Analyzing the recent hype surrounding gaming and metaverse tokens with on-chain data.
It seems as if every three to four months the crypto markets pick a new group of tokens to be excited about. Hype within crypto quickly shifted from NFTs this summer to meme coins such as SHIB in the fall and more recently into gaming and metaverse-related tokens.
While these sectors are inherently different, their hype cycles share similar traits. Analyzing on-chain data from IntoTheBlock we can examine the current state of gaming and metaverse tokens in the context of these cycles to better understand what happened, how to spot these frenzies and what may come next.
One key trait of hype cycles in crypto is the rush of new participants and traders into a token or group of tokens. This tends to happen as prices reach new all-time highs and speculation becomes widespread.
Several gaming and metaverse tokens had already been in an uptrend, but the frenzy surrounding them arguably got propelled by Facebook’s rebranding to Meta. One of the largest benefactors from this was Decentraland’s MANA token. Following Mark Zuckerberg’s announcement, MANA proceeded to quadruple in price within three days.
Traders quickly flooded in. The number of addresses holding MANA for less than thirty days — labelled as traders by IntoTheBlock — reached new highs along with MANA’s price.
As can be seen above, the number of traders more than tripled in November while the volume held by these addresses climbed less than 50%. This suggests that it was largely retail traders getting into MANA. A decreasing average balance of MANA during this time also points to the mania being mostly driven by small holders.
These periods of frenzy can draw in crowds within a short period of time, to the point where a majority of holders have been holding for less than a month. This happened with SHIB earlier this year and the same pattern emerged with a few of the leading game and metaverse tokens.
In MANA’s case, the percentage of addresses considered to be traders more than doubled from 14% in October to 33% in November. The concentration of traders was even more drastic for GALA, a gaming token that climbed as much as 600% in November alone.
The indicator above clearly displays how GALA holders went from being mostly “cruisers” — those holding within 1 and 12 months — to primarily traders in November. This transition is a clear indication of excessive speculative activity and was warned in IntoTheBlock’s weekly newsletter prior to the recent crash.
Finally, another key indicator of hype cycles such as these is the strong correlation between daily active addresses (DAAs) and price action for a token.
By simply comparing the trajectory of GALA’s price and its DAAs, the strong correlation between the two becomes evident. In the last 30 days the correlation coefficient between the two is 0.84, pointing to a strong statistical relationship of the two. While not necessarily pointing to causation, the high correlation does suggest activity around the token climbed in tandem with its price. In contrast the correlation between ETH’s price and its DAAs is much lower at 0.25, pointing to more organic demand than price following action.
Now that prices of gaming and metaverse tokens have dropped as much as 40%, there is uncertainty regarding their future. One way to think about it is through the lens of the quote “people tend to overestimate what can be done in 1 year and underestimate what can be done in 5 to 10 years”.
In hype cycles like these, the market is overestimating the potential of these sectors in the short-term, exacerbating parabolic price action. Ultimately, though, long-term holders may benefit from conviction if the metaverse delivers even just part of its promise.