Timing Solana NFT Market Cycles Using BTC Price During the Bear Market
TLDR at the end of post. Like any financial market, NFTs go through cycles of ups and downs. Although it is impossible to predict the top and bottom, one can only speculate. Hence, here’s an analysis on how I try to time the NFT market cycle during the bear market. Solana degenerates often say ‘1SOL = 1SOL’. This means that they don’t give a fuck about the dollar value and often care only about accumulating SOL. But since SOL is pegged to USDT and the latter to actual US Dollars, it is a key part of NFT valuation which is susceptible to market volatility. The value of an NFT is hard to determine, but it will always be valued in USD. That said, NFT market participants will always find inefficiencies in pricing either after a huge move up/down of the general crypto market and act accordingly. Basically, this means that despite prices are in SOL, in times of extreme market volatility, they hedge in terms of the dollar value. So, when SOL prints a big red or green candle, assuming other factors are held constant, we can expect NFT prices to dump. Furthermore, inefficient markets dictates that there will always be a delayed reaction and lagging effect on the floor price. If SOL drops in USD value, NFT market participants are more likely to stable up. On the other hand, if the dollar value of SOL increases, NFT market participants are more likely to hold SOL than an NFT. However, if the market stays relatively the same and ranges, participants are more likely to crank up risk and the market would lead to speculation and price discovery. Since BTC is the lead market mover used generally to assess the crypto market, this analysis will use BTC price as proxy for SOL price because we adopt that if BTC goes up, then SOL goes up as well assuming all other factors are held constant. To back test this theory, let us compare the BTC/ SOL price relative to the Overall Market Cap / Volume. This analysis also assumes that the bear market started post Luna crash when BTC broke 30k support.
As seen from the BTC price chart above, from May to August, it broke 30k support, wicked to 18k and tested 25k but failed. On the other hand, the Overall Market Cap/Volume chart for SOL NFTs saw a sharp decline in volume that bottomed out almost similar to when BTC topped at 25k.
After that, BTC ranged around 20-23k. This was in Late August to mid-September. Likewise, we saw that the Overall Market Cap / Volume chart had a burst on the upside during that period.
Then, from mid-September to November, we see BTC price dump from 22k to 18k followed by a retests to 22k again, and finally down to new local lows at 15k. With this, we also see another decline in volume and market cap on the NFT chart.
Next we see BTC form a static line, ranging from 16k to 17k from Mid-November to January 1. This is where the SOL market cap and volume went to new highs and topped on January 6. While the NFT market volume drops from there again, we see BTC test 25k. Now, markets are starting to range again and we see another surge on NFT volume.
With the above data, we can expect that when BTC ranges, liquidity moves to NFTs and starts a new cycle. Because this analysis only focuses on BTC price and the overall market cap/volume of NFTs with other things held constant, this does not time bottoms nor tops of NFT collections, but only a shift in market cycle. However, if we add factors like narratives, news, and upcoming mints, one can identify which projects are likely going to move or reprice in USD value. TLDR; To identify market shifts, assuming all other things are held constant, we observe the below graph:
- 1 SOL ≠ 1 SOL - NFT value pegged to USD - BTC as proxy for SOL - Bear Market