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Identifying Causal Relationships Between NFT and Cryptocurrency Markets

by CryptoDataDownload


Fascinating Research
There has been some fascinating research done by the Blockchain Research Lab (BRL) concerning cryptocurrency markets and blockchain technology, and we would recommend you browse their academic research firsthand. Since we know that not everyone has the time to read academic research, we will highlight important parts that stood out to us and are the basis for the article. Here is a link to the actual research, published by FinTech 2022, and full citations are used at the bottom. The Non-Fungible Token (NFT) Market and Its Relationship with Bitcoin and Ethereum

Causal Relationship
The focus of this study set out to determine a relationship between NFTs and crypto based on the fact that it typically requires crypto to buy NFTs. There were 4 main data timeseries used: (1) Bitcoin price (2) Ethereum price (3) Total NFT sales (4) Count of NFT wallets. After the model was created, Granger causality tests were run to determine whether a change in one variable preceded a change in another variable. This analysis was used to address two main questions of interest:

    1. Do causal relationships exist between NFT and cryptocurrency markets?
    2. If this is the case, how strong are these relationships?

Findings
The findings and results of this study are laid out below.
    1) One standard deviation shock increases in BTC & ETH prices have a positive effect on NFT sales
    2) Negative BTC price shock has a positive effect on number of NFT wallets
    3) Negative ETH price shocks tend to reduce number of NFT wallets
    4) Number of NFT wallets and total volume of NFT sales are positively correlated
    5) An ETH price shock has a positive effect on the price of BTC
    6) A negative 1% price shock of BTC has a negative short term effect on price of ETH.

In the below Granger Causality results, we can see three variables found to be statistically significant in having an effect on the dependent variables. 1) The BTC price influences NFT sales. 2) ETH price has influence on the number of NFT wallets. 3) And the BTC price has influence on the price of ETH.

It is worth noting in the review, and as pointed out by the authors of the study: There is no way to isolate or prevent wash sales from being included in the data. Wash sales are when an NFT owner "sells" something to himself using two public wallet addresses both under his control. Wash sales have the potential to significantly distort the perception of the market, and "fake" demand for NFTs. But regardless, this is certainly an interesting area of study and we are certain that research will continue in this space.



Citation
MDPI and ACS Style
Ante, L. The Non-Fungible Token (NFT) Market and Its Relationship with Bitcoin and Ethereum.
FinTech 2022, 1, 216-224. https://doi.org/10.3390/fintech1030017



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