significant thanks to this Glassnode post for making this data so clear

Capital typically flows in Crypto from lower risk / higher scale to higher risk / lower scale. So when we see the acceleration of crypto value it will typically start with significant accumulation of Bitcoin, then accumulation of ETH, then Stablecoins (which is typically simultaneous with or indicating alt trading).

If you look at this chart, you’ll see that Bitcoin typically leads. Take a look at 2021 Jan. The price of BTC starts going up. The demand increases and there’s a net capital flowing — a big orange wave. Green (stables) go up along the way as do ETH. Then ETH accelerates, green continues.

They take a pause and a similar behavior continues although this time it was ETH catching up to BTC. Ultimately, we know there are specific market dynamics that will make each cycle different. But the structure is fundamentally the same.

If we zoom in to our recent time period, we know the same process is kicking up. And thus… we are so back

But when do NFTs go crazy too? Looking at the trends, we saw the last NFT cycle occur during “Mania” (sometimes Altseason is used interchangeably).

Mania can be seen when… capital flow into ETH is accelerating upward AND capital flow into stables are simultaneously accelerating upward.

If these two things are occurring together, the market is feeling like it’s free money millions getting tossed around and now they need a new place to go speculate… The name of that place is Alts, NFTs, Shitcoins, etc.

So, we know when mania will occur. It happened last time. And then NFTs went crazy and we are all going to be good right?!

Well maybe, maybe not. NFTs were the dominant narrative of 2021 and 2022. It’s possible that the next mania cycle will have new competing narratives (there are a ton I can imagine). So expect that NFTs may not be quite as dominant. It’ll have a place though, for certain.

So… let’s ask the important question

WEN are NFTs back?

Once these two bars (net 30 day increase in capital in ETH and Stables) are BOTH increasing. Right now, ETH accumulation is starting up. Stables are peaking a bit. We are looking for both of these to be accelerating upwards — which, again, looking at the prior cycles is probably contingent on another few months of “up only.”

tl;dr

We seem to be at the start of a crypto cycle. It’ll take time before we are “so back” on all of the fun stuff that we love so much.

Take a look at some of these dashboards. Go use this time to make weird and good and interesting shit. I’ll continue to do this once a week until it gets boring for everyone.

You’ll lose track of time once the madness starts. And don’t forget to put it in context, we are all going to die.

Leave a comment

Share

Subscribe now

General Thoughts on Analytics in NFTs

NFT analytics platforms are mostly focused on trading. That means, they want to see a singular thing: did price go up or down. There is some merit to this, but for understanding the big picture — what’s happening with “consumers” of NFTs — it’s almost virtually useless.

The weird part about crypto is that you have all of the data in the world, but there are very minimal standards on how to measure base metrics. For my own sanity, I’ve generally tracked a very small subset of metrics that I feel are most important and then looked at them consistently over time. In this sense, I’m anti-dashboard. Dashboards are good for working on a particular situation or checking something real time. Dashboards are terrible for standardized reporting.

Methodology of poof’s NFT Analytics pack

I’ve created my own cheat sheet to look at overall market health for myself. This isn’t focused on projects, on individual floor prices, or anything else.

We can look at two ways to decompose overall NFT Volume into its causal drivers.

Volume = (Wallets Participating) x (Volume per Wallet)

Volume = (Transactions) x (Volume per Transaction)

We can get cute with these equations and break them down further. We can also debate which one is better to look at. For me, I prefer to just look at three separate metrics from the above:

1. Wallets Participating (buying or selling NFTs over a time period)

2. Transactions (total NFT buy or sells over a time period)

3. Volume per Transactions (average ETH volume of those individual transactions)

And of these metrics, I find Wallets Participating the most indicate of overall ecosystem health.

There are ebbs and flows of engagement, interest, big mints, hype moments, and more that will throw your transaction and volume numbers up or down. However, wallets are fundamentally representing the level of true unique people who engaged with NFTs over a particular time period. If that number is going down, there’s less people engaged; if it goes up, there are more. Over longer periods (e.g. a year), things like bots, multiple wallets, etc start to cloud the data, but on a short weekly or daily average — you get a good idea of what true engagement looks like.

So… the critical question: ARE WE BACK?

poof’s NFT Analytics pack as of 11/27/2023

Answer: No we are not back, but maybe there’s some slight improvement.

Here’s what’s important: Wallets are (62%) vs PY in the latest week. Additionally, the trend of wallet declines is fairly similar although improving. If you look to the right, we were (70%) vs prior year in the latest 13 weeks and now we are (62%). An 8% improvement is nothing to sneeze about, but we need to start seeing some more significant improvement to feel like we are “back.”

Why do I not look at the change versus prior period which looks to be up +3%!? Because of seasonality. All things have a seasonal curve of participation. The Internet, Crypto, and NFTs have a seasonal curve as well. No matter what the year is, there is generally an increase of participation going into the American Holidays towards the end of the year. Year over Year trends help capture that and give us a true sense of how things are progressing. If the year over year trend is similar over several time periods — it gives us a sense of whether or not there is true improvement or decline in what we are seeing.

Here’s a view of the weekly wallet trend this year, 2022, and 2021 that helps illustrate:

Wallet participation in 2022 is a little misleading as you had the start of the bear, but you get a general sense that the summer in normal circumstances are likely a time of lower participation than the ends of the year. There’s art and science here, but having YoY trends and looking at them over time helps us here.

Finally, returning to the original view, the bar charts at the bottom also give us a sense of the absolute scale of the weeks. 11/6 is an interesting peak week where we had much more on chain activity. It also coincides with when there was a lot of generalized crypto excitement as BTC, ETH, etc were growing in value. These are things to watch.

So those are the big things… What do we want to see to start feeling the engagement improving in NFTs again? We want the trend in Wallet participation to start improving — both YoY and period to period. We need to see more than ~40k-50k weeks of participation.

poof’s Homework

So… that’s great, we can see when NFT interest is increasing or decreasing. That doesn’t help me poof! I want to know WHEN NFT interest is going to increase!

Well… I look at something different for that… I’ll do a quick overview of how I look at overall inflows of capital into crypto and what market conditions lead to “mania” moments that may overflow into NFTs or other similar areas next week.

In the meantime, your homework is to check out this post on Glassnode about indicators of “alt mania” based on inflow of capital into BTC, ETH, and Stablecoins:

Glassnode: Capital Flows, Exchanges and Altseason

Going forward, I’ll do a very brief dashboard view update and some light commentary every Tuesday here going forward so make sure to subscribe if you haven’t already.

Subscribe now

Share

I’m poof. I’m a “crypto” or “web3” person who is caught between two paradigms — hating it because of the culture surrounding it and enjoying it because of the potential to directly fund interesting experiments.

Without going into depth, I have been a participant in the space for a relatively short (or long) period time since about 2021. I have had the pleasure of getting to build EtherOrcs (now ended), an early onchain game, as well as get to know a variety of other people within the space. Before this, my background has largely been in consumer goods focusing on “strategy” as it pertains to the consumer — highly corporate. I am not a developer, but am technical enough to tinker and be annoying.

Anti-everything

I hate Substack, newsletters, podcasts, and many many other things. Yet here I am, creating a Substack as it appears increasingly evident that Twitter is about to collapse.

So, what will you find here?

1. Research — I do a lot of technical market based reporting on the dynamics of Web3, NFTs, crypto. I generally do it for myself, but will be sharing bits and pieces here as well as long form analysis.

2. Essays (Rants) — I have a lot of opinions, particularly on the need to make Web3 smaller, more indie, more experimental and less corporate mimicry. I will probably write (poorly) on this here.

3. Project Work — I typically work on one or two more art forward projects at a time. A lot of my current focus is on AI and horror.