Nansen Report: The return on investment in the NFT market is impressive

Original title: "NFTs As Investments - How Are They Performing?"

Original author: Louisa Choe

Original compilation: Mary Liu, Bitui

Foreword

Nansen NFT Indices are designed to measure active strategies when investing in the NFT market, and it sets the base index for investors seeking to track an index representative of the 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: Part I identifies why investors seek NFT exposure and how they do so through the NFT Index; Part II provides an overview of the Nansen NFT Index; implied market trends.

Providing 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 shows that index investing can outperform actively managed funds over time. In addition, market indices provide investors with historical data that help them make sound investment decisions.

Applying this to the NFT market, Nansen designed a set of indices consisting of Composed of different NFT collections. Investors can follow different market indices to gauge market movements and performance.

Nansen NFT Index

Nansen NFT Indices allow investors to track specific NFT market 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

· 

·  b>Nansen Blue Chip 10

· Nansen Social-100

· Nansen Game-50

· Nansen Art-20

· Nansen Metaverse-20

· Nansen NFT-500

This benchmark index consists of a collection of 500 NFTs with an average daily share since January 1, 2022 85.4% of market trading volume. The index is designed to track activity and trends in the NFT market.

Nansen NFT-500

This benchmark index consists of a collection of 500 NFTs, since 2022 Since January 1, 2009, it has accounted for an average of 85.4% of daily market volume. The index is designed to track activity and trends in the NFT market.

The NFT-500 Index is calculated daily and rebalanced every 30 days, where the index components are re-evaluated and re-valued accordingly balance.

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 constituents, 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 re-evaluated and rebalance.

Nansen Social-100

Social NFT Bookmark in NFT Occupy the largest market share in the market. The Social-100 NFTs index consists of collections of 100 NFTs further divided into subcategories: Profile Picture (PFP), Access & Membership, and Utilities (e.g. Decentralized Autonomous Organizations DAOs).

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

Nansen Games-50

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

Nansen Art-20

Art NFTs indexed by Composed of 20 NFT collections, covering NFT collections on ERC-1155 and ERC-721. The purpose of this index is to showcase famous NFT artworks that are traded in the market. NFT collectibles within this space can be further divided into subcategories such as generative art, physical art, and music.

For example, XCOPY's "TRAITORS" series is a digital art form that some may consider new media art , 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 physical works of art, such as those by FEWOCiOUS. Finally, music is also classified as part of NFT art.

Nansen Metaverse-20

Another alternative to the NFT market One growing momentum is the Metaverse. The Metaverse NFTs Index consists of 20 collections of NFTs further divided into subcategories: Land & Real Estate, Avatars, Assets, and Utilities.

Using Nansen NFT Index to present market trends

< /p>

1. NFT market outperforms Cryptocurrency market.

While most markets have corrected year-to-date, the NFT market has been outperforming the cryptocurrency market, led by ETH The year-to-date performance of the denominated NFT market is 68.5%, and the year-to-date performance in USD is 20.9%. In terms of the cryptocurrency market, according to Bitui terminal data, since January 1, 2022, Bitcoin has fallen by about 17%, and Ethereum has fallen by more than 31%.

Over the past 30 days (as of March 9, 2022), however, the NFT market has undergone a correction, falling -28.8% when denominated in ETH to Lost -38.5% in USD terms.

2. NFT and DeFi are inversely proportional

NFT and DeFi Alignment between other assets (January 1 - March 9, 2022):

Year-to-date, the Nansen NFT-500 (ETH) Index is negatively correlated 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 -0.6 correlation with Ethereum (also denominated in ETH). However, when the index is denominated in USD (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 trends of the two variables are completely converging. Conversely, "-1" means that the two variables are moving in opposite directions.

The main reason for this difference is volatility. Nansen Research Analyst Louisa Choe said: "When NFTs are denominated in US dollars, they also perform very differently. This is due to fluctuations in the ETH/USD exchange rate. Therefore, the resulting correlation coefficients are also different. This may be investors. An important factor in deciding whether the denomination of their portfolio should be crypto or fiat."

3. Shiba Inu is more volatile year-to-date than NFT Big

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

Daily volatility comparison of NFTs and other cryptocurrencies: