Continuous New Lows in Bored Ape Floor Price - What Impact Will It Have on Its Governance Token APE?

BAYC Continues to Hit New Lows, Potentially Triggering a Chain Reaction of Liquidations

According to data, the floor price of the second-ranked blue-chip NFT, Bored Ape Yacht Club (BAYC), has been continuously declining since January 2023. It has dropped from 83 ETH to the current 23 ETH, representing a staggering decline of 72% in 2023.

BAYC Floor Price Trend from August 2022 to August 2023, Source: NFTGO.

However, what is even more concerning is the existence of a ticking time bomb for BAYC. According to data from the NFT lending protocol BendDAO, 27 pledged BAYCs have a health factor of 1.1, while ParaSpace shows that 78 BAYCs are below 1.1. This means that once the health factor falls below 1, these BAYCs held as collateral will be forcibly sold by the system.

In other words, if BAYC continues to decline, more BAYCs will be sold. As more BAYCs are sold, the price further drops, causing the healthy BAYCs to become unhealthy, triggering a new round of sell-offs and gradually spiraling into a death spiral. This is also the combination risk present in NFTFi (NFT+DeFi).

How to prevent the explosion of BAYC?

To prevent this potential chain reaction of the NFTFi time bomb, either the floor price of BAYC needs to stop falling or borrowers need to repay their loan assets to improve the pledge health factor. However, the feasibility of the first solution is low because the market cannot maintain consensus, as there are always both long and short positions. Moreover, some people are expecting a continued decline and collapse of BAYC, as it would allow them to buy at even cheaper prices.

The second solution, which involves repaying the loan and redeeming assets, is more feasible but requires having the corresponding assets for repayment, similar to Curve Finance founder Egorov selling CRV to obtain stablecoins for debt repayment. Although whether or not to repay is an individual decision and may only result in liquidating their own positions, the occurrence of liquidations can potentially spread panic and trigger a chain reaction of "price decline, forced selling, further decline, and continued selling."

APE Coin Continues to Decline Together with BAYC

Similar to the changes in BAYC's floor price, APE Coin has been continuously declining from May 2022 until now. In fact, APE has dropped from a high of $32.7 to a low of $1.4, wiping out 96% of its value.

APE Price Trend from March 17, 2022, to August 22, 2023, Source: TradingView.

As a governance token associated with BAYC, APE will struggle as long as BAYC continues to decline or fails to improve. Additionally, APE is a relatively new coin that has not experienced a bear market, and investors lack consensus on it. With no historical bottom reference, few are willing to intervene to support the price. Furthermore, the unlocking of APE (on August 16) during the bear market period has further undermined investor confidence.

Currently, there are no significant expectations for APE. From a technical perspective, an opening price of $1 may attract short-term speculative funds, providing some support and potential for short-term rebound trading. If you are a long-term investor, it is advisable not to rush into it and keep an eye on whether BAYC undergoes liquidations.