Nansen Research Report: NFT Market Outperforms Crypto Market YTD


Designed to measure active strategies when investing in the NFT market, the Nansen NFT Index sets the underlying index for investors seeking to track an index that represents a market or a specific market segment. Alternatively, these indices serve as a mechanism to measure the performance of the NFT market over time. The purpose of this research article is threefold: the first part identifies why investors are looking for NFT exposure and how they can achieve this through the NFT index; the second part provides an overview of the Nansen NFT index; implied market trends.

Provide investors with NFT exposure through indices

Market indices allow investors to measure the value of a portfolio of holdings with specific market characteristics. For example, the three most popular stock indexes that track the performance of the U.S. market are the Dow Jones Industrial Average (DJIS), the S&P 500, and the Nasdaq Composite. In traditional finance, existing literature suggests that index investing can outperform actively managed funds over time. In addition, market indices provide investors with historical data that helps them make sound investment decisions.

Applying this to the NFT marketplace, Nansen designed a set of indices consisting of different collections of NFTs representing different NFT segments such as social, gaming, art, and the Metaverse. Investors can follow different market indices to measure market movements and performance.

Nansen NFT Index

Nansen NFT Indices allow investors to track specific NFT segments, these indices serve as a mechanism to measure the performance of the NFT market over time. For markets to be included in a market benchmark index, they must meet certain eligibility criteria.

This group of indexes adopts a market capitalization weighting strategy, and the market capitalization is denominated in Ethereum (ETH). The Nansen NFT index portfolio includes:

  • Nansen NFT-500
  • Nansen Blue Chip 10
  • Nansen Social – 100
  • Nansen Games – 50
  • Nansen Art – 20
  • Nansen Metaverse-20

Nansen NFT-500

The benchmark index consists of a collection of 500 NFTs that have averaged 85.4% of daily market volume since January 1, 2022. The index is designed to track the activity and movements of the NFT market.

The NFT-500 index is calculated daily and rebalanced every 30 days, where the index components are reassessed and rebalanced accordingly.

Nansen Blue Chip 10

Blue Chip NFT Index is a collection of famous and classic NFTs. This is also the first index constructed by Nansen. Whereas the old index consisted of 20 components, the revised Blue Chip-10 Index consists of a collection of 10 mature NFTs weighted by market capitalization.

The Blue Chip-10 Index is calculated daily and rebalanced every 90 days, where the index components are reassessed and rebalanced accordingly.

Nansen Social – 100

Social NFT collections hold the largest market share in the NFT market. The Social-100 NFTs Index consists of a collection of 100 NFTs further divided into subcategories: Profile Picture (PFP), Access and Membership, and Utilities (such as DAOs).

The Social-100 NFTs Index is calculated daily and rebalanced every 30 days, where the index components are reassessed and rebalanced accordingly.

Nansen Games – 50

Gaming NFT collections are the fastest growing segment of the NFT market. The Gaming NFTs Index consists of 50 collections of NFTs that are further divided into sub-categories: Play-to-Earn (P2E) games, role-playing games (RPG), DeFi-related games (GameFi).

Nansen Art – 20

The Artistic NFTs Index consists of 20 NFT collections covering NFT collections on ERC-1155 and ERC-721. The purpose of the index is to showcase the famous NFT artwork traded on the market. Collections of NFTs within this domain can be further divided into sub-categories such as generative art, physical art, and music.

For example, XCOPY’s “TRAITORS” series is a form of digital art that some might consider new media art, where artists use computers or electronic devices to create works. Generative art, on the other hand, is a derivative form of digital art that often involves the use of programming in its creation, an example being Autoglyphs. Then there are the physical artworks, like the ones by FEWOCiOUS. Finally, music is also classified as part of NFT art.

Nansen Metaverse-20

Another growth momentum in the NFT market is the Metaverse sector. The Metaverse NFTs Index consists of 20 NFT collections, which are further divided into subcategories: Land and Real Estate, Avatars, Assets, and Utilities.

Market Trends with Nansen NFT Indices

1. The NFT market has outperformed the cryptocurrency market with a year-to-date (YTD) performance of 68.5%.

While most markets have experienced a year-to-date correction, the NFT market has consistently outperformed the cryptocurrency market, with ETH-denominated NFTs performing 68.5% YTD and USD-denominated 20.9% YTD. In the cryptocurrency market, according to BitTui terminal data, since January 1, 2022, Bitcoin has fallen by about 17%, and Ethereum has fallen by more than 31%.

However, over the past 30 days (as of March 9, 2022), the NFT market has undergone a correction, falling -28.8% in ETH and -38.5% in USD.

2. NFTs are inversely proportional to DeFi

Correlation between NFTs and other assets (January 1 to March 9, 2022):

Nansen Research Report: NFT Market Outperforms Crypto Market YTD

Year-to-date, the Nansen NFT-500 (ETH) index has a negative correlation with the cryptocurrency market. The chart above shows that the NFT 500 Index (denominated in ETH) has a correlation coefficient of -0.46 with Bitcoin. The same index has a correlation of -0.6 with Ethereum (also denominated in ETH). However, when the index is denominated in U.S. dollars (Nansen NFT-500 (USD)), the correlation with the cryptocurrency market appears to be positive, albeit relatively weak. The inverse relationship between ETH-denominated NFTs and the decentralized finance (DeFi) cryptocurrency space is slightly more pronounced.

When measuring the correlation coefficient, “1” indicates a direct positive correlation, which means that the two variables are moving in complete convergence. Conversely, “-1” means that the two variables are moving in opposite directions.

The main reason for this difference is volatility. Louisa Choe, research analyst at Nansen, said: “When NFTs are denominated in USD, they also perform very differently. This is due to the volatility of the ETH/USD exchange rate. Therefore, the resulting correlation coefficient is also different. This may be an investor An important factor when deciding whether the denomination of their portfolio should be cryptocurrency or fiat.”

3. Shiba Inu is more volatile than NFTs YTD

When analyzing volatility in the NFT market using the Nansen NFT-500 (ETH) and NFT-500 (USD) indices, we observed (meme coin) Shiba Inu to be more volatile than NFTs YTD. Additionally, when exploring Ethereum’s historical price volatility, Ethereum’s price action in 2016 appears to be more volatile than the current NFT market. In 2018, Ethereum’s volatility was similar to that of the Nansen NFT-500 (USD Index). Importantly, however, the data points used to calculate year-to-date volatility may not be sufficient to draw concrete conclusions.

Daily volatility comparison of NFTs and other cryptocurrencies:

Nansen Research Report: NFT Market Outperforms Crypto Market YTD

4. Year-to-date social NFTs lead the NFT market

The market cap of social NFTs is estimated at $9.5 billion (3.57 million ETH), which is about 79% of the NFT market cap.The performance of the index highlights the benefits of diversification when investing in social NFTs such as profile pictures. For social NFTs, we observe that brand recognition and perception building of NFTs are important factors driving their performance.

As of March 9, 2022, the Nansen Art NFT Index has returned 30.8% (in ETH) and -6.1% (in USD). During the same period, the Social-100 Index returned 93.7% (in ETH) and 39% (in USD).

Performance of different NFT categories:

Nansen Research Report: NFT Market Outperforms Crypto Market YTD

Market capitalization of different NFT classes (in ETH):

Nansen Research Report: NFT Market Outperforms Crypto Market YTD

5. Metaverse and game NFTs have the least volatility, while blue-chip and art NFTs are the most volatile for YTD.

Daily volatility for different NFT classes:

Nansen Research Report: NFT Market Outperforms Crypto Market YTD

Volatility varies between NFT categories. The performance of the index shows that Metaverse and gaming NFTs have been the least volatile year-to-date, while blue chip and art NFTs have been the most volatile over the period.

Specifically, the daily volatility of art NFTs is 36% (ETH) and 37.3% (USD), and the Metaverse and social tokens have the least volatility, well below 10%.

Although the integration of NFTs into games and the Metaverse is a new trend, these markets are mature and have an expanding user base. It is assumed that the maturity of these markets, as well as the actions of other companies supporting these areas (such as Facebook rebranding as Meta, Grayscale offering the Decentraland (MANA) trust, and a16z’s investment in Yield Guild Games), result in relatively volatile NFTs in these categories smaller. On the other hand, one possible reason for the greatest volatility in blue-chip and art NFTs is the relative lack of liquidity of well-known blue-chip collections and unique art NFTs; resulting in asymmetric price information. In short, it is harder to evaluate these NFT collectibles, especially the rare ones. As a result, many of these market participants are behaving like speculators.

Posted by:CoinYuppie,Reprinted with attribution to:
Coinyuppie is an open information publishing platform, all information provided is not related to the views and positions of coinyuppie, and does not constitute any investment and financial advice. Users are expected to carefully screen and prevent risks.

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