Valuing Digital Art: On Non-fungible Tokens, Blockchain Hypes, and the Creation of Scarcity

Abstract

Passion investment (e.g., paintings, sculptures, non-fungible tokens [NFTs]) are not based on straightforward valuations. To establish the valuation of collectible NFTs in the nascent market of digital art, this study uses approximately 14,000 transactions by 3 ,230 unique traders in a highly liquid digital collectibles market (CryptoPunks) to identify the price influences of affective factors at product–, market participant–, and market conditions–levels. In a robust, hedonic pricing model, the study offers multiple novel findings. First, there is evidence of subjective valuation of visual (aesthetic) elements of art among market participants, who are homogenous on the value of objectively measurable traits. Second, contrary to popular perception, NFT market participants’ who are naive (in terms of crypto currency experience) or experienced a windfall gain (due to favorable cryptocurrency exchange rates) trade at lower prices. Notably, the study finds that NFT collectibles market is a sellers’ market; likely due to its decentralized character, such that sellers have direct control and influence over transactions, unlike in traditional art markets mediated by agents. Third, prior trading activity and prices positively associate with future prices, implying price extrapolation and anchoring. The findings suggest that compared to the traditional art and investment domains, digital ownership might evoke similar, if not stronger, emotional responses among consumers than physical ownership.