“New Asset Class or Just a Fad? The Relationship Between Cryptocurrencies and the NFT Market”

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  • NFTs have received mainstream attention due to prominent examples such as the artist Beeple selling a piece of digital art for $69 million (Christie’s, 2021) or Twitter CEO Jack Dorsey auctioning off his first-ever tweet for $2.9 million (Valuables, 2021).
  • NFTs are unique certificates of authenticity on blockchains that are usually issued by the creators of the underlying assets.
  • NFTs serve not as a currency, a commodity or a technology but as an asset.
  • Within less than half a year (by May 16, 2021), hundreds of thousands of NFTs worth over $800 million were traded (NonFungible, 2021).
  • Most of these NFTs referred to digital art, collectibles, music, in-game items or metaverses.
  • To access and use cryptocurrencies is a complex task; therefore, those who have mastered it are more likely to also participate in the NFT market.
  • There are few prior studies on the financial aspects of NFT markets.
  • The aim of the present study is to investigate how the markets for NFTs and cryptocurrencies are related.
  • We extract macro data on the Ethereum-based NFT market, more specifically the trading volume of all NFTs in USD and the number of blockchain wallets participating in the NFT market (sellers and buyers), and analyze how these relate to the pricing of Bitcoin and Ethereum using a cointegrated vector autoregressive (VAR) model, i.e. a vector error correction model (VECM).
  • Our data on overall trading volume and users should permit a better understanding of the NFT phenomenon, with the existing research focusing on pricing aspects of NFT (sub)markets.
  • We find that BTC and ETH pricing affects the NFT market, while the NFT market does not significantly influence the pricing of cryptocurrencies.
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