Investors emerging from the 2008 financial crisis understand the importance of liquidity. When economic recession hits, deflationary pressures hit the market and buyers disappear. Sellers are desperate to sell assets before prices continue to fall, but buyers are willing to take risks and use safe haven assets such as government bonds and money market funds.
The lack of liquidity associated with non-traded assets is the only reason why investors think they are riskier than cryptocurrencies. When an investor wants to sell Bitcoin (BTC), he can easily sell it in the order book to buyers at different prices. If the seller does not sell Bitcoin today, he can easily come back tomorrow and differentiate himself from Bitcoin in favor of willing buyers.
In contrast, NFTs are unique and matching sellers with buyers is more difficult. Cointelegraph Research has analyzed what liquidity looks like for NFT and whether some groups are selling more than others. Cointelegraph Research is publishing its first NFT report in October to answer this and many other questions about the risks associated with NFTs.
What does liquidity mean in relation to non-traded mutual funds?
There is no market for Mona Lisa because there is only one Mona Lisa. Similarly, NFTs have a low level of liquidity compared to exchangeable currencies. One reason is that coin collectors often like to hold their non-financial transactions rather than trade in the speculative markets. Another reason is that NFTs are traded binary in the markets with few potential bidders per sale.
For example, an NFT sports card for a specific player may only be ordered by a subset of collectors. Also, not every NFT is a perfect alternative to another NFT. For example, if Mike wanted a 1988 NFT award on his birthday, but instead got a 2014 LeBron James, Mike might not be very happy. Due to the difficulty of comparing the different NFTs offered by sellers and the small number of orders placed by buyers, the total number of transactions is small. This low rotation makes it difficult to determine the value of each NFT.
For movable assets such as stocks, liquidity can be measured by dividing the total number of shares outstanding during a given period (say, one month) by the average number of shares outstanding during the same period. The higher the share turnover, the more liquid the company’s shares will be. But how do I measure the fluidity of a unique non-inflatable asset?
For markets with low transaction volumes per unit, such as real estate or collectibles, the two main types of liquidity indicators include “market time” and “transaction activity level.” For example, real estate liquidity can be measured by the average time between building a home and selling it. Under the terms of the NFT, this would be the “average time from when the NFT was placed on the secondary market until it was sold.”
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According to Gauthier Zuppinger, CEO of NFT data source NonFungible.com, it is difficult to gauge the time to market for NFT because “thousands of assets are priced in the market at very high prices (some bad guys are priced in billions of US dollars)” in time or in the hope that a whale will buy it . On the other hand, there are many people who do not “list” assets, but are open to suggestions. ”
The second type of liquidity indicator calculates the level of transaction activity. For example, NonFungible.com measures NFT liquidity as a percentage of the total supply of a certain type of asset sold in the secondary markets. This can be calculated by dividing the amount of unique assets sold in the secondary market by the total supply available for each type of asset.
So, the answer to the question: “What is the lowest selling NFT kit?” This is Mibbits. Meebits are one of the least floating groups, over 66% of which have never been sold. Interestingly, the majority (57.7%) of CryptoPunks were sold only once or less.
An NFT report from Cointelegraph Research was released in October and describes how to evaluate different types of NFTs and how to find interesting NFT combinations before they become mainstream. The report also looks at the dark side of NFTs, including their environmental impact and lack of liquidity. The report is supported by projects such as Enjin, OneOf, Nansen, Mintable, Alien Worlds, Animoca Brands, NFT Bank, The Sandbox and Pinata.