Non-fungible tokens (NFTs) experienced meteoric growth in 2021, with trading volumes rising over 20,000% year-over-year to $17 billion according to one report. As the NFT ecosystem evolves in 2024 and beyond, investors are seeking exposure opportunities that avoid the risks of buying individual NFTs directly.
This guide explores various indexed products, funds, and indirect investment vehicles that offer access to the NFT asset class:
NFT Indexes
Indexes provide critical benchmarks to measure performance and gauge market sentiment. For a heterogeneous asset class like NFTs, they help address challenges posed by limited transaction data.
Index Construction Methodologies
The methodology used to build an index influences its usefulness as an investment tool. For example:
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Nansen‘s indexes cover broad markets, blue chips, and themes. They use proprietary evaluations of exchange data, on-chain signals, and community activity to select and weight NFTs. This captures trends across different sectors.
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The BLT Index relies on repeat sales regression modeling. It analyzes historical sales records to estimate price changes, controlling for distinct NFT characteristics. This helps address the appraisal challenges posed by heterogeneous assets.
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JPG Index tracks "blue chip" NFTs passing liquidity and volume screens. It holds fractionalized NFTs in a governance-controlled smart contract structure. This approach provides accessible exposure for crypto-native investors.
Each methodology makes certain tradeoffs, informing index construction based on specific goals. But overall, NFT indexes help investors benchmark performance and analyze market-wide price movements.
Leading NFT Indexes
In addition to the Nansen, BLT, and JPG indexes mentioned previously, other noteworthy indexes include:
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CryptoSlam: Focused oncollectibles and art NFTs, weighting by market capitalization.
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ArtBlocks: Tracks curated collections of profile pic (pfp) ArtBlocks NFTs.
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CryptoPunks Index: Charts the floor price of the blue chip CryptoPunks collection over time.
The chart below shows the performance of select NFT indexes over the past year:
Data Source: Nansen, BLT, CryptoSlam. As of March 2022.
While not investable assets themselves, NFT indexes help benchmark returns and analyze market-wide trends.
NFT Investment Vehicles
Beyond indexes, investors can gain exposure through ETFs, funds, and other structured products.
NFT ETFs
The approval of Bitcoin futures ETFs in late 2021 marked a turning point for crypto investments. Many experts now anticipate a Bitcoin spot ETF could arrive soon, potentially opening the door for direct NFT ETFs.
Recent ETF filings like the Valkyrie Bitcoin Fund propose holding Bitcoin alongside "digital assets" like NFTs. However, no direct NFT ETFs have been approved to date.
The regulatory environment remains uncertain, especially in the U.S. Much depends on how agencies like the SEC ultimately classify NFTs. More clarity could pave the way for financial product innovation in 2024 and beyond.
NFT Investment Companies
Investment managers are launching funds focused on NFT exposure:
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Traditional Firms – NFT Investments PLC, a London-based public investment company, holds NFTs, cryptocurrencies, and related equities. Its diversified portfolio mitigates the volatility of direct NFT speculation.
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Crypto Funds – Sfermion has two specialized NFT funds for accredited investors. Its first fund holds direct NFT investments, while Fund II focuses on metaverse infrastructure.
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Tokenized Funds – The JPG Index developed by Index Coop offers fractional, tradeable exposure to blue chip NFTs. Its smart contract structure enables accessible, governed investments.
Investment companies allow exposure to NFTs without sole ownership costs and risks. However, due diligence is required given the nascency of this fund category.
NFT Venture Capital Activity
Venture funding provides another indicator of NFT and blockchain investment trends:
VC investments in NFT companies surged to $7.4B in Q1 2022. (Source: PitchBook)
Crypto-focused firms like Andreessen Horowitz (a16z) have been highly active dealmakers in the space:
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a16z has invested in NFT-related startups like OpenSea, Dapper Labs, Axie Infinity, and Royal.
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Paradigm has funded leading NFT companies such as OpenSea and Sorare.
Direct investment in VC funds remains exclusive, but activity shows investor enthusiasm for Web3 and NFT startups.
Comparing Investment Options
For investors today, indexes provide transparency while funds and ETFs offer more direct exposure:
| Vehicle | Liquidity | Risk Profile | Investor Access |
|---|---|---|---|
| NFT Indexes | Low, not investable | Medium, tracks market | Open |
| NFT ETFs | High, publicly traded | Higher, sole assets | Open |
| NFT Investment Companies | Low-Medium, depends on structure | Medium-High, concentrated | Can be limited |
| NFT Venture Capital | Low, illiquid | Highest, early stage | Restricted to accredited |
Each approach carries tradeoffs between liquidity, risk, and access. As the market matures, we‘re likely to see further product innovation making NFTs more investable. But regulatory uncertainty persists, especially in the U.S.
For now, assess your personal risk tolerance, time horizon, and NFT sector beliefs. The variety of investment vehicles provides numerous options to participate in this rapidly evolving new asset class.