Cryptocurrency bubbles, the wealth effect, and non-fungible token prices: Evidence from metaverse LAND

TL;DR

This study investigates the relationship between cryptocurrency prices, NFT land prices, and the wealth effect in metaverse environments, revealing a strong correlation and causal influence of crypto prices on virtual land values.

Contribution

It provides empirical evidence of a metaverse bubble and the wealth effect linking cryptocurrency and virtual real estate prices, a novel insight into digital asset markets.

Findings

Cryptocurrency and LAND prices are highly correlated (over 0.96).

Cryptocurrency prices Granger cause LAND prices.

Metaverse bubble resembles the 1920s real estate bubble.

Abstract

The rapid rise of cryptocurrency prices led to concerns (e.g. the Financial Stability Board) that this wealth accumulation could detrimentally spill over into other parts of the economy, but evidence is limited. We exploit the tendency for metaverses to issue their own cryptocurrencies along with non-fungible tokens (NFTs) representing virtual real estate ownership (LAND) to provide evidence of the wealth effect. Cryptocurrency prices and their corresponding real estate prices are highly correlated (more than 0.96), and cryptocurrency prices Granger cause LAND prices. This metaverse bubble reminisces the 1920s American real estate bubble that preceded the 1929 stock market crash.