Raw and Risk-adjusted Returns of NFTs

What returns should investors expect from Non-fungible Tokens (NFT) as an alternative asset class? In the October 2021 revision of their paper entitled “Alternative Investments in the Fintech Era: The Risk and Return of Non-fungible Token (NFT)”, De-Rong Kong and Tse-Chun Lin investigate returns of NFTs, which represent ownership of digital assets via blockchains. NFT markets let owners or collectors deal directly any time via crypto-assets such as Ethereum (ETH). Anyone can review historical bids, offers, sale prices, trading dates and changes of ownership for NFTs, facilitating analysis at the transaction level. They apply this data to construct an NFT price index using a regression model that accounts for both NFT characteristics and underlying network activity. They focus on CryptoPunks crypto-images (tokens) on the ETH blockchain as the earliest and largest collection of NFTs. Using data for 13,712 transactions involving 5,630 unique CryptoPunks tokens as recorded by Larva Labs during June 2017 through May 2021, they find that:

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