Trends and Triggers: Analyzing the Co-Movement of Cryptocurrency and NFT Prices

Abstract

This paper aims to explore the complex interrelationships between the prices of cryptocurrency, specifically Ethereum (ETH), and five top Non-Fungible Token (NFT) collections: Bored Ape Yacht Club, Mutant Ape Yacht Club, Azuki, Moonbirds, and Otherdeed. Motivated by the intertwining dynamics of these digital assets and the unexplored nature of their interdependencies, this study employs a Vector Autoregressive (VAR) model and utilizes Granger Causality to dissect the multifaceted interactions. The analysis period ranges from April 2021 to January 2023, a critical window of exponential growth and fluctuation in the digital asset market. The results demonstrate a statistically significant impact of ETH prices on NFT collection prices, but not vice versa, revealing the strong dependence of the NFT market on cryptocurrency volatility. Specifically, the research finds that changes in ETHs value are predictive of shifts in NFT prices, whereas NFT price fluctuations lack predictive power for ETH prices. In conclusion, this research represents an advancement in understanding price dynamics in the rapidly evolving digital economy. By innovatively analyzing the co-movement of cryptocurrencies and NFTs, it not only enriches existing knowledge but also paves the way for further exploration, offering practical insights for diverse stakeholders navigating this exciting, ever-changing field.