Information Asymmetry and Speculation in NFT Platforms

Information asymmetry between buyers and sellers is often credited as the primary cause of speculation in trading markets. The advent of blockchain technology, which enables full transparency and equal access to trading information for all trading partners, is expected to eliminate information asymmetry in theory and thus eradicate speculation. However, in reality, speculation remains rampant on blockchain-empowered trading markets such as the NFT market. We argue that this arises because of the limited attention of individuals to blockchain information. Although easily accessible public trading information could reduce information asymmetry, private information on the assets held by traders may still result in substantial information asymmetry. This is confirmed in our empirical investigation on CryptoKitties. We show that information asymmetry still persists in the NFT market, which creates opportunities for speculation, with the level of speculation being moderated by NFT rarity and user preference. The findings have direct implications for NFT platforms to improve operational performance in terms of regulating speculation. At a broader level, this study highlights a fundamental problem: the use of IT alone, such as blockchain, may not be adequate to resolve operations inefficiencies, as evidenced by the prevalence of NFT speculations