The Merge week is finally here, bringing what will likely be one of the most important events (and potentially most volatile) in crypto history.
As of this morning, The Merge is tentatively scheduled to take place Wednesday evening around 11 p.m. ET, though that time will continue to fluctuate based on the network hash rate. This event can't come soon enough from an NFTs perspective, which is seeing new yearly lows printed every weekend as more and more money is sidelined ahead of this major event.
The crypto markets have been seeing big green over the past week, with both BTC and ETH up 12 and 11 percent on the 7-day, currently at $23.4K and $1,750. Alts are mostly green as well, with Solana (SOL) up 18 percent to $38 and ApeCoin (APE) up 15 percent to $5.50. ETH had been leading the way, but BTC and Alts have been rising faster over the past few days.
General sentiment on how to trade The Merge seems to be divided into three main camps: 1) the market can't possibly price in the reduction in sell pressure coming after the Merge (max bullish) 2) there are no more narratives coming after this event, no one's using the network anymore (sell the news) and 3) this is an incredibly risky technology milestone, let's stay on the sidelines and let this one play out (neutral).
It's hard to predict what will happen, but expect some major volatility, and if anything does go wrong, likely be some big red on the board.
With that said, it's actually a nice macro backdrop this week, with equities rallying and some big CPI news coming out on the 14. If the inflation numbers can come in below expectations, markets likely move up with clear skies into the FOMC and the next rate hike decision coming Sept 20-21. So if The Merge does go well, we could see a really nice market rally in the short term.
What Does The Merge Mean for NFTs?
For a full primer on The Merge and its impact on NFTs, check out this post from Jason Bales. I won't rehash it here, but basically, all NFTs will be duplicated and will exist on the ETH PoW chain as well as ETH PoS, with ETH PoS being the new primary chain of record. Multiple project teams have already stated they will only support PoS, and nearly all PoW NFTs will be immediately worthless, though some may hold some historical value. Be very careful transacting on ETH PoW unless you are fairly sophisticated, as the chance of relay attacks is riskier than the value received from most PoW transactions.
From a trading perspective, it's clear that ETH volume has been on a major downtrend for the past several months. The OpenSea volume chart is abysmal, printing lower lows by the week and lower highs as well - not great. There is some hopium that traders are sidelined into The Merge, wanting to see how this major event plays out before re-entering NFTs. And given there has been very little major news from top projects, and a lack of new projects dropping, there hasn't been much of a reason to get off the sidelines in the past few weeks and months.
But that hopium case does not seem to have much substance behind it, and it is still hard to see the next catalyst to bring real volume back into this market. There is an additional risk that if The Merge goes well and the ETH price goes up, NFTs will see another leg down. The best bull case for NFTs right now may be a bearish Merge event, with ETH dropping back closer to $1K range, making NFTs look cheap again in ETH terms and leading to a re-pricing.
That is somewhat of a sad bull case though, and hopefully, there are more catalysts out there than we can see.
Let's take a closer look at how the pre-Merge trading has impacted the NFT market over the past week.
Weekly NFT Market Analysis
Of the top 30 projects by floor price, just five were in the green on the 7-day charts, with several projects down 10-20 percent.
The mid-tier PFPs got hit the hardest, with Moonbirds down 20 percent to 10 ETH, Azuki down 12 percent to 6.9 ETH, and CloneX down 8 percent to 5.6 ETH (nearing its lowest levels since the Nike announcement). Nouns, BAYC, and Punks each dipped 5% on the week at the top of the board, and the only real positives on the week were in the art sector, with Ghxsts up 35 percent to 16.9 ETH floor, Grifters up 7 percent to 15 ETH and Fidenza up 6 percent to 85 ETH.
ENS was once again in focus, leading the volume charts with over 3,600 ETH traded on the week. The top movers were once again the digits, with the 999 Club (3-digits) reaching 35 ETH+ at peak, though it's back to 30. The 10K club (4 digits) also rallied past 3 ETH at its peak, though it's back to 2.8 ETH as volume has slowed. Over the past few months, ENS has rallied at the end of each market mini-cycle, so maybe this is a sign that a new market cycle (rally?) is about to begin.
The other headliner from the past week was Ryan Pineda and his Tykes project. The real estate investor and entrepreneur's NFT drop reached a 2.75 ETH floor at its peak, seeing over 700 ETH volume, in what has been a successful debut.
A few other winners on the week include Renga, rebounding 40 percent to a 0.35 ETH floor (its Black Boxes are at 0.75 ETH), RTFKT MNLTH up 20 percent to 1.75 ETH floor, and Pudgy Penguins up nearly 15 percent on the week to 3.75 ETH floor.
Some notable losers included Todd James Art Party, down 47 percent to 0.37 ETH floor in its post-reveal trading, DigiDaigaku down 17 percent to 7.75 ETH, and goblins down 15 percent to 1.1 ETH floor.
This low volume, bleeding market, coupled with the volatility of The Merge event has made this week set up to be the worst possible time to launch a new project, and founders seem to have taken notice. There are no notable projects set to launch this week, in what is the slowest week for new projects in months.
There are a few Art Blocks projects dropping, and given the general lack of much else, they could see some extra attention.
Art Blocks "Essenza" and "Floating World Genesis"
Today at 1 p.m. ET Stefano Contiero is back with "Essenza", his latest Playground collection. The artist behind the cult Curated project Frammenti (2.5 ETH floor) has several AB sets now, including Rinascita (0.68 ETH floor) and Saturazione (1.35 ETH floor). They each share his ongoing animation style and vibrant colors and have a strong collector base in the AB community.
From the project description, Stefano had originally intended Essenza to be his genesis debut, but it took longer than expected to refine. He describes the set as "a labor of love", and given how special this project seems to be to him, expectations are higher than normal.
From a trading perspective, 444 supply is a bit on the higher side, and Playground sets typically perform the worst of the three types. But if this one reaches near min price at 0.18 ETH, it likely has at least 2x upside and limited downside.
Essenza.— Stefano Contiero 🇮🇹🇩🇴 (@stefan_contiero) September 5, 2022
🎙PSA: it's time to make this official...
🗓Sep 12, 2022, 1:00 PM ET
My "first" Art Blocks project is finally ready.
I've been working on this concept for the past 3 years!
👇(+ bonus print giveaway) ✨ pic.twitter.com/cLybnBRa19
Then on Wednesday "Floating World Genesis" drops, in the second collaboration with Pace. This project from A.A. Murakami is a set of 250 outputs "depicting one of three animated scenes: a single microbial bubble that may split in two; clusters of self-organizing bubbles; and a single bubble situated on the horizon." Those three scenes should provide some nice rarity and differences in the set, and there is also a rare "three-dimensional experience" in some of the outputs.
There are similarities here to the last Pace collab, Petro National, which saw a large influx of collectors and reached a 4+ ETH floor at its peak (from a ~1.8 ETH mint). The Pace projects are clearly bringing new collectors, and that's the wildcard for this set. AB volume has been pretty terrible lately, but last week's Curated drop did see a ~12-hour window of profitability, and there is some chance of that here as well. The risk is, that this mint is incredibly close to The Merge and some collectors may be content skipping it and coming back in a few weeks to buy.
With a 0.2 ETH mint price and just 250 supply, there's likely limited downside risk and thus should be a safe bet to mint out (with more upside than downside potential).
Join us tonight, September 6 at 8 PM EDT on Discord, for an AMA with A.A. Murakami, in the lead up to the launch of their "Floating World Genesis" NFT series, in collaboration with @artblocks_io.— Pace Gallery (@PaceGallery) September 6, 2022
Join us on Discord: https://t.co/QzXZqxDk7y pic.twitter.com/Gt4lUqHQGK
The ETH NFT market has been in a brutal bear market for months now and that won't change this week, but perhaps we will have some glimpse into what the next quarter will look like post-Merge. Coin trading will definitely be the focus in the lead-up, and it would not be surprising to see a new yearly low in NFT volume ahead of this major event.
It will also be interesting to watch the impact, if any, on the Solana ecosystem which is coming off an incredible week. The y00ts mint led to a massive influx in SOL NFT volume, with the new funds rotating around several different projects across the week. Volume does seem to be trending down (even though mints are up) though, and the indefinite delay in the y00ts reveal is not helping. But the y00ts floor is holding strong at 135 SOL, never really falling below 125, and volume is steady. If Frank and the team come back with a solid announcement and timeline, this one could certainly see another volume influx, which will likely benefit the entire ecosystem. Certainly, more and more ETH-natives are paying attention to Solana now, and this will be an important ecosystem to watch over the next few months.
NFT mints on Solana have surged to an all-time highhttps://t.co/4eizlAh1et— The Block (@TheBlock__) September 11, 2022
Overall expect a very quiet week of NFT trading until all hell breaks loose during The Merge, and it's hard to predict what will happen afterward. Just expect volatility.
Be very careful for anyone planning to interact with ETH PoW, and make sure to stay up to date with all the latest info with the new Lucky Trader app and newsfeed.