Digital asset price bubbles and market sentiment in cryptocurrency and NFT markets

Purpose This study aims to detect speculative price bubbles in major cryptocurrencies and NFT indices and measure how sentiment from the cryptocurrency market, NFT market and broader equity market uncertainty transmits across these digital assets. Design/methodology/approach Using daily data from May 6, 2021, to March 1, 2024, this study examines the dynamic price changes in Bitcoin (BTC), Ethereum (ETH), the NFT Blue-Chip Index (BCI) and the NFT Potential Index (PNI). Bubble episodes are identified via the Backward Supremum Augmented Dickey–Fuller (BSADF) procedure. To model dynamic spillovers between returns and sentiment, a vector autoregression (VAR) is estimated incorporating equity-market volatility (VIX), the crypto Fear and Greed Index and NFT/market sentiment indicators. Findings Findings reveal various speculative bubble episodes in BTC, ETH and the NFT BCI, indicating recurrent boom-burst dynamics in core crypto and mature NFT segments. VAR estimates show significant sentiment and risk transmission across markets. BCI generates a significant positive spillover to BTC and ETH returns, suggesting that mature NFT activity can act like a multiplier on the normal boom–bust pattern of BTC/ETH by adding extra momentum into crypto returns. Market sentiment is significantly negatively associated with subsequent ETH returns, consistent with short-run corrections after optimism. Finally, VIX and NFT sentiment are significantly linked to NFT index movements, and the NFT Potential Index (PNI) is particularly sensitive to broader risk conditions and NFT-specific sentiment. Practical implications Findings provide useful information and strategy recommendations for investors, portfolio managers and financial regulators in digital assets. Investors should monitor NFT sentiment and market volatility as indicators of price dynamics in cryptocurrency markets. Originality/value Through an in-depth analysis of the relationship between the sentiment indicators of the stock market, the NFT market and the cryptocurrency market, this paper supports the transmission effect mechanism of market sentiment among different markets.