Market Analysis

Scott Minerd says Bitcoin price will drop to $8K, but technical analysis says otherwise

BTC price could be poised for a big bounce despite Minerd’s prediction that price will drop to $8,000.

Bitcoin (BTC) is predicted to drop more than 70% to the $8,000 value area, according to comments by Guggenheim chief investment officer Scott Minerd. This is not the first time he has made a bearish call, and he has, in the past, made bullish calls as well. However, Minerd’s more recent calls have occurred just before major reversals.

It should be noted that Mr. Minerd, if inferred from previous comments, is a Bitcoin bull and has a long forecast for the biggest digital asset in the six-figure range. However, if traders and investors used his comments as a sentiment indicator for a market low, then other confirmatory data must be used.

Long term oscillators values support a bullish reversal

The weekly and monthly RSI (relative strength index) and composite index show that extremes have been met. These extremes do not predict or guarantee a reversal. Still, they warn bears that the momentum of further downside movement is likely to be severely limited or eliminated.

BTC/USD weekly relative strength index (RSI) (Coinbase) Source: TradingView

The weekly RSI remains in bull market conditions, despite it moving below both the oversold levels of 50 and 40 — until it hits 30, the bull market RSI settings remain. Currently, at 33, this weekly RSI level is the lowest since the week of December 10, 2018, and just below the March 2020 COVID-19 crash low of 33.48.

Likewise, the weekly composite index reading for Bitcoin is at an extreme. It is currently at the lowest level it has traded at since the week of February 8, 2018. The current level that the weekly composite index is at has historically been a strong indicator that a swing low is likely to develop.

BTC/USD weekly composite index (Coinbase) Source: TradingView

The black vertical lines identify the most recent historical lows in Bitcoin’s weekly composite index.

Chart patterns on oscillators can help identify upcoming reversals

The use of basic chart patterns like rectangles and triangles on a Japanese candlestick or American bar charts c is not limited to just the price chart. For example, the great analyst and trader Connie Brown (the creator of the composite index) impresses analysts and traders to pay attention to chart patterns in oscillators.

BTC/USD monthly (RSI) (Coinbase) Source: TradingView

The falling wedge pattern on the monthly RSI fulfills all the requirements to confirm that pattern: five touches of the trend lines. It should be noted that the monthly RSI for Bitcoin, like the weekly RSI, remains in bull market conditions, and the current RSI is just below the first oversold level of 50.

Another major development with Bitcon’s oscillators is the regular bullish divergence between the monthly RSI and the monthly composite index. The composite index, created by Connie Brown, essentially is the RSI with a momentum calculation — it catches moves that the RSI cannot.

Note the structure of the lines on the monthly RSI compared to the composite index. The RSI shows lower lows, but the composite index shows higher lows. That is a regular bullish divergence.

BTC/USD Monthly composite index (Coinbase) Source: TradingView

Regular bullish divergence is most often measured between price and an oscillator, but it can also be measured between two oscillators. Regular bullish divergence is a warning sign that the current downtrend will likely face a corrective move higher or the beginning of a new uptrend.

Bitcoin price action remains correlated to stocks

Due to the continued correlative behavior between Bitcoin and the broader cryptocurrency market to stocks, special attention should be given to this week, specifically Thursday (May 26, 2022).

Economists and Wall Street continued to sound off worries about growth. After Target’s (NYSE: TGT) dismal quarterly report last week, all eyes are on other big-name retailers announcing earnings on May 26: Macy’s (NYSE: M), Dollar Tree (NASDAQ: DLTR) and Dollar General (NYSE: DG) are all on deck May 26.

However, given that much of the stock market is below bear market levels, any negative news from retail stocks or the United States Federal Reserve is likely to be considered “priced in.” Volume into the tech-heavy NASDAQ (NASDAQ: QQQ) has increased, as have inflows to Bitcoin and the wider crypto market.

Thus, if stocks bounce, Bitcoin will bounce. The upside potential for Bitcoin will likely be limited to the critical psychological and 2022 volume point of control at $40,000.

The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph.com. Every investment and trading move involves risk, you should conduct your own research when making a decision.

Assuming Bitcoin plays nice, higher timeframe analysis points to $90 Solana (SOL) price

Solana continues to consolidate near the critical $50 price range, while bulls have begun to flirt with the idea of a possible upswing.

Solana (SOL) price has begun to consolidate in a tightening range and if the wider market remains stable, it’s possible that SOL could break out in the short-term.

SOL’s upside potential in the short term could be significant with the move, itself, occurring quickly. The 2022 Volume Profile between $53 and $90 is extremely thin, indicating that any daily close above $53 would easily move towards the next high volume node in the $90 value area.

In addition, the 50% Fibonacci retracement of the all-time high to the July 26, 2021 weekly low and the 2022 Volume Point of Control also exist in the $90 price zone.

SOL/USDT Daily Chart (Binance) Source: TradingView

Bulls traders should anticipate some resistance for SOL price near the Kijun-Sen and 61.8% Fibonacci retracement near the $70 price range. However, given how thin the Volume Profile is, that resistance may be short-lived.

Historicals suggest sells may struggle to pin SOL under $50

Downside pressure remains a concern but is likely limited in size and scope. The triangle pattern on the daily chart shows bulls have made another attempt to push SOL up and out, but have so far been rejected from spending any meaningful time above the upper trendline.

SOL/USDT Daily Ichimoku Kinko Hyo Chart (Binance) Source: TradingView

If a bearish breakout below the triangle does occur, bulls will understandably panic, but bears shouldn’t be overly confident. Despite the 2022 Volume Profile being thin below the $39 price level, the 2021 indicator also shows considerable participation between $41 and $48.

Another fast sell-off toward $39 is likely to occur if SOL closes the daily candlestick at or below $49.

Time cycles indicate a change in trend may begin soon

Solana price action is poised for a substantial bullish bounce from a time cycle perspective. In Gann Analysis, one of the most powerful time cycles is the 180-day cycle (extending to 198 days). Gann indicated that any instrument trending in a single direction over 180 days has a high probability of generating a powerful corrective move or a major trend change.

SOL/USDT Daily Ichimoku Kinko Hyo Chart (Binance) Source: TradingView

May 23, 2022 is the 196th day from the all-time high made on November 8, 2021.

Complimenting Gann’s 180-day cycle is an event within the Ichimoku Kinko Hyo system: a Kumo Twist. A Kumo Twist is the time period when Senkou Span A crosses Senkou Span B. Additionally, the Cloud changing color can be observed. Kumo Twists have a high probability of identifying when a new swing low/high may occur.

Macroeconomic data will continue to weigh on crypto

Solana and the broader crypto market remain at the mercy of the stock market. While the stock market has mounted a modest recovery during the May 23 session, all four major indices are in or near bear market territory.

For example, the RUSSELL 200 (IWM) is down -27%, the NASDAQ (NDX) by -28% and the S&P 500 (SPY) hit bear market territory on Friday, May 20, but it crawled out of it Monday, May 23,. Still, the index remains close to bear market conditions at -17%. Only the DOW has remained out of bear market territory.

Volatility is expected to be exceptionally high this week as well. New home sales data comes out on May 24, durable goods on May 25, GDP growth rate on May 26, and personal spending and income (MoM) on May 27.

Expect any bearish or bullish price action in the stock market to be mirrored by the cryptocurrency market.

The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph.com. Every investment and trading move involves risk, you should conduct your own research when making a decision.

Was Terra’s UST cataclysm the canary in the algorithmic stablecoin coal mine?

After an earthquake, there are always aftershocks. The collapse of UST could be a sign that other stablecoins are also critically flawed.

The past week has not been an easy one. After the collapse of the third-largest stablecoin (UST) and what used to be the second-largest blockchain after Ethereum (Terra), the depeg contagion seems to be spreading wider. 

While UST has completely depegged from the U.S. dollar, trading at sub $0.1 at the time of writing, other stablecoins also experienced a short period where they also lost their dollar peg due to the market-wide panic.

Tether’s USDT stablecoin saw a brief devaluation from $1 to $0.95 at the lowest point in May. 12.

USDT/USD last week from May. 8–14th. Source: CoinMarketCap

FRAX and FEI had a similar drop to $0.97 in May 12; while Abracadabra Money’s MIM and Liquity’s LUSD dropped to $0.98.

FRAX, MIM, FEI and LUSD price from May. 9 – 15th. Source: CoinMarketCap

Although it is common for stablecoins to fluctuate in a very narrow range around the $1 peg, these recent trading levels are seen only during extremely stressed market conditions. The question that now sits in the mind of investors is will the fear spread even wider and will another stablecoin de-peg?

Let’s take a look at the mechanism of some of the major stablecoins and how they are currently traded in the Curve Finance liquidity pool.

The main purpose of stablecoins is to preserve a stable value and provide investors an avenue to park their money when volatility from other crypto assets are much higher.

There are two distinct mechanisms in stablecoins — asset-backed and algorithm-based. Asset-backed stablecoins are the most common version and issuers purport to back stablecoins with fiat currency or other cryptocurrencies. Algorithm-based stablecoins, on the other hand, seek to use algorithms to increase or decrease the supply of stablecoins based on market demand.

Asset-backed stablecoins were in favor during downturn, except for USDT

USD Coin (USDC), Dai (DAI) and USDT are the most traded asset-backed stablecoins. Although they are all over-collateralized by fiat reserves and cryptocurrencies, USDC and USDT are centralized while DAI is decentralized.

USDC’s collateral reserves are held by U.S.-regulated financial institutions, whereas USDT’s reserves are held by Tether Limited, which is controlled by BitFinex. DAI, on the contrary, does not use a centralied entity but uses the primary market borrowing rate to maintain its dollar peg, which is called the Target Rate Feedback Mechanism (TRFM).

DAI is minted when users borrow against their locked collateral and destroyed when loans are repaid. If DAI’s price is below $1, then TRFM increases the borrowing rate to decrease DAI’s supply as less people will want to borrow, aiming to increase the price of DAI back to $1 (vice versa when DAI is above $1).

Although DAI’s pegging mechanism seems algorithmic, the over-collateralization of at least 150% makes it a robust asset-backed stablecoin during volatile market conditions. This can be seen by comparing the price movements of USDC, USDT and DAI in the past week where DAI, along with USDC, clearly showed a spike on May 12 when investors lost confidence in USDT and rushed to swap out.

USDT, USDC and DAI hourly price. Source: CoinGecko API

Tether’s USDT has long been controversial despite its large market share in the stablecoin space. It was previously fined by the U.S. government for misstating the type of cash reserves they have. Tether claims to have cash or cash-equivalent assets to back USDT. However, a large portion of the reserves turn out to be commercial paper — a form of short-term unsecured debt, which is riskier and is not “cash equivalent” as dictated by the U.S. government.

The recent Terra debacle and the lack of transparency of their reserves triggered fresh concerns about USDT. The price reacted violently with a brief devaluation from $1 to $0.95. Although USDT’s price has recovered and repegged closely back to $1, the concerns are still there.

This is shown clearly in the largest liquidity pool on Curve Finance. The DAI/USDC/USDT 3pool in Curve shows a proportion of 13%-13%-74% for each of them respectively.

Curve DAI/USDC/USDT 3Pool proportion. Source: @elenahoo Dune Analytics

Under normal circumstances, all the assets in a stablecoin liquidity pool should hold equal (or very close to equal) weight because the three stablecoins are all supposed to be valued at around $1. But what the pools have shown in the past week is an unbalanced proportion, with USDT holding a much larger percentage. This indicates the demand for USDT is much smaller than the other two. It could also mean that for USDT to hold the same dollar value as the other two, more units of USDT are needed in the pool, indicating a lower value for USDT compared to DAI and USDC.

A similar imbalance is observed in the DAI/USDC/USDT/sUSD 4pool. It is interesting to see that sUSD and USDT both spiked in proportion around May 12 during the peak of the stablecoin fear. But sUSD has quickly reverted back to the equal portion of 25% and has even dropped in percentage since while USDT remains as the highest proportion in the pool.

Curve DAI/USDC/USDT/sUSD 4Pool proportion. Source: @elenahoo Dune Analytics

The Curve 3pool has a daily trading volume of $395 million and $1.4 billion total value locked (TVL). The 4pool has a $17 million trading volume and $65 million TVL. Both pools show USDT is still less favourable.

Are algorithmic stablecoins finished?

An algorithmic stablecoin is a different mechanism from an asset-based stablecoin. It has no reserves; therefore, it is uncollateralized. The peg is maintained through algorithmically minting and burning the stablecoin and its partner coin based on the circulating supply and demand in the market.

Due to its uncollateralized, or less than 100% collateralized nature, an algorithmic stablecoin is much more risky than an asset-backed stablecoin. The Terra UST depeg debacle has surely shaken investors’ confidence in algorithmic stablecoins. This has manifested quite clearly in the Curve liquidity pool.

FRAX — an algorithmic stablecoin by Frax Protocol — is partially backed by collateral and partially based on the algorithm of supply and demand. Although the coin is partially collateralized, the ratio of the collateralized and thealgorithmic still depends on the market price of the FRAX.

In the recent perfect storm of stablecoin panic, the ratio of FRAX versus the other three stablecoins spiked to 63% to 37%. Although the disproportion can already be seen from early March 2022, the collapse of UST definitely exacerbated the fear of a FRAX de-peg.

Curve FRAX/3CRV 3Pool proportion. Source: @elenahoo Dune Analytics

A similar surge in fear triggered by the Terra UST de-peg event is also present in MIM — Abracadabra Money’s algorithmic stablecoin. The Curve MIM/3CRV pool shows the MIM proportion jumped to 90% — a similar level reached in January when the Wonderland scandal came about.

Curve MIM/3CRV 3Pool proportion. Source: @elenahoo Dune Analytics

Despite the algorithmi similarity to DAI, MIM doesn’t use ETH directly as collateral but instead uses interest-bearing tokens (ibTKN) from Yearn Finance — ywWETH. The additional layer of complexity makes it more sensitive to catastrophic events such as the UST depeg event.

The goal for all stablecoins is to maintain a stable value. But all of them experience volatility and a lot of them have deviated away from the $1 peg much more than expected. This is probably the reason why it has led some regulators to quip that stablecoins are neither stable nor coins.

Nonetheless, stablecoin volatility is much lower than any of the other cryptocurrencies and still provides a safe harbour for crypto investors. It is therefore important to understand the risks embedded in different stablecoins’ peg mechanisms.

Many stablecoins have failed in the past, UST is not the first and it will certainly not be the last. Keeping an eye on not only the dollar value of these stablecoins but also how they stand in the liquidity pool will help investors identify potential risks ahead of time in a bearish and volatile market.

The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph.com. Every investment and trading move involves risk, you should conduct your own research when making a decision.

Buy the dip, or wait for max pain? Analysts debate whether Bitcoin price has bottomed

BTC is flashing a few early bottoming signals, but analysts question whether “buying the dip” is a wise maneuver given the strength of the dollar and other factors.

It has been a rough week for the cryptocurrency market, primarily because of the Terra ecosystem collapse and its knock-on effect on Bitcoin (BTC), Ethereum (ETH) and altcoin prices, plus the panic selling that took place after stablecoins lost their peg to the U.S. dollar.

The bearish headwinds for the crypto market have been building since late 2021 as the U.S. dollar gained strength and the United States Federal Reserve hinted that it would raise interest rates throughout the year.

According to a recent report from Delphi Digital, the 14-month RSI for the DXY has now “crossed above 70 for the first time since its late 2014 to 2016 run up.”

DXY index performance. Source: Delphi Digital

This is notable because 11 out of the 14 instances where this previously occurred “led to a stronger dollar ~78% of the time over the following 12 months,” which points to the possibility that the pain for assets could get worse.

On average, the DXY gained roughly 5.7% after its RSI rose above 70, which from May 13’s reading “would put the DXY Index just shy of 111, its highest level since 2002.”

BTC/USD vs. DXY Index (inverted) and a rolling 60-day correlation. Source: Delphi Digital

Delphi Digital said,

“Assuming the correlation between the DXY and BTC remains relatively strong, this would not be welcoming news for the crypto market.”

Bitcoin is at a key area for price bottoms

Taking a bigger picture approach, BTC is now retesting its 200-week exponential moving average (EMA) near $26,990, which has “historically served as a key area for price bottoms” according to Delphi Digital.

BTC/USD vs. 200-week EMA vs. 14-week RSI. Source: Delphi Digital

Bitcoin is also continuing to hold above its long-term weekly support range of $28,000 to $30,000, which has proven to be a strong area of support throughout the recent market turmoil.

While many traders have been panic selling in recent days, Pantera Capital CEO Dan Morehead has taken a contrarian approach, noting, “It’s best to buy when [the] price is well below trend. Now is one of those times.”

Bitcoin fund inflows relative to price trend. Source: Twitter

Morehead said,

“Bitcoin has been this “cheap” or cheaper relative to trend only 5% of time since Dec 2010. If you have the emotional and financial resources, go the other way.”

A word of caution was offered by Delphi Digital, however, which noted that “the best opportunities or “deals” in the market are not around for long.”

Since BTC has been trading in the $28,000 to $30,000 range for an extended period of time, “the longer we see price build in these areas, further continuation becomes more likely.”

If further decline occurs, the “weekly structure and volume structure support at $22,000 to $24,000” and the “2017 all-time high retests of $19,000 to $24,000” are the next major areas of support.

Delphi Digital said,

“Early signs of capitulation are starting to bleed through, but we can’t say we’re nearing the point of max pain just yet.”

The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph.com. Every investment and trading move involves risk, you should conduct your own research when making a decision.

ApeCoin is down 70%+ since the Otherside launch — Can Yuga Labs turn the ship around?

A botched minting process and the collapse of Otherdeed’s price have taken a toll on ApeCoin, leading investors to question APE’s future utility and value.

ApeCoin (APE), the new cryptocurrency that was recently launched by Yuga Labs, aims to be the bedrock of the Otherside metaverse and recently, the token has experienced massive volatility leading into and after its digital land sale. APE’s price dropped from $26 at the peak on Apr. 28 to $14 on May. 2 — more than a 45% drop within a few days of the mint. The price has now dropped to the $6 range.

Given the current volatility, investors will be wondering if ApeCoin price will ever recover to its previous trading range. Let’s first take a look at the historic price trend, particularly what happened on the Otherdeed mint day; then take a deeper dive into the amount of APE that will be locked and released in the next three years. This will provide a better understanding of the supply and demand dynamics that could affect the price going forward.

ApeCoin surged after the Otherdeed announcement

In the first couple of days since APE’s listing on March 17, 2022, the price jumped from roughly $7 to $17 at the peak ; an increase of 143%! The price had since fluctuated between $10 to $15 until rumors began circulating of the Otherside metaverse land sale.

APE historic hourly price since launch. Source: CoinGecko

The chart above shows APE made a sharp move up of almost 24% within a day from $13.16 to $16.30. When the Otherdeed rumours surfaced on Twitter on April 20, APE catapulted to $26 on April 28 after the sale was officially confirmed by OthersideMeta two days prior.

MAYC & BAYC average price, volume pre-mint. Source: OpenSea

The price of Yuga Lab’s Bored Ape Yacht Club (BAYC) and the Mutant Ape Yacht Club (MAYC) nonfungible token (NFT) also followed a similar pattern on April 20. MAYC reached an all-time high at 43 Ether (ETH) on April 26, which was the day the sale was confirmed and BAYC started to bounce back from its 105 ETH low to a new all-time high at 168 ETH on May 1.

Chaos ensued as Yuga confused users during the Otherdeed sale

Otherdeed was seen as an opportunity for new investors who have been priced out of BAYC, MAYC and BAKC to become part of the Ape community.

The bullish conviction toward APE was driven by the fact that it is the only currency in the Otherside metaverse and the land sale in the secondary market would also be traded in APE in addition to ETH.

Investors who believed in Yuga Labs and the idea behind the Otherside metaverse rushed to acquire APE in preparation for the mint at the price of 305 APE per plot. The increasing demand for APE as the minting date approached was broadly expected and the increase in price pre-mint was also foreseeable.

What came as a shock later  is how chaotic the whole process of minting Otherdeeds was. APE’s price plunged from $24 to $14 on May 2, which reflected a more than 40% decrease in two days! The immediate price drop to $20 on the day of the mint could be explained by the sudden decrease in demand for APE after the mint started.

A further 30% drop in the following two days is a clear reflection of investors’ loss of confidence in the project after the mint debacle. BAYC and MAYC price also reflected the same sentiment by falling more than the market value of the airdropped Otherdeed.

Despite efforts made by the Otherside team to verify new investors through a Know Your Customer (KYC) process before the mint and to offer the sale at a fixed price, these measures were not enough to prevent a gas war. The information was not clear and sometimes plain wrong prior to the mint and a significant amount of money has been misspent and burnt on gas as a result of the poor communication by Yuga Labs.

What follows are some of the major issues encountered by investors on the day of the mint.

What happened to the Dutch auction?

On April 26, OthersideMeta tweeted that the mint would be a Dutch auction but three days later they changed their mind and said “Dutch auctions are actually bullshit,” a complete pivot and a brutal slap in the face to investors.

A Dutch auction would have been an effective way to mitigate gas wars due to its unique design of a very high start price and a decreasing price over time. Investors could have chosen to mint at the price they could afford at different times, avoiding everyone minting at the same time, at the same price, and creating a gas war.

The delayed mint created additional problems

After the team delayed the mint date, APE price experienced some of the largest hourly downside re-pricings.

The hourly chart below shows APE increased slightly in the first three hours after the originally planned mint time, then dropped from $22 all the way to $18 by the time the actual mint took place at 9 pm EST (1:00 am UTC).

It is hard to say if the delay exacerbated the downward pressure, but the price fluctuation in APE significantly increased the risks taken by investors, especially when the mint was not even guaranteed for the KYC’d wallet holders.

APE price dropped by 18% from the original mint time to the actual mint time. Source: TradingView

The guaranteed mint for KYC’d wallets vanished

This was the biggest issue and misunderstanding in the whole minting process. Based on Otherside’s article, at the start of the sale (wave 1) each KYC’d wallet would only be allowed to mint 2 plots. Once the gas fee came down, the limit would rise to an additional 4 NFTs (wave 2). Since the number of KYC’d wallets are not disclosed to the public and there is only a fixed amount of plots to mint, it is uncertain whether all KYC’d wallets could mint at least one.

Assuming a maximum of 6 plots of land per wallet given the total of 55,000 plots, to guarantee each wallet can mint at least one plot, the maximum number of KYC wallets allowed should be 9,166.

It turned out there were far more KYC’d wallets than this number and many investors failed to mint anything after paying a very high price to acquire APE and experiencing stratospheric gas fees during the mint.

Gas fees skyrocketed during the actual mint

Waves 1 and 2 were designed to mitigate the gas war by limiting the number of plots each wallet can mint. The problem was the total number of KYC’d wallets was too large. The number of people rushing to mint at the same time was not reduced and gas fees never came down. While the early minted NFTs were selling in the secondary market for two or three times more than the cost of the mint, the demand for further mints and the ferocious gas war continued until all 55,000 plots were gone. Numerous users paid between 2.6 ETH and 5 ETH for gas fees during the process and many lost their entire fee due to transaction failures across the Ethereum network

Related: ETH gas price surges as Yuga Labs cashes in $300M selling Otherside NFTs

Continuous supply increase adds downside pressure to APE price

According to OthersideMeta, all APE earned during the mint will be locked up for one year. This is over 16 million APE (55,000 * 305) taken out of the circulating supply. Will this reduction in supply save the APE price? Unfortunately not. Compared to the amount of APE being unlocked and released into the market every month, 16 million is a drop in the ocean.

Looking at the amount of APE that will be unlocked in the next three years on a monthly basis, the majority of the supply comes from the DAO Treasury and Yuga Labs. There are also three large pumps in supply from the contributors in September 2022, March and September 2023.

APE coin monthly additional supply amount. Source: ApeCoin

On a cumulative basis, the initial amount of APE unlocked at launch day dominates the proportion of supply until May 2025, when it is overtaken by the DAO Treasury. At the rate of 7.3 million APE being unlocked per month for 48 months until 2026, the DAO treasury’s allocation is the main source of additional APE inflation.

APE coin cumulative supply breakdown in % by allocated groups. Source: ApeCoin

Given the estimated circulating supply of APE in April 2022 is around 284 million, the 16 million APE locked up from the Otherdeed land sale is only 5.9%. Such a small amount of one-time supply reduction is unlikely to have a long-lasting effect on the APE price, especially when supply keeps increasing.

APE locked-up from Otherdeed vs. cumulative monthly supply. Source: ApeCoin and Otherside

Trading volume is the only potential saviour for APE price

In addition to APE’s circulating supply, the trading volume is also a crucial factor in determining the future price. Using the ratio of trading volume to circulating supply (utilization ratio), one can often find a relationship with price.

The chart below uses a simple linear regression to show the correlation between the APE utilization ratio and price. In March 2022 when the circulating supply is relatively small, the higher the utilization ratio, the lower the price. On the contrary, in April 2022 when the circulating supply becomes larger, the higher the utilization ratio the higher the price.

APE price vs. utilisation (trading volume / circulating supply). Source: CoinGecko API

If the positive correlation between the utilization ratio and the price holds true while circulating supply keeps increasing gradually, it seems the only savior for the APE price is an increasing amount of trading volume.

However, APE will struggle to attract more trading volume after the chaotic Otherdeed land sale. Yuga Lab’s tweet about turning off lights on Ethereum and building their own chain seems to have exacerbated the investors’ loss of confidence.

The implications of this tweet are profound. Ethereum has a long, stable track record of security and stability, designed and built by, arguably, the smartest and most established crypto talents in the world. It is more than concerning if Yuga Labs moves away from Ethereum and people have rightly ridiculed this on Twitter.

Yuga’s NFT collections derive their extreme valuations largely because they sit on Ethereum and users trust the network to hold their highly valued NFTs. How would any migration away from Ethereum take place? Would users trust a home grown chain from Yuga Labs? No other chain has tokens trading in the price strata as the blue chips that trade on Ethereum.

It would be reasonable to assume that APE and Ape-related NFTs could significantly re-price from their meteoric valuations if Yuga Labs was to follow through with the idea of managing their own chain to house their collections. We have seen what happened with Axie Infinity on the Ronin chain. APE could be up for a bumpy road ahead.

The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph.com. Every investment and trading move involves risk, you should conduct your own research when making a decision.

Smart money is accumulating Ethereum even as traders warn of a drop to $2.4K

Short-term analysis sets a $2,400 price target for ETH, but data shows smart money continues to accumulate in anticipation of the Merge.

The upcoming Ethereum merge is one of the most widely discussed topics in the crypto sector and analysts have a wide range of perspectives on how the transition to proof of stake could impact Ether’s price. 

ETH/USDT 1-day chart. Source: TradingView

Whales accumulate ahead of the merge

A deeper dive into the ongoing accumulation of Ether by whale wallets was provided by cryptocurrency intelligence firm Jarvis Labs, which posted the following chart looking at the percentage change in whale wallet holdings versus ET price. 

Ether whale holding change. Source: Twitter

The color of the dots relates to the price of Ether, with the chart showing that whale wallets began decreasing their holdings when the price was above $4,000 and they didn’t start to reaccumulate until after the price dropped below $2,300.

Jarvis Labs said,

“Whales are continuing to accumulate Ether, their accumulation remains in sideways-to-uptrend.”

And it’s not just the whales who are looking to scoop up Ether on the dip as shown in the following chart where red dots indicate that both whale wallets and smaller wallets have seen an increase in accumulation. 

Ether divergence. Source: Twitter

Analysts at Jarvis Labs said,

“Looking at just the Ether wallets distributions, it can be inferred that Whales UP + Fishes UP (Both whales and Fishes seem to be accumulating). Merge narrative?”

Is an Ethereum decoupling on the horizon?

Analysts at Delphi Digital contemplated whether Ethereum price could decouple from BTC leading into or after the merge. The analysts also predict that the altcoin is “likely to see more consolidation for ETH/BTC in the short run.”

ETH/BTC price trends. Source: Delphi Digital

One of the main questions this chart elicits is what will it take for Ether to break free from “the invisible chain” that has kept it tethered to Bitcoin for so long.

According to Delphi Digital, the current bullish “ultrasound money” and “Merge” narratives surrounding Ether might be just the thing to help Ether break free from its correlation to Bitcoin price action.

Delphi Digital said,

“The interest in “post-Merge” Ether is only going to get stronger from here, especially as more people recognize the opportunity to earn higher real yields denominated in a deflationary asset.”

Ether staking gains momentum

Ether staking statistics. Source: Ethereum.org

Even with Ether price continuing to decline, data shows that the number of ETH staked on the beacon chain continues to increase. Data from Dune Analytics also shows increasing deposits to Eth2 and multiple analysts have shared their view on how institutional investors and whales might trade Ether in the pre and post Merge phase.

Lido Eth2 deposits. Source: Dune Analytics

Overall, the data shows that even with Ether price trading 42.5% away from its all-time high, the smart money continues to accumulate due to the expected boost in the staking reward percentage and anticipation that price will turn bullish once Ethereum becomes a deflationary asset.

The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph.com. Every investment and trading move involves risk, you should conduct your own research when making a decision.

Smart money is accumulating ETH even as traders warn of a drop to $2.4K

Short-term analysis sets a $2,400 price target for ETH, but data shows smart money continues to accumulate in anticipation of the Merge.

The upcoming Ethereum merge is one of the most widely discussed topics in the crypto sector and analysts have a wide range of perspectives on how the transition to proof-of-stake (PoS could impact Ether’s (ETH) price. 

ETH/USDT 1-day chart. Source: TradingView

Whales accumulate ahead of the merge

A deeper dive into the ongoing accumulation of Ether by whale wallets was provided by cryptocurrency intelligence firm Jarvis Labs, which posted the following chart looking at the percentage change in whale wallet holdings versus ETH price. 

Ether whale holding change. Source: Twitter

The color of the dots relates to the price of Ether, with the chart showing that whale wallets began decreasing their holdings when the price was above $4,000, and they didn’t start to reaccumulate until after the price dropped below $2,300.

Jarvis Labs said:

“Whales are continuing to accumulate Ether, their accumulation remains in sideways-to-uptrend.”

And, it’s not just the whales who are looking to scoop up Ether on the dip as shown in the following chart where red dots indicate that both whale wallets and smaller wallets have seen an increase in accumulation. 

Ether divergence. Source: Twitter

Analysts at Jarvis Labs said:

“Looking at just the Ether wallets distributions, it can be inferred that Whales UP + Fishes UP (Both whales and Fishes seem to be accumulating). Merge narrative?”

Is an Ethereum decoupling on the horizon?

Analysts at Delphi Digital contemplated whether Ethereum price could decouple from Bitcoin (BTC) leading into or after the merge. The analysts also predicted that the altcoin is “likely to see more consolidation for ETH/BTC in the short run.”

ETH/BTC price trends. Source: Delphi Digital

One of the main questions this chart elicits is what will it take for Ether to break free from “the invisible chain” that has kept it tethered to Bitcoin for so long.

According to Delphi Digital, the current bullish “ultrasound money” and “Merge” narratives surrounding Ether might be just the thing to help Ether break free from its correlation to Bitcoin price action.

Delphi Digital said,

“The interest in ‘post-Merge’ Ether is only going to get stronger from here, especially as more people recognize the opportunity to earn higher real yields denominated in a deflationary asset.”

Ether staking gains momentum

Ether staking statistics. Source: Ethereum.org

Even with Ether’s price continuing to decline, data shows that the number of ETH staked on the Beacon Chain continues to increase. Data from Dune Analytics also shows increasing deposits to Eth2, and multiple analysts have shared their views on how institutional investors and whales might trade Ether in the pre- and post-Merge phase.

Lido Eth2 deposits. Source: Dune Analytics

Overall, the data shows that even with Ether price trading 42.5% away from its all-time high, the smart money continues to accumulate due to the expected boost in the staking reward percentage and anticipation that the price will turn bullish once Ether becomes a deflationary asset.

The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph.com. Every investment and trading move involves risk, you should conduct your own research when making a decision.

OpenSea top-10 NFT projects soar as new liquidity enters the market

The success of MoonBirds and traders’ anticipation of Yuga Labs’ The Otherside land sale is bringing a wave of fresh liquidity to the NFT market.

Spring is here and with it came a newfound awakening for nonfungible tokens (NFTs). In the last week of March, total sales volume rallied to $20 billion, but this metric took a dive from mid April to $17.6 billion. 

However, on April 16, the newly landed Moonbirds NFT, pumped over $280 million worth of liquidity into the market and this, compounded with rumors of Yuga Labs’ Otherside land drop, sent the total volume sales for NFTs into a steady upward trend.

 NFT 30-day market cap / volume. Source: NFTgo.io

In the last seven days, the sector’s total market capitalization increased over 3% to approximately $18.6 billion and the total volume is up nearly 37% over $1.65 billion. 

While it’s yet to be determined if the “a rising tide lifts all boats” saying will be true for the NFT market, liquidity could be circulating into blue-chip NFTs and soon-to-be released collections.

Blue-chip tier volumes have been muted, but for how long? 

Liquidity has already been making its way to the top NFTs in total volume sales with the Mutant Ape Yacht Club (MAYC) seeing a more than 200% increase over the last seven days.

MAYC 7-day market cap / volume. Source. NFTgo.io

With the number of NFT holders and buyers increasing, projects and investors are looking toward building out ecosystems of mutual value. 

RTFKT studios’ CloneX has been emphasizing that the next stage of development will center on ecosystem building. CloneX has been riding a steady wave, hovering at around 18 Ether (ETH) ($53,073). However, the mysterious MNLTH NFT, airdropped to all CloneX holders, has surged in the last seven days to over 11 Ether since it no longer is a mystery box. Its contents revealed Nike’s first-ever NFT CryptoKicks equipped with customizable features, a DNA vial for future forging events and a MNLTH2. For every MNLTH burned, the items acquired are currently worth at least $26,000. A Murakami RTFKT Skin Vial also recently sold for 72 Ether ($212,976)

While some projects are centered around ecosystems, others are focusing on shared interests and exclusivity.

PROOF Collective, created by Kevin Rose, is a members-only project that launched Moonbirds NFT and many traders were shocked by the $354 million in volume generated in less than a week. Surprisingly, Moonbirds nearly flipped blue-chip tier NFTs like Doodles for total volume.

The current floor price of Moonbirds has increased by over 390% since it hit the secondary market and is trading at 33.5 Ether ($96,447.84) at the time of writing.

 Moonbirds floor price. Source: NFT Price Floor

NFT denizens have been vocal about the legitimacy of its explosive growth, especially after announcing the NFTs that were gifted to notable celebrities like Jimmy Fallon, Steve Aoki, Pussy Riot, the New York gallery and Springberg Gallery, to name a few. 

Despite some NFT collectors speculating that Moonbirds would remove liquidity from the market, data shows the opposite to be true. In 24-hours, the total volume of sales on OpenSea increased by nearly three times from $66.7 million on April 15 to over $177.5 million when Moonbirds launched on April 16.

To date, NFT prices continue to see an upward trend and blue-chip tier NFTs have seen a boost in total sales volume across the board. Although there is a divide in sentiment regarding the Moonbirds phenomenon, it could have been the liquidity boost the market needed.

Related: Is the surge in OpenSea volume and blue-chip NFT sales an early sign of an NFT bull market?

NFT projects gearing up for launch

Run-of-the-mill NFTs have grown stagnant and the overall market sentiment has shifted gears from traditional roadmaps and quick-flips to strategically investing in projects and teams who are set to deliver for what investors believe will be years to come. NFT investors are keeping their eyes peeled for projects that can seamlessly intersect culture and community while providing value. 

As such, creators and developers are once again steering away from static PFPs and aiming to bring more dynamic features to respective collectors.

Take for example, Anata NFT, which launched on April 21 and is a collection of 2,000 avatars that are created for its owner to embody. Anata NFT uses a webcam to track and mimic facial expressions and other movements and the anime-inspired NFT is suited for the Web3 pundit who takes their anonymity seriously.

Minting was conducted through a ranked auction starting at 0.25 Ether ($752) and was limited to 3 NFTs per wallet. The bid closed at 5.35 Ether, whereby 50% of the net proceeds will be allocated toward its DAO. The highest bid was 69.42 Ether ($209,306), with the second-highest bidder at 10 Ether ($30,150). This incredible niche NFT, while seemingly anticipated, is trading below the closing auction price on OpenSea for 3.49 Ether ($10,290). 

Auctions may be the new standard for NFT drops, as the most recently hyped NFT collection, Akutars, launched its public mint. In true Dutch auction form, every bidder pays the same price as the (last) lowest bid. Bearing this in mind, Akutars started its utch auction at 3.5 Ether ($10,552) and closed at 2.1 Ether ($6,211).

However, a white hatter revealed that the contract was not properly written and was susceptible to exploit, and froze funds as to confront the Aku team developers about their mishap.

As a result, all it took was a misplacement of one line of code for $34 million to be locked indefinitely. The team has since acknowledged its shortcomings and has proceeded to distribute funds to all bidders, including the 0.5 Ether discount granted to all Aku Mint Pass holders who placed a bid.

The Aku Mint Pass NFT grants each owner an Akutar. Its all time-high rose over 4 Ether ($12,060) suggesting the community could price this in when the PFPs hit the secondary market. 

Sleeping giant Ragnarok is what seems to be a PFP collection intended to unlock access to its game-like metaverse. The multiplayer online (MMO) will combine elements of lore, Web3, social features and role-playing games and is set to launch on April 27.

The dynamic NFTs are projected to enable owners to trade, earn and own digital real estate, and the public sale will be 4,500 Ronin Zeros at a Dutch auction that will begin between 0.5 Ether and 0.1 Ether.

With new and old liquidity circulating in the NFT market, and highly-anticipated projects waiting to launch, it will be interesting to see where collectors make their consolidations and take their convictions.

The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph.com. Every investment and trading move involves risk, you should conduct your own research when making a decision.

Is the surge in OpenSea volume and blue-chip NFT sales an early sign of an NFT bull market?

Crypto prices are down, but a surge in blue-chip NFT sales and OpenSea’s volume climbing above $1.3 billion in the last week could signal the return of the NFT bull market.

In the last two months, OpenSea began to cool down from its New Year’s bull run and many nonfungible token (NFT) pundits began to speculate about the beginning of a bear market once sales took a slight downward trend after closing out a record-breaking $5 billion in total volume sales in January. 

However, for the last seven days, the total sales volume has already exceeded the $1 billion mark and just a week into April, it seems the NFT markets are waking up to a resurgence of blue-chip caliber projects. Cue the “spring awakening.”

OpenSea Monthly Volume. Source: DuneAnalytics @rchen8

Traders searching for the next Bored Ape Yacht Club (BAYC) project have patiently waited for another project to come in with the same force and brand equity. Some top contenders have been emerging. Azuki Zen, revealed on Jan. 21, has amassed over $574.6 million in total volume, and RTFKT Studios and Takashi Murakami’s CloneX NFT avatar project has accumulated over $546.7 million. In the last seven days alone, CloneX has increased its total sales volume by over 180%. 

NFT investors are coming to understand the benefit of investing for the long-term with teams that have delivered. RTFKT Studios catalyzed the community collective quest-solving for its MNLTH NFT, airdropped to all CloneX holders and valued at $22,135. As such, those who held their MNLTH were essentially airdropped over $22,000 simply for being a CloneX holder. This further illustrates for collectors and traders the value of grail NFTs.

Now that liquidity is pumping and circulating, it seems Q2 is here to blaze trails and the NFT markets appear to be ignited by more mature NFT communities and investors.

What will spark the next BAYC? 

NFT projects are beginning to understand the value of intersecting culture, community and commerce through what BAYC cultivated, and many have explored ways to establish their own. 

On a spectrum from estranged collector to maxi, NFT projects that have recently launched have paid close attention to not only building close-knit communities that hold strong convictions but ones that can utilize its platform to uplift their own personal creative pursuits.

RTFKT Studios has opened a platform for creators to shine via their Space Pod NFT airdrop, which allows owners to display their NFTs throughout the space. Currently valued at $4,920.86 (1.65 Ether), SpacePods are open for customization and this also allows RTFKT to scout for talent among their own community. Creators are also able to produce and sell their creations to others in the community to support and enjoy.

Currently, the floor price for a CloneX is a thin 17.5 Ether ($52,237.50). By holding an average sale price over 11.5 Ether, NFT collectors and owners trust that RTFKT Studios will continue to deliver.

CloneX All-time average sale price / volume. Source: OpenSea

Similarly, Yuga Labs announced the creation of its metaverse platform, MetaRPG, that will offer purchasable digital land. This news was compounded by ApeDAO not only airdropping the BAYC NFT ecosystem owners over $1.6 billion in ApeCoin and promising that it would become a utility currency adopted in the BAYC ecosystem and MetaRPG. 

Percentage of eligible addresses claimed APE. Source: DuneAnalytics @hildobby

Since MetaRPG is slated to be an interoperable metaverse, it will not prevent those who are not in the BAYC ecosystem from gaining exposure. Those who have been paying attention know that there is tremendous value in interoperability for mass adoption and other projects with interoperable metaverses like Arcade Land. 

Arcade Land 7-day average sale price / volume. Source: OpenSea

Arcade Land is currently number three for total volume in the last seven days, closing in on approximately $23 million. Its average sale price has increased by 96% and whether that is just a pre-post reveal pump, it does suggest that communities are searching for the most viable interoperable worlds. The cheapest Arcade Land NFT is selling just under 1 Ether (3,291.15) and out of 10,000 items, there are over 5,700 unique wallet addresses. 

NFT investors are focusing their bids on utility, interoperability and a semblance of cultural relevance. As of late, it seems well-known artists outside of the Web3 and NFT circles are carving their space in the ecosystem and gaining the attention of art collectors and NFT collectors.

There’s value in bridging IRL art to digital spaces through NFT collections and experiences 

RTFKT Studios set an example of how collaborating with a well-known artist can elevate the inherent value of a digital collection not only by mere association but by a mutual potential benefit. For example, CloneX partnered with Japanese contemporary artist, Takashi Murakami, whose influence is dripped into the collection on certain CloneX avatars inspired by his previous works. 

Takashi Murakami created an allowlist for his Murakami.Flowers NFT collection and gave all Murakami dripped CloneX avatars (roughly 2,500) a spot on the list. On March 30, Murakami Flowers hit the secondary market and surged in volume from an average sale price of 6 Ether ($17,910) to the current 9.2 Ether ($27,462). In less than two weeks, the average sale price has increased by over 61%. 

Murakami.Flowers All-time average sale price / volume. OpenSea

Crypto artist and Cyberbrokers creator, Josie Bellini introduced another level of detailed art that is technically innovative and layered with lore. According to NFT wallet trackers, 50% of CyberBrokers’ owners have bags that are composed of more blue chips than the average investor. 

CyberBrokers All-time average sales price / volume. Source: OpenSea

CyberBrokers’ average sale price has increased by over 274% since its launch. In the long-term, artworks that have been translated into digital may hold extra value for their historical relevance. 

Another NFT collection called “MOAR” by Spanish artist Joan Catallan has risen to the top spot in the charts for total volume on OpenSea. Currently, it is up over 320% since it hit the secondary market on April 8, and is trading at 1.11 Ether ($3,283.50).

Presented by digital media company FWENCLUB, MOAR is 5,555 souls of creatures living in a mansion in the metaverse. There are over 3,700 unique wallet addresses that own a MOAR NFT and only time will tell how the community will develop.

NFT announcements could make Q2 quite exciting

Q2 could potentially have several liquidity pumping announcements in tow. NFT denizens have taken to Twitter to make their guesses, but there are a few impending project developments that could boost the overall morale and amount of liquidity in the market. 

CyberBrokers NFT will be airdropping all owners a free NFT whose value could potentially increase as the CyberBrokers gaming ecosystem continues to unfold.

Similar to the ways RTFKT Studios initiates community-collective quest-solving for its MNLTH NFT, CyberBrokers announced on April 12 that all brokers will be receiving a cosmetic item for their NFT. Communities at large are almost beginning to expect their NFTs to unlock feature airdrops.

BEANZ All-time avg. sale price volume. Source: OpenSea

Azuki NFT airdropped two unrevealed red BEANZ NFTs to each respective owner, which stirred up controversy on Twitter regarding what they were and what they were worth. Those who are eligible to claim will be able to do so until April 14 and the reveal is scheduled for the following day. The Azuki NFT airdrop BEANZ excited the market, giving Azuki’s a runup past 25 Ether ($77,879). The mysterious NFT quickly pumped over 3 Ether ($9,440.10) and BEANZ is currently at 5.45 Ether ($16,268.25) while its average sale price is up over 44% since it hit the secondary market. 

NFT pring appears to be blooming and collectors have refined their sensibilities and are looking to turn their initial investments into larger ones via the new mechanism of NFT airdrops.

Outside of token emission, collectors are now drawn to projects that are adding value to their communities by giving them free illiquid assets that quickly turn liquid. Although some NFT pundits claim airdrops dilute the collection, others are taking this opportunity to turn their liquidity into long-term investments that often compound the size of their portfolio. Pairing liquidity and collectors could make for a very fruitful Q2 for NFTs and the Web3 ecosystem.

The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph.com. Every investment and trading move involves risk, you should conduct your own research when making a decision.

Here’s how OpenSea NFT hacks hurt owners, buyers and even entire collections

Anyone can become the victim of a malicious NFT hack, so what more could OpenSea do to protect its users?

The nonfungible token (NFT) market has been booming since the summer of 2021 and as NFT prices skyrocketed, so too did the number of hacks targeting NFTs. 

The most recent high-profile hack siphoned approximately 600 Ether (ETH) worth of NFTs from Arthur0x, the founder of DeFiance Capital, which were then sold on OpenSea.

A 2022 Crypto Crime Report published by Chainalysis highlighted that the value sent to NFT marketplaces by illicit addresses jumped significantly in 2021, topping out at just under $1.4 million. There was also a clear increase in stolen funds sent to NFT marketplaces.

Total illicit value flowing to NFT platforms. Source: Chainalysis Crypto Crime Report 2022

Given the concerning rapid increase in illicit value flowing into the NFT platforms, it is natural to ask whether security measures and procedures are in place and if so, whether these measures are effective in protecting owners.

Let’s take a look at OpenSea, the largest NFT platform, and its security measures.

The security measures at OpenSea cannot protect users

OpenSea has two main security measures that kick in once an account has been “hacked” — locking the compromised account and blocking the stolen NFTs. These two measures are very ineffective when looking at them closely.

Locking the account can be done on the OpenSea website without human approval as shown here, whereas blocking the NFTs involves a lengthy process of raising a ticket and waiting for the OpenSea help team to respond.

In a situation where a hacker has already compromised the wallet and is in the process of transferring the NFTs out, locking the account will only be effective if it’s done  before the hacker transfers everything out.

Similarly, blocking the NFTs is also only effective before the NFTs are sold to another buyer by the hacker. What’s even worse is this security measure creates a series of indirect victims who end up with blocked NFTs that cannot be sold or transferred. This is because the response time for tickets raised in OpenSea is at least one day. By the time the NFTs are blocked by OpenSea, they would have already been sold to another buyer who now becomes the new victim of the crime.

In the case of the 17 stolen Azuki from Arthur0x, 15 were stolen within the same minute and two were stolen three minutes later. The average time these stolen NFTs stayed in the hacker’s wallet before they were sold is 43 minutes. The security measures from OpenSea are in no way responsive and quick enough to inform the victim and stop the hacker; neither can they inform the buyers promptly enough to stop them from buying the stolen NFTs and becoming indirect victims.

Stolen Azuki NFTs from Aurther0x. Source: Etherscan.io

Blocking stolen NFTs creates indirect victims

An indirect victim is someone who is not the target of the hack but indirectly suffers from the financial losses caused by the blocking of the stolen NFTs. As seen from many recent NFT hacks, the NFTs are always sold before the block is implemented by OpenSea. The consequence of blocking the NFTs too late is that it creates indirect victims and more losses for more people.

To illustrate in more detail how anyone could end up buying a stolen NFT and become an indirect victim of a hack, here are three common cases:

Case 1: Alice bought an NFT but only found out later that it is a stolen asset. The NFT is blocked and Alice cannot sell or transfer it on OpenSea. She then proceeds to raise a support ticket. After several weeks, the OpenSea Trust & Safety team offers to refund the 2.5% platform fees; and possibly the email address of the victim who reported the theft if lucky. Then, she’ll likely have a lengthy discussion with the victim to negotiate the possibility of lifting the block, which most likely will end up nowhere.

Alice can still sell the NFT in other marketplaces but the volume of sales is very low for this particular collection and there is no buyer who can offer a fair price on platforms other than OpenSea.

OpenSea’s response to indirect victim who purchased a stolen NFT

Case 2: Alice made multiple offers while bidding on NFTs from a collection. One of the offers was accepted by the hacker, who then received the payment from the bid in the victim’s wallet and proceeded to clear out the wallet. The NFT was blocked later on as part of the stolen assets from unauthorized transactions by the victim.

Cases like this often happen because listed NFTs cannot be transferred unless the listing is canceled. The hacker, who is under time pressure, will be more likely to accept a bid offer and get the proceeds from the sale and transfer the money out. The case below shows how the indirect victim’s entire NFT collection was blocked by OpenSea without explanation.

Case 3: Alice has owned an NFT for quite some time and suddenly it is blocked and marked as “reported for suspicious activity.” The seller’s account is not compromised and the transaction happened a while ago. Since there is no evidence required to report a stolen NFT and block it, anyone can send an email to OpenSea’s anti-fraud team to block any NFT.

Although a police report can be requested later on, there is neither a clear statement by OpenSea to specify the evidence needed to prove the hack nor a condition under which a falsely reported stolen NFT can be identified and lifted from the block. There is no consequence for falsely reporting stolen NFTs.

NFTs are often blocked with no explanation or evidence such as police reports provided to the indirect victim. Theoretically, these NFTs can still be traded on other platforms, but given OpenSea’s monopoly in the marketplace, with 95% of the total NFT trading volumes, blocking any NFT on OpenSea is almost equivalent to taking them out of the market forever.

Blocking NFTs could artificially increase the price

The danger of blocking stolen NFTs from trading on the largest NFT platform OpenSea is the permanent reduction in supply. Based on the law of supply and demand in economics theory, when supply goes down, the price goes up.

As an example, the Azuki collection has 10,000 NFTs and currently, only 1,100 are on sale on OpenSea. The Arthur0x hack resulted in 17 being stolen and blocked. Although 17 NFTs are only around 1.5% of the 1,100 circulating supply, the price has already shown a trend of increasing after the hack. The hack happened on March 22 and the price peaked on March 28 to 20.96 E prior to the airdrop announcement on March 31 — a 55% increase within a week.

Azuki sales and average price after the hack. Source: OpenSea

Although not all of the 17 stolen NFTs are blocked as Arthur managed to recover some through negotiating with the indirect victims to buy them back, future hacks in a similar form will happen continuously and the cumulative number of blocked NFTs can only increase as hacks continue and no procedures are in place to unblock them.

Using Azuki as an example again, the graph below collects the historic number of sales and average price to create a demand curve and assumes the supply curve is linear. The point where the supply and demand curves intersect is the equilibrium price.

As the supply continuously decreases, the speed of increase in the price becomes faster as the slope of the demand curve gets steeper. An equal decrease of 300 NFTs in supply from 1,000 to 700 verss from 700 to 400 results in a larger price increase for the latter.

As shown in the graph below, the price increases from 15 ETH to 21 ETH from the 1,000 to 700 reduction, but increases more from 21 ETH to 28 ETH from the 700 to 400 reduction.

Azuki’s supply and demand curve based on sales and prices from OpenSea

It is clear to see that blocking the stolen NFTs could artificially increase the price of the collection. If someone wanted to take advantage of the loophole in the OpenSea security system by falsely reporting many NFTs from the same collection as stolen (since no evidence is required to report stolen NFTs), the price of the collection could dramatically increase if the supply is low. This loophole could create opportunities for price manipulation in the illiquid NFT market.

In any case, blocking NFTs is not an effective measure to stop the hack or punish the hacker, but on the contrary, creates more indirect victims and loopholes for market manipulators. This is certainly not the way to go, so is there any effective security measure?

Preventive measures and an evidence-based system need to be in place

The current OpenSea security system has no preventive measures in place to protect users in advance. All the safety measures are implemented only after the hack, which is one of the main reasons why they are ineffective.

Based on the behaviors of the hackers, time is an essential component. Security measures that can slow down the hacker or inform the victims early are the keys to winning the battle. Here are some more effective preventive measures that can be implemented by OpenSea:

  • Create an early warning system that can detect abnormal account activity and send instant text messages or email alerts to inform users of such activity so they have enough time to respond. For example, if the account has never bought or transferred more than one NFT within one minute; or if the account has never had any activities in the past during a specific time period (i.e. time zones when the user is asleep), the occurrence of such activities will be detected by machine learning algorithms. The account holder can choose to be informed immediately, or allow the account to be automatically locked for safety.
  • Provide users with the option to constrain the maximum number of NFT transfers or sales allowed within a timeframe, i.e., a maximum of one transfer or sale within one minute; or a minimum time interval imposed between each transfer or sale, i.e., the next transfer or sale can only happen 15 minutes after the previous one. These measures can prevent hackers from stealing a large number of NFTs in one go.
  • Create suspicious account dashboards that allow victims to instantaneously add compromised accounts and hacker’s accounts for public scrutiny. This will give all buyers real-time information about suspicious accounts and the ability to cross check if the seller is on the list before they buy. Evidence such as a police report can be requested later on from the victim to prove the reported accounts are indeed compromised.

Some of these measures might create false alarms and inconvenience. But given it is a race of time against the hacker when it comes to preventive measures, users would rather be safe than sorry to avoid becoming the next victim.

Common misconceptions about crypto hacking

A common misconception about crypto hacking is that “this won’t happen to me because my security awareness is high and I use a hard wallet.” It might be true that a direct malicious hack could be avoided through good security practice, but anyone could become an indirect victim of a hack targeting someone else. When the number of hacks increases, the chance of becoming an indirect victim is also much higher.

Another misconception is, “as long as I don’t keep too much money in my hot wallet, it doesn’t matter if the wallet is compromised.” What most users fail to realize is that monetary loss is only one repercussion of the hack. Losing a Web3 wallet is like losing you entire credit history. Any future benefits based on past activities such as airdrops or access to loans and leverage could also evaporate with the compromised wallet.

Although blockchain is one of the most secure financial technologies ever created, malicious hacks toward crypto-based platforms are the greatest threat to the Web3 venture.

Given blockchain’s irreversible nature and OpenSea’s lack of preventive security measures, it is not hard to see the best solution OpenSea came up with after the Ethereum domain auction hack is to offer the hacker a 25% profit from the sale in exchange for the return of the stolen NFTs. Only in the world of the NFT market can a criminal get rewarded rather than punished for such a serious crime.

As the monopoly of the NFT market, OpenSea can certainly do better than this and take security measures more seriously and provide more protection to its users.

The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph.com. Every investment and trading move involves risk, you should conduct your own research when making a decision.