An Economic Evaluation of NFTs: A Systematic Framework for Prediction and Analysis with Other Comparable Assets

There has been a philosophical debate for decades in understanding the true meaning of art and defining it succinctly. Digital technology has helped the art industry advance and reach new heights, but it has also come with new challenges around fraud, ownership, and valuation. While the art industry is dealing with its challenges, blockchain technology emerged a decade ago to solve shortcomings. It helped the industry to gain new heights and helped with security. However, in the last few years, NFTs (non-fungible tokens) have been born as disruptors of the traditional art industry. It combined blockchain technology and democratized the digital ownership of art without going to any art houses, which helped it gain mainstream attention. However, it quickly fizzled and is soaring again, but there are tons of questions to be answered around its instant rise and fall. This dissertation proposal seeks first to understand the economics of NFTs and the key macroeconomic factors that impact NFT prices. Next, this research will develop predictive models using these factors by employing autoregression and artificial intelligence technology such as transformers. Then, the NFTs will be compared with other common financial assets to see how they performed using time series forecasting and sensitivity analysis. Finally, existing literature studies of over a decade on NFTs are examined to understand the rise and fall of NFTs with future implications around concerns and opportunities. The lack of quantitative analysis using macroeconomic factors will be addressed in this multidisciplinary research of NFTs combining art, technology, and finance while employing engineering principles. Finally, the research will help us understand emerging financial assets aided by technology and hysteria with a closer evaluation and analysis of NFTs. This will enable not just stakeholders of NFTs but also other researchers to investigate other financial assets using a multidisciplinary approach. This research will help novice investors understand the factors impacting NFT prices and the value of NFTs using financial strategies such as diversification and hedging. Furthermore, this research will inform the right economic conditions to invest in various financial assets and add literature to the body of knowledge on emerging assets like NFTs.