Ethereum NFT sales are inversely correlated to the crypto market: Nansen

Ethereum NFT sales are inversely correlated to the crypto market: Nansen

Last month, crypto-analytics firm Nansen published six new indexes to follow the NFT market.

A recent report now reveals striking conclusions drawn using this batch of indexes.

The six indices divide the market into convenient subdivisions: the “NFT 500” (cognate to the S&P 500), the “Blue Chip-10” index (the ten largest “notable” and “classic” NFT collections by market capitalization), the “Social-100”, which includes popular NFT profile pictures like Bored Ape Yacht Club or World of Women, and three other indexes for “Art”, “Social” and “Metaverse” NFTs, which do not need of explanations.

Using these trackers, Nansen collected various correlations between different types of NFT collections and the broader crypto market.

NFTs Overtake Crypto Markets

First, NFTs have been the most bullish subdivision in crypto.

While most crypto markets have seen a sharp correction lately, NFTs have surged ahead with a 90.9% year-to-date (YTD) performance when denominated in ETH and 35.9% YTD when denominated in greenback.

Since January 1, the period in question, Bitcoin dropped roughly 17% and Ethereum fell more than 31%according to CoinMarketCap.

No matter how you look at it, NFTs are showing gains while cryptocurrencies have generally seen losses this year.

Another intriguing finding from Nansen’s NFT-500 year-to-date data is that the price of NFTs, when denominated in Ethereum, has an inverse correlation to spot crypto prices.

Source: Nansen.

Data provided by Nansen indicates that its NFT 500 index (in ETH terms) has a correlation coefficient of -0.46 with Bitcoin. The same index has a correlation of -0.6 with Ethereum (also in ETH terms).

When measuring correlation coefficients, “1” indicates a direct positive correlation, which means that the two variables move into lockstop. Conversely, “-1” indicates that the two variables move in opposite directions.

However, when looking at the price of NFTs in dollars, a positive correlation appears between the two assets.

The reason for the discrepancy is primarily due to volatility, Nansen said.

“When NFTs are priced in USD, their performance also varies significantly. This is due to the volatility of the ETH/USD exchange rate. As such, the resulting correlation coefficients also differ,” Louisa Choe, research analyst at Nansen, told Decrypt. This can be an important factor for investors when deciding whether their portfolio denomination should be cryptocurrencies or fiat currencies. »

Data from Nansen’s NFT-500 index (denominated in Ethereum) also shows a strong inverse correlation with lesser-known decentralized finance (Challenge) tokens listed in Bankless DeFi Innovation Index.

So when the Ethereum price of NFTs is high, the dollar prices of DeFi tokens are usually lower. It should be noted that Bankless’s index tracks “promising early-stage DeFi projects that are not yet considered”blue boat.'”

Which collections performed best?

The top performing division of this group is non-fungible art and social tokens. Analytics by Chainalysis published at the beginning of the year brings to market a capitalization of nearly $41 billionand Nansen records that social tokens alone account for $12.8 billion, or about 30% of that.

Art NFTs have generated year-to-date returns of 191.8% (denominated in ETH) and 108.1% (USD).

During the same period (ending February 28, 2022), the Social-100 index posted returns of 114.8% (ETH) and 53.2% (USD).

When it comes to daily volatility, or the metric that measures the average difference between the return on a given day and the average return over a given period, Art NFTs take the cake.

Art NFTs have daily volatility of 36% (ETH) and 37.3% (USD), while metaverses and social tokens are the least volatile, with numbers well below 10% across all volatility denominations.

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