Investment in Non-Fungible Tokens (NFTs) - The Return of Ethereum Secondary Market NFT Sales

Niklas Konstantin Klein, Fritz Lattermann and Dirk Schiereck

Publications of Darmstadt Technical University, Institute for Business Studies (BWL) from Darmstadt Technical University, Department of Business Administration, Economics and Law, Institute for Business Studies (BWL)

Abstract: The increasing attention to non-fungible tokens (NFTs) since 2021, and many reports of remarkable returns by traders of NFTs raise the question of the actual returns in the whole NFT market. We examine the returns of NFT resales using data of 2.12 million secondary market NFT trades on Ethereum’s five largest marketplaces starting in June 2017 until December 2021 at the individual transaction level and trader level and control for transaction costs by implementing a linear regression model and nonparametric tests. We find that the majority of resales are in profit and a high concentration of profits at the trader level, with the top 10% of traders accounting for the majority of profits, and we identify differences in profits for the analyzed NFT categories. Our results show that experienced investors systematically outperform inexperienced investors, indicating information inefficiency in the NFT market, while we do not find clear evidence for the underperformance of more expensive NFTs compared to less expensive ones. Additionally, we find indications of the importance of pump-and-dump schemes on the level of returns.

Date: 2023-05-26
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Published in Journal of Asset Management (2023-05-26) : pp. 241-254

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Persistent link: https://EconPapers.repec.org/RePEc:dar:wpaper:142309

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