Analysis of Mean - Variance Theory and Safety-first Model for Portfolio Selection on Non-fungible Tokens (NFTs) and Collectibles

Abstract

This paper presents a comparative analysis of Mean-Variance Theory (MVT) and Safety - First model with SP/A criterion utilizing Non-Fungible Tokens and Collectibles in the crypto market. The criterion used to determine the investment pool is the mean volume price of the Top 100 NFTs and collectibles. Historical data are gathered and computed for return estimation with equal probability. Also, different portfolio weight threshold parameters were used for the mean-variance (risk-return threshold) and safety first (relative value for fear and hope). Using backtesting, safety-first portfolios show higher cumulative returns from the US dollar benchmark. Overall, this study offers portfolio optimization and an alternative portfolio selection model as references for generic investment procedures for digital asset investors, and for educational purposes.