NFTs, DeFi, and Other Assets Efficiency and Volatility Dynamics : An Asymmetric Multifractality Analysis

This paper examines the efficiency and asymmetric multifractal features of NFTs, DeFi, cryptocurrencies, and traditional assets using Asymmetric Multifractal Cross-Correlations Analysis covering November 2017 to February 2022 . Findings show a considerable efficiency variation among the asset classes where a DeFi-DigiByte is the most efficient and the cryptocurrency Tether is the least efficient asset class. S&P 500 showed high efficiency before COVID-19, and DeFi-Enjin Coin advanced as the most efficient asset during COVID-19. Further analysis shows the degree of multifractality where Tether ranked high, followed by gold, crude oil, and S&P 500. This study contributes to the literature by showing two novel findings: first, the volatility dynamics of NFTs, DeFi, and cryptocurrencies follow strong nonlinear cross-correlations, but evidence of weaker nonlinearity exists in traditional assets. Second, the sensitivity to smaller events in bull markets is high for NFTs and DeFi. In portfolio diversification, we suggest more preference for efficient assets, such as NFTs and DeFi, in the short run when an investor’s portfolio set includes traditional assets, cryptocurrencies, and relatively new blockchain-based assets like NFTs and DeFi