Is non-fungible token pricing driven by cryptocurrencies?

In early 2021, non-fungible tokens (NFT) became the first application of blockchain technology to achieve clear public prominence. NFTs are tradeable rights to digital assets (images, music, videos, virtual creations) where ownership is recorded in smart contracts on a blockchain. Given the NFT market emerged out of cryptocurrencies, we explore if NFT pricing is related to cryptocurrency pricing. A spillover index shows only limited volatility transmission effects between cryptocurrencies and NFTs. But wavelet coherence analysis indicates co-movement between the two sets of markets. This suggests that cryptocurrency pricing behaviours might be of some benefit in understanding NFT pricing patterns. However, the low volatility transmissions also indicate that NFTs can potentially be considered as a low-correlation asset class distinct from cryptocurrencies.

Automated summary

In early 2021, NFTs emerged as a prominent application of blockchain technology. Although there is limited volatility transmission between cryptocurrencies and NFTs, their pricing patterns exhibit co-movement, indicating some relationship. However, the low volatility transmissions suggest that NFTs can be considered as a distinct low-correlation asset class.