Decoding the Announcement Effect: Exploring the Impact of Announcements on Doodles
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In finance announcements can have a significant impact on stock prices. We’ve all seen how dramatically the communication of new interest rates, company mergers and earnings announcements can affect stock prices. But have you ever wondered if the same applies to NFT projects? And if so, to what extent?
In the midst of the constant 24/7 news cycle in the Web3 space, it's important to recognize the true significance of individual NFT news items.
I examined Doodles’ key announcements on Twitter since January 2022. to answer these two questions:
1) Do key announcements affect NFT collection volume and price?
2) Which announcements have the most positive and negative impact on NFT volume and price?
Doodles is an interesting case study subject as it’s not only a PFP project but is increasingly becoming a Web3 fashion brand while transitioning into a full-grown brand much like BAYC.
Doodles Key Announcements Timeline
Below, I’ve visualized Doodles’ most important announcements against its daily volume. On the face of it, it doesn’t look like the announcements have had key long-term effects on volume. However, we have to explore the data in a more granular fashion to find possible insights.
The Announcement Effect on Volume
To isolate the effect of the announcements, I compared the average volume seven days before and after the announcements.
The biggest positive effect came from Doodles’ Series A announcement. The size of the round combined with its participants, which included Seven Seven Six (Alexis Ohanian’s fund) and FTX (pre-crash), brought attention to the collection. Moreover Doodles’ market cap (using average prices) was $147M on the day of the announcement while the funding round valued the project at $704M. That's a 4.8x difference. Unsurprisingly the announcement caused the post-announcement volume to increase 3x. Then again, owning a Doodles NFT isn’t the same as holding equity.
On the other hand, the Dooplicator (an NFT component of Doodles'digital fashion ecosystem) announcement on the day of the claim had the most significant negative impact on the volume. This could be attributed to the negative perception surrounding Doodles' new direction, as evidenced by the relatively low trading volume of the Dooplicator. Additionally, much of the trading usually occurs prior to the actual airdrops, so there was no further anticipation to drive the trading volume higher.
The effect on Doodles NFT volume by announcement category
We can categorize the announcements into four groups: Funding round (Series A), Product Features (The Stoodio), Airdrop (Doodle 2 + Dooplicator) and Web2 Collab/Team Acquisition (Pharrell + Julian Holguin). Here are the average effects on trading volume for each group:
Funding round: 306%
Product Features: 103%
Airdrop: 29%
Web2 Collab/Team Acquisition: 26%
The Announcement Effect on Price
While volume is a decent indicator of project interest and relevance, to understand the announcement effect we have to examine price as well.
To ensure consistent pricing, I focused the analysis on the Doodles core collection, excluding the Dooplicator and Genesis Box collections.
The largest 7-day price increase came after the Doodles 2 announcement while the most significant price decrease occurred after the Dooplicator claim (day of claim) announcement. This makes sense as core NFT collections generally lose value after airdrops. Usually the core collection price incorporate the airdrop price right before the event.
The Series A announcement (which had the largest positive impact on volume), surprisingly caused a 11% drop in Doodles prices.
The effect on average Doodles NFT prices by announcement category
Product Features: 22%
Web2 Collab/Team Acquisition: -4%
Funding round: -11%
Airdrop: -17%
Ethereum-Adjusted Price Movement
However, we also have to account for the macro conditions as NFT prices often follow Ethereum’s price. Below, I’ve plotted the prices of Doodles (core NFT) and Ethereum on the same graph, starting from January 2022. Visually, there seems to be a relationship between the two. Mathematically, Doodles’ average price (USD) and Ethereum price have a correlation coefficient of 0.85 (1 = perfect correlation).
Both Doodles and Ethereum experienced a sharp price decrease around May 5th 2022.
Thus, the biggest factor to Doodles’ price downturn seems to be Ethereum’s sudden price drop. Because NFTs are often considered high beta assets, Doodles price drop was even sharper.
Between May 5th and June 13th Ethereum dropped around 50%. Doodles dropped 85% while Bored Ape Yacht Club (BAYC) dropped 73%.
(I calculated Doodles' beta coefficient using Ethereum as the index. Surprisingly, Doodles' beta is only 1.01, indicating that Doodles' price is expected to move in tandem with Ethereum's. However, further statistical analysis suggests that there are additional factors besides Ethereum's price that contribute to the changes in Doodles' price.)
We have to adjust Doodles price change numbers to reflect Ethereum’s movements. In the graph below, I’ve added Ethereum’s percentage changes over the equivalent time frames.
Net = Doodles price change % - Ethereum price change %
If we adjust for Ethereum’s price, the price effect order doesn’t change much. The only change is that Pharrell joining Doodles as the level Chief Brand Office moves one rung up.
The effect on average Doodles NFT prices by announcement category
Product Features: 22%
Web2 Collab/Team Acquisition: 2%
Funding round: 0%
Airdrop: -5%
Ethereum price-adjusted measure generalizations
Most positive announcement effects came from product features
Airdrops had negative announcement effects
Ethereum’s price direction often indicates the direction of the announcement effect
Negative announcement effects were led by Ethereum's price movement. Ethereum’s price can also be linked to positive announcements effects but the effect is not as strong.
Obviously, the sample size is small and limited to a single NFT project so we can’t establish definitive causality. However, this is a good primer on ways how prices can behave post-announcements.
Key Takeaways
Based on the analysis, there are several key insights to consider. It seems that:
Macro conditions are as important if not more important than announcements
Airdrops can lead to lower post-airdrop volume and price
Even major Web2 announcements, on their own, don’t seem to have a substantial and enduring impact on underlying NFT prices
If there’s one key takeaway from this analysis it’s that the overall project direction matters more than even the most hyped-up announcements. A project cannot solely rely on partnerships and collaborations to drive its narrative. It should rely on its core product/offering instead. There has to be something deeper than that to make people truly pay attention.
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Naked Collector has been the top Web3 Fashion research/data source since 2021
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