A. How Does Media Coverage Affect NFT Trading
To measure media’s effect on the market, researchers merged their databases of trades and news articles on a daily basis. They also measured the tone of each article. Applying advanced analytics across the combined data allowed researchers to estimate the link between NFT news and market fluctuation across a number of days. They measured media’s influence on market participation, volatility and seller returns.
“If the news media are primarily hyping NFT markets, you should see a positive relation between NFT news and NFT volatility and returns,” said White. “If the media are educating market participants, then seller returns and price swings should decline because new buyers are better informed.”
Market Participation: Unsurprisingly, the more the news coverage, the greater the increases in NFT minting and trading five days later. As public awareness about NFTs grew, more buyers and sellers also entered the marketplace. Negative news coverage weakened the effect, but only 9% of all the coverage took a negative angle (41% was positive, 50% neutral).
Volatility: News prevalence actually seems to reduce NFT volatility. Counter to the media hyping theory, this evidence suggests that media increases the public’s understanding of NFTs’ risks and values.
Seller Returns: Average NFT returns were high but fairly consistent during the sample period, averaging between 70.4% and 158.2%. Again, going against the expectation in a media-hyping situation, seller returns were lower following surges in NFT news, especially when the news was negative or neutral.
B. Does the Media Source Matter in NFT News?
The articles in the study came from 1,600 national and local news sources. Researchers segmented sources into 5 categories: local, national, financial, tech, and crypto. They measured the coverage and tone of each segment, again looking at changes in market participation, volatility, and returns in the days following.
Financial media covered NFTs the most and most positively. National and tech news articles were typically more neutral, and together these 3 segments spurred greater and more informed market participation. Local media coverage was the most negative but least impactful of the group. And though one might expect crypto sources to tend toward hyping NFTs, their tones follow the averages of the other segments, and their coverage correlates with lower volatility and seller returns.
Taken on the whole, the study seems to overturn the idea that news outlets are primarily igniting dangerous growth in NFTs. Instead, media appears to play an educational role.
“We found very little evidence that media coverage of NFTs exacerbates irrational investor choices by amplifying fear of missing out,” White said.
While it remains to be seen whether this role holds true over the long term in the NFT market, in the interim, it can offer investors some assurance that journalists help readers see through the hype of fast-growing, complex, and unregulated markets such as non-fungible tokens.
Non-fungible tokens (NFTs) have recently received an influx of media attention, but little research has been done on the impact of that attention on the NFT market, which is still in its infancy.
The data for the NFT market, like any cryptocurrency, is on a blockchain, meaning anyone can access transaction information, making the market relatively transparent. The researchers found a data company that had already compiled the raw data, which allowed them to analyze the impact of media on the NFT market.
They expected their research to mirror findings of similar stock market research, which found media tended to oversell the benefits of some investment without warning about the potential risks, which fueled the hype in the market, leading to an increase in volatility and returns. Volatility describes the size of risk the investor takes on. High volatility offers the chance for a massive gain or loss, as the difference between the initial investment price and ending price can vary largely.
However, the data showed a surprising conclusion – a correlation between the news media publishing articles about NFTs and an increase in number of market participants, trades, and NFT creations, implying the media was influencing the NFT market. They additionally found a decrease in volatility and returns with an increase in media attention, implying the media was educating investors rather than hyping the market.
NFT market differs from the stock market in some ways. Stocks are fungible, meaning two shares of the same stock are interchangeable, whereas each NFT is unique and irreplaceable. Since the NFT market is relatively new and not regulated as heavily as the stock market, it also experiences market manipulation and investors are susceptible to scams. Additionally, the NFT market is speculative, which means it can fluctuate quickly, allowing for quick gains or sudden losses.
“NFTs are a gamble,” Wilkoff said. “Don’t invest what you can’t afford because the market could go away tomorrow.”