The Nansen NFT indexes are designed to benchmark active strategies when investing in the NFT market. It sets out an underlying index for investors seeking to track an index representative of the market or a specific market segment. Alternatively, the indexes serve as a mechanism to measure the performance of the NFT market over time. This research article serves as an introduction piece to the Nansen NFT indexes. The aim of this research article is three-fold. Part one establishes why investors look for NFT exposures and how they can achieve this through an NFT index. Part two outlines the Nansen NFT indexes. Lastly, part three illustrates the market trends signaled by the Nansen NFT indexes.
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NFT exposure for investors through an index
A market index enables investors to measure the value of a portfolio of holding with specific market characteristics. For example, the three most popular stock indexes for tracking the performance of the U.S market are the Dow Jones Industrial Average (DJIS), S&P 500 Index and the Nasdaq Composite Index. Within traditional finance, there is extant literature demonstrating
that index investing can outperform active management of funds over time. Additionally, a market index provides investors with historical data that may help investors to make sound investment decisions.
Applying this to the NFT market, the indexes consist of different NFT collections representing different NFT market segments (e.g. Social, Gaming, Art and the Metaverse). Investors can follow the different market indexes to gauge market movements and performance. It is important to note that inventors cannot invest directly in an index. Instead, funds and investments are constructed and balanced in accordance with the index benchmark, thereby developing index funds.
Understanding the NFT market using Nansen NFT indexes
The Nansen NFT indexes allow investors to track a specific NFT market segment. Alternatively, the indexes serve as a mechanism to measure the performance of the NFT market over time. For collections to be included in the Market benchmark index, they are required to meet a set of eligibility criteria (see Index Methodology).
The group of indexes adopted a market capitalization weighting strategy, with the market capitalization denominated in Ether (ETH). To learn more about how Nansen calculates the market capitalization of NFT collection using its adjusted (7-day) mode price valuation model, see here. The group of Nansen NFT indexes consist of:
- Nansen NFT-500
- Nansen Blue Chip-10
- Nansen Social-100
- Nansen Gaming-50
- Nansen Art-20
- Nansen Metaverse-20
Each index centers on an NFT category typically based on the NFT collections’ use cases or applications. The following section expands on each index.
Nansen NFT-500
The NFT-500 index is calculated daily and rebalanced every 30 days, where the index constituents are re-assessed and re-balanced accordingly.
The benchmark index consists of 500 NFT collections and represents an average of 85.4% of the daily market volume since 1 January 2022. This index aims to track the activity and movement of the NFT market.
Nansen Blue Chip-10
The Blue Chip-10 index is calculated daily and rebalanced every 90 days, where the index constituents are re-assessed and re-balanced accordingly.
The Blue Chip NFTs index is a collection of notable and classic NFTs. It is also the first index constructed by Nansen. While the old index consisted of 20 constituents, the revised Blue Chip-10 index consists of ten well-established NFT collections weighted by market capitalization.
Nansen Social-100
Social NFT collections occupy the largest market share with the NFT market. The Social-100 NFTs index consists of 100 NFT collections, which are further classified into the sub-categories:
The Social-100 NFTs index is calculated daily and rebalanced every 30 days, where the index constituents are re-assessed and re-balanced accordingly.
Profile pictures (PFP), Access & Membership, and Utility (e.g. Decentralised Autonomous Organization).
Nansen Gaming-50
The Gaming NFTs index is calculated daily and rebalanced every 30 days, where the index constituents are re-assessed and re-balanced accordingly.
Gaming NFT collections are the fastest-growing segment of the NFT market. The Gaming NFTs index consists of 50 NFT collections, which are further classified into the sub-categories: Play-to-Earn (P2E) games, Role-playing games (RPG), DeFi-related games (GameFi).
Nansen Art-20
The Art NFTs index consists of 20 NFT collections and covers NFT collections on ERC-1155 and ERC-721. The purpose of this index is to showcase notable NFT art pieces that are traded in the market. NFT collections within this sector can be further classified into sub-categories such as Generative Art, Physical Art and Music.
For example, XCOPY’s ‘TRAITORS’ collection is a form of digital art, which some might recognise as new media art, where the artist utilizes computers or electronic devices to create the piece. On the other hand, we have generative art, a derivative form of digital art. This artform typically involves the use of programming in its creation. One such example is Autoglyphs. Then, there are physical art pieces, such as the works of FEWOCiOUS. Finally, Music was also categorized as part of NFT art. The Art-20 NFTs index is calculated daily and rebalanced every 90 days, where the index constituents are re-assessed and re-balanced accordingly.
Nansen Metaverse-20
The Metaverse NFTs index is calculated daily and rebalanced every 30 days, where the index constituents are re-assessed and re-balanced accordingly.
Another segment of the NFT market picking up momentum is the Metaverse sector. The Metaverse NFTs index consists of 20 NFT collections, which are further classified into the sub-categories: Land & Real-estate, Avatars, Assets, and Utility.
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Surfacing market trends with Nansen NFT indexes
1. The NFT market is outperforming the cryptocurrency market YTD.
Performance of NFT market and other assets.
| Asset/Index | Performance
(1 Jan to 9 Mar 2022) |
30 Day performance
(as of 9 Mar 2022) |
| NFTs (Nansen NFT-500:ETH) | 68.5% | -28.8% |
| NFTs (Nansen NFT-500-USD) | 20.9% | -38.5% |
| Bitcoin (XBX) | -16.2% | -8.7% |
| Ether (ETX) | -29.9% | -15.7% |
| Crypto Large Cap (DLCX) | -22.7% | -12.1% |
| Bloomberg Galaxy Crypto Index (BGCI:IND) | -22.6% | -14.0% |
| DeFi (GMI) | -55.6% | -34.7% |
| S&P 500 | -10.3% | -4.6% |
| Gold | 8.8% | 9.2% |
While most markets have experienced a correction YTD, the NFT market has been outperforming the cryptocurrency market with a performance of 68.5% YTD when denominated in ETH and 20.9% YTD when denominated in USD. However, in the last 30 day (ending 9 March 2022), the NFT market has experienced a correction, with a drop of -28.8% when denominated in ETH and a -38.5% decrease when denominated in USD.
2. NFTs are inversely correlated to DeFi
Correlation between NFTs and other assets (1 Jan to 9 Mar 2022).
| Index/ Asset | NSN-NF T500
(ETH) |
NSN-NF T500
(USD) |
XBX
(BTC) |
ETX
(ETH) |
DLCX
(Crypto Large Cap) |
BGCI:IND
(Crypto) |
GMI
(DeFi) |
S&P 500 | XAU
(Gold) |
| NSN-NF T500
(ETH) |
1 | ||||||||
| NSN-NF T500
(USD) |
0.59 | 1 | |||||||
| XBX
(BTC) |
-0.40 | 0.47 | 1 | ||||||
| ETX
(ETH) |
-0.50 | 0.40 | 0.93 | 1 | |||||
| DLCX
(Crypto Large Cap) |
-0.47 | 0.43 | 0.97 | 0.98 | 1 | ||||
| BGCI:IN
D (Crypto) |
-0.44 | 0.38 | 0.86 | 0.91 | 0.92 | 1 | |||
| GMI
(DeFi) |
-0.55 | 0.19 | 0.69 | 0.84 | 0.81 | 0.86 | 1 | ||
| S&P 500 | -0.32 | 0.37 | 0.65 | 0.81 | 0.77 | 0.83 | 0.89 | 1 | |
| Gold | -0.11 | -0.40 | -0.21 | -0.37 | -0.34 | -0.42 | -0.58 | -0.70 | 1 |
The YTD performance of the Nansen NFT-500 (ETH) index shows that the NFT market is inversely correlated to the cryptocurrency market. However, if NFTs, as were denominated in USD then the correction with other cryptocurrencies appear positively correlated, albeit a relatively weak correlation. NFTs when priced in ETH have a slightly more notable inverse relationship with Decentralized Finance (DeFi) cryptocurrencies. Such an insight may provide consideration for investors who wish to include NFTs as part of their investment.
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3. Shiba Inu is more volatile than NFTs YTD.
When analyzing the volatility of the NFT market using the Nansen NFT-500 (ETH) and NFT-500 (USD) indexes, we observe that (meme coin) Shiba Inu is more volatile than NFTs YTD. Additionally, when exploring the historical price volatility of Ethereum, it appears that the price action of Ethereum in 2016 was more volatile than the current NFT market. While in 2018, the volatility for Ethereum was similar to that of NFT-500 (USD). It is, however, important to note that the data points used to calculate the YTD volatility may be insufficient to draw a concrete conclusion.
Comparison of daily volatility between NFTs and other cryptocurrencies.
| NFT Categories/Indexes | Daily volatility estimation (01 Jan – 9 Mar 2022) |
| Nansen NFT-500 (ETH) | 4.7% |
| Nansen NFT-500 (USD) | 7.1% |
| Bitcoin | 3.1% |
| Ethereum | 4.5% |
| Shiba Inu | 7.6% |
Comparison of daily volatility between NFTs and Ethereum.
| NFT Categories/Indexes | Daily volatility | Date range |
| Nansen NFT-500 (ETH) | 4.7% | 01 Jan – 9 Mar 2022 |
| Nansen NFT-500 (USD) | 7.1% | 01 Jan – 9 Mar 2022 |
| Ethereum (2016) | 9.9% | 01 Jan – 9 Mar 2016 |
| Ethereum (2017) | 4.8% | 01 Jan – 9 Mar 2017 |
| Ethereum (2018) | 7.1% | 01 Jan – 9 Mar 2018 |
| Ethereum (2019) | 4.7% | 01 Jan – 9 Mar2019 |
| Ethereum (2020) | 4.6% | 01 Jan – 9 Mar2019 |
4. Social NFTs are leading the NFT market YTD
Social NFTs account for an estimated market capitalization of USD 9.5 billion (3.57 million ETH), which is approximately 79% of the NFT market capitalization. The indexes’ performance highlights the benefits of diversification when investing in Social NFTs such as profile pictures. For Social NFTs, we observed that an NFTs’ brand recognition and perceived establishment are important factors driving its performance. Year-to-date, the Social-100 index gained 93.7% when denominated in ETH, and a 31.8% increase when denominated in USD.
Performance of different NFT categories.
| NFT Categories/Indexes | Index Denominated in ETH YTD Performance
(1 Jan to 9 Mar 2022) |
Index Denominated in USD YTD Performance
(1 Jan to 9 Mar 2022) |
| Nansen NFT 500 | 68.5% | 20.9% |
| Nansen Blue Chip-10 | 83.7% | 31.8% |
| Nansen Social-100 | 93.7% | 39.0% |
| Nansen Game-50 | 22.7% | -11.9% |
| Nansen Art-20 | 30.8% | -6.1% |
| Nansen Metaverse-20 | 22.0% | -12.5% |
Market capitalization by NFT Categories (ETH).
5. Metaverse and Game NFTs are the least volatile, while Blue Chip and Art NFTs are the most volatile YTD.
Daily volatility of different NFT categories.
| NFT Categories/Indexes | Index Denominated in ETH Daily Volatility
(01 Jan – 9 Mar 2022) |
Index Denominated in USD Daily Volatility
(01 Jan – 9 Mar 2022) |
| Nansen NFT 500 | 4.7% | 7.1% |
| Nansen Blue Chip-10 | 9.7% | 11.5% |
| Nansen Social-100 | 6.5% | 8.6% |
| Nansen Game-50 | 5.1% | 6.8% |
| Nansen Art-20 | 9.7% | 10.6% |
| Nansen Metaverse-20 | 5.8% | 6.9% |
Volatility differs among the NFT categories. The indexes’ performances revealed that Metaverse and Game NFTs are the least volatile YTD, while Blue Chip and Art NFTs are the most volatile during this period.
Although the integration of NFTs into Gaming and the Metaverse is a new introduction, such markets are mature and have an expanding user base. We hypothesize that the maturity of these markets, along with other companies endorsing these sectors (e.g. Facebook’s rebrand to Meta, Grayscale offering of a Decentraland (MANA) trust, and a16z investment in Yield Guild Games), are some factors why Gaming and Metaverse NFTs are relatively less volatile. On the other hand, a possible reason for why Blue Chip and Art NFTs are the most volatile is due to notable Blue Chip collections and unique Art NFT pieces being relatively illiquid; causing a lack of price information asymmetry. Many of these market participants, therefore, behave as speculators.
Conclusion
The launch of an NFT investment fund by Bitwise confirms investors’ strong interest in NFTs. Due to NFTs being an emerging asset class, investors and NFT adoptees demand a strategy that can provide broad exposure to the many NFT categories. NFTs are not homogenous but have many unique characteristics and distinctive use cases. Navigating through the NFT market is not always straightforward for many new investors and adoptees. Building on the popularity of the Nansen Blue Chip Index, along with identifying the needs of the market, Nansen presents six indexes as a reliable way of navigating the NFT markets. This update raises the bar for quality financial infrastructure that supports the growing depth of the NFT industry. The depth and breadth of categorization will enable all Nansen users access to a wide range of new market signals.
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