Psychological Factors & Personal Experiences: Key Drivers in NFT Market, Studies Reveal
Summary:
Three studies published in November shed light on the social and psychological factors driving the NFT market. The research revealed how personal experiences and luck, asset scarcity, and consumer optimism influenced market movements. Findings included that early Ethereum investors were likelier to engage in high-value transactions and that the creation of scarcity dictated pricing. The studies also noted that negative past experiences coupled with optimism influenced future cryptocurrency and NFT ownership.
Three recent studies, published in November, help elucidate the psychological and social aspects that drive the non-fungible token (NFT) market. The collective work of scholars from Western University in Canada, the University of North Carolina at Chapel Hill in the US, Rennes School of Business in France, and Tilburg University in the Netherlands explored how personal experiences and fortune, together with asset rarity and consumer hopefulness, spur most market movement within the NFT sphere.
A study by Guneet Kaur Nagpal from Western University and Luc Renneboog from Tilburg University, titled "On Non-fungible Tokens, Blockchain Hypes, and the Creation of Scarcity," scrutinized the market behavior of CryptoPunks—highly sought-after NFT assets. According to the researchers, CryptoPunks are among the most esteemed NFTs, with impressive transactions such as CP #5822 commanding $23.7 million in February 2022 and CP #7523 garnering $11.8 million in December 2021.
Their paramount discovery includes the notion that early Ethereum buyers (CryptoPunks' residing blockchain) were more disposed to partake in the high-value market, with them also seeing larger profits. The researchers underlined that Ethereum's profits or losses didn't necessarily sway the price of NFTs, but instead informed the choice to sell or resell assets. The paper further posits:
"The researchers ascertain that the manufacturing of scarcity, in relation to both CP categories and accessory mixes, as defined by statistical and visual methods, steers pricing."
In a distinct investigation titled "Personal Experience Effects across Markets: Evidence from NFT and Cryptocurrency Investing," Chuyi Sun of the University of North Carolina at Chapel Hill looked into data from around a million wallets to understand how "personal experiences" incited economic bubbles in the NFT market.
"From my observation, NFT investors who by chance acquire more valuable NFTs in the initial market are more inclined to participate in future initial market sales," Chuyi Sun penned. Additionally, they note that investors receiving more valuable NFT tokens are likely to purchase riskier cryptocurrencies in the future.
A surprising discovery emerged from the third study, "The Impact of Experience, Overconfidence and Optimism on Future Cryptocurrency Ownership," lead by Akanksha Jalan and Roman Matkovskyy of Rennes School of Business. The study examined the dynamics of investor optimism and how it impacts the cryptocurrency and NFT markets.
In a stunning revelation, the research indicated that former negative experiences coupled with investor optimism both positively influence the likelihood of future cryptocurrency and NFT ownership. "The continued interest in cryptocurrencies by individual investors with past negative experiences could suggest a kind of self-serving bias," the authors wrote, going on to suggest that "these investors probably ascribe their losses to uncontrollable factors, such as market fluctuation, rather than their own flawed decision-making.
Published At
11/29/2023 7:00:00 PM
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