(Justina Lee, Washington Post/Bloomberg) – Bankrupt car rental companies and Bitcoin gambles “to the moon” are going out of style as the army of retail investors launches into the world of digital art like never before.
Thanks to the go viral on social media for collectibles like Pudgy Penguins and Bored Ape Yacht Club, sales of non-fungible tokens (NFTs) on the biggest trading platform, OpenSea, jumped to $3 billion in August. That’s over 10 times the previous month’s total and the switch is now routinely the number one computing power user on the Ethereum network.
Day traders are betting all on computer-generated avatars, leaving behind rival speculative trades like cryptocurrencies and meme stocks. Even with Bitcoin’s recovery to $50,000, telltale signs of euphoria from leverage to collateral are well below their May peak. Meanwhile, data from Wall Street suggests that enthusiasm among those who pushed Robinhood to trade US stocks and options is waning.
“A portion of retail investors have migrated to NFTs,” said Martha Reyes, head of research at Bequant, a cryptocurrency brokerage. “Let’s face it, it’s a lot more fun to collect primate and penguin jpegs.”
The NFTs are the latest surprise in speculative trading this year, fueled – depending on who you ask – by government bailout checks, monetary easing, social media or the sheer boredom of life during the pandemic. The average price of the Bored Ape Yacht Club NFT – yes, literally a monkey-themed avatar token – soared from 8.78 ETH on July 31 to 41.4 ETH, or about $156,368, while the Pudgy Penguins increased over 100 times to 2.6 ETH.
This is forcing higher transaction costs on the Ethereum network, which fuels NFT activity, with the so-called average gas fee, currently the highest since the end of May. Along the way, digital token transactions are getting more expensive in the blockchain that gave birth to decentralized finance.
“As NFT activity controls the ecosystem’s attention, gas prices have risen to daily levels that have become priceless for many retail traders,” wrote Luke Posey, a researcher at digital asset analysis firm Glassnode.
As the NFT community enjoys its momentum of popularity, the Reddit-fueled trades that created the meme stock market craze earlier this year seem positively old-fashioned.
In the US stock market, trading in mini-options, typically favored by Robinhood investors, has recently dropped to just 18% of total volume, the lowest since April 2020, according to data from UBS Group AG. Retail purchases of cash equities also fell to a three-month low in August, according to Vanda Research, which tracks these moves.
Of course, while collective buying may have slowed down, that doesn’t mean day traders have lost influence. Based on social media in recent weeks, a new stock list for memes such as Skillz and Vinco Ventures has been bouncing back. At the same time, analysts at Vanda also estimate that retail buying may increase in the final months of 2021.
However, take a look at Bitcoin, once considered a marginal asset. Its rebound from the June low is not cheering investors in the same way as its boom earlier this year.
On the Binance exchange, financing rates, or the cost of positioning in bullish futures contracts, rose only modestly to less than 4%, after falling from a 39% high in April, data from Bybt show. The number of active addresses, an indication of transactions on the blockchain, is still 29% below peak, according to Glassnode.
What’s more, only 54% of outstanding Bitcoin futures contracts are now backed by Bitcoin itself as collateral – compared to 70% at peak. With more traders using stablecoins pegged to fiat currencies, this is the latest sign that the speculative community is showing more moderation with the original cryptocurrency, even as the NFT craze is gaining ground.
“Open contracts have increased, but are also well below the peak, as is the funding rate, suggesting a lack of conditions for a bubble to form,” said Bequant’s Reyes, referring to the Bitcoin deal. / TRANSLATION OF ROMINA CACIA