Alternative Investments in the Fintech Era: The Risk and Return of Non-fungible Token (NFT)

Abstract

We study one of the earliest and most representative NFT collections and find that NFTs have higher returns than traditional financial assets. However, investing in NFTs comes along with high volatility, leading to a comparable Sharpe ratio to the NASDAQ index. NFT prices surge when there is a drastic increase in demand for alternative investments and a search for yield in a low-interest-rate environment. The pricing of NFT also largely depends on a token’s scarceness and investors’ aesthetic preferences. Overall, we provide the first comprehensive analysis that NFTs serve as a novel investment vessel in this Fintech era.

Keywords: Non-Fungible Tokens, NFT, Fintech, Ethereum, Blockchain, Alternative investments, Risk and return

JEL Classification: C43, D44, G11, G12, Z11