Blockchain firm Nansen announces six new NFT indexes

Nansen, a leading blockchain analytics platform backed by Andreessen Horowitz’ a16z, Tiger Global and Coinbase Ventures among others, has announced six new NFT index products targeted at helping investors tap into the growing NFTs market.

According to a release shared with Invezz, the company has added new indexes to its popular Nansen Blue Chip Index. It’s an update the firm says “raises the bar for quality financial infrastructure” tailored to meet the needs of investors in a fast-growing NFT industry.

The depth and breadth of the new categories will help Nansen users navigate and benefit from the broader NFT space, leveraging new market signals.

NFT exposure through indexes

Nansen says its NFT indexes apply the principles of index investing to offer investment opportunities around different NFT market segments. For example, the indexes allow investors to get NFT exposure by measuring a portfolio’s value against major indexes like the S&P 500 and the Nasdaq Composite.

An investor may choose to invest in a fund tracking the top 50 Gaming NFTs, or go for one on Social NFTs, Art NFTs and Metaverse NFTs.

The Nansen NFT Indexes

As noted above, Nansen NFT indexes offer an investment vehicle where a fund’s portfolio tracks a given NFT market segment.

Nansen offers six NFT indexes: Nansen NFT-500, Nansen Blue Chip-10, Nansen Social-100, Nansen Gaming-50, Nansen Art-20, and Nansen Metaverse-20

The indexes track a specific NFT category, which basically takes into account the use cases or applications around that NFT collection.

1. The Nansen NFT-500 is a benchmark index that tracks the daily activity and market movement of 500 NFT collections. The calculation is daily while rebalancing happens every 30 days.
2. The Nansen Blue Chip-10 highlights ten top NFT collections by market cap. It is calculated daily and rebalanced every 90 days.
3. The Nansen Social-100 offers investments around the 100 NFT collections across social subcategories like profile pictures, access and membership, and utility. They are rebalanced every 30 days.
4. The Nansen Gaming-50 provides exposure to this fast-growing NFT segment via Play-to-Earn (P2E), Role-playing games (RPG), and DeFi-related (GameFi) gaming collections. The index calculates daily and rebalances every 30 days.
5. The Nansen Art-20 comprises 20 NFT collections across ERC-1155 and ERC-721. It tracks notable NFT art collections currently trading in the market, including Generative Art, Physical Art and Music. The Art-20 NFTs index is calculated daily and rebalanced every 90 days.
6. The Nansen Metaverse-20 is an index of 20 NFT collections that cut across four subcategories of Assets, Land and Real-estate, Avatars, and Utility. The index calculates daily and rebalances every 30 days.

Some key trends in the NFT market (so far)

According to Nansen data collated as of 9 March and covering the period year-to-date, the trends below are some of the most observable.

1.The NFT market vs. Crypto market YTD

The NFT market’s growth in the past year saw sales volumes hit a 200-fold return, with billions of dollars traded. Year-to-date, the sector has continued to experience massive volumes even as the broader market sell-off.

For instance, the Nansen NFT-500 (denominated in ETH) had outperformed the cryptocurrency market by 68.5% (as of 9 March). Measuring the performance in USD shows NFTs have outperformed crypto by 20.9% YTD.

Here is a table comparing performance YTD and over the last 30 days (up to 9 March 2022).

Performance of NFT market and other assets. Source: Nansen

2. NFTs show inverse correlation to DeFi when denominated in ETH

Data shows an inverse correlation between NFTs and cryptocurrencies – when measured against the Nansen NFT-500 (ETH) index.  NFTs also show a notable inverse correlation to DeFi when denominated in ETH. However, the correlation is slightly weaker when measured against the Nansen NFT-500 (USD).

3. Gaming and Metaverse NFTs are the least volatile

Nansen indexes have shown varying volatility readings, with Metaverse and Game NFTs the least volatile at 6.9% and 6.8% respectively. On the other hand, the Blue Chip and Art NFTs show the most volatility at 11.5% and 10.6%.

The maturity of the Gaming and the Metaverse sectors are a factor towards the display of less volatility in performances. This could be attributed to the entry of major players like Meta Platforms (formerly Facebook has set aside millions of dollars for metaverse) Grayscale (offered the Decentraland (MANA) trust), and Andresen Horowitz (a16z invested in Yield Guild Games).

For the more volatile indexes, Nansen points to collections “being relatively illiquid,” with a lack of price information asymmetry forcing most market participants into speculation.

Comparatively, popular meme coin Shiba Inu (SHIB-USD) is more volatile than NFTs when looking at YTD returns. 

SHIB’s volatility estimation of 7.6% is higher than the 4.7% observed for the Nansen NFT-500 (ETH). Bitcoin (BTC-USD)’s historical volatility in the same period is 3.1% while Ethereum (ETH-USD) was at 4.5%.

4. Social NFTs take up 79% of the NFT market

According to market data as of last week, Social NFTs were the top-performing NFT collections with a market capitalisation of $9.5 billion, or 3.57 million ETH. This means the category accounts for roughly 79% of the NFT market.

Gains for the Nansen Social-100 index stood at 93.7% as of 9 March.

The other indexes’ performance YTD was at 68.5% for the Nansen NFT 500 (ETH); 83.7% for the Nansen Blue Chip-10; 22.7% for the Nansen Game-50; 30.8% for the Nansen Art-20 and 22.0% for the Nansen Metaverse-20. (Statistics as of 9 March).

What next?

NFTs are projected to continue on an upward trajectory – with the outlook in 2022 and beyond highlighting the potential for the sector to become a major revenue stream for the sports and entertainment industry.

But can NFTs be a good investment option? A look at how NFTs have performed year-to-date suggests they can. NFT indexes could be a good starting point for new investors.  Nansen is looking to play a leading role in this. The company raised $75 million last December during its Series B round, which was led by venture firms ACCEL, a16z GIC and SCB 10X among other prominent VCs.

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