Indirect Investment in NFTs in 2024: VCs, ETFs & Indices

NFTs have grown significantly over the past year. Initially, investors invested in individual NFTs which 

• exposed them to risks specific to that NFT rather than the NFT class
• required in-depth knowledge of the market

To remedy this, both traditional and non-traditional tools & products that can provide indirect exposure to the NFT market have been developed. However, reliable sources of information about these tools, their opportunities and risks remain is not easy to find.

To address this issue, we will look at NFT indexes and investment vehicles that can provide investors with indirect exposure to NFTs. 

NFT indexes

Indexes are important because they can be used to measure investment performance and understand market sentiment. They can be an important tool for both individual and institutional investors to compare their investment performance. 

Some ETFs track indexes which allow investors to speculate on index prices but the indices that we list below are not tracked by ETFs so they are purely for monitoring the market.

Examples of NFT indexes include: 

• Nansen, a Tiger Global-backed blockchain analytic platform, has developed 6 NFT indexes. It includes broad market, blue-chip and thematic indexes. 
• BLT Index, which is developed by researchers by analyzing more than 30 million NFT transactions. NFTs, like houses and arts, are heterogeneous which makes index creation challenging. This index uses repeat sales methods to solve this problem. 

Figure1. The BLT Index performance

NFT Investment vehicles 

NFT ETFs

2021 saw the approval of Bitcoin-linked exchange-traded funds (ETFs) that can invest in Bitcoin futures. Proshares Bitcoin ETF was launched and it became the fastest ETF to reach $1 billion. SEC is expected to make a decision regarding Bitcoin ETFs that can invest directly in the Bitcoin spot market and if the outcome is positive, it could pave the way for the future of ETFs that can invest directly into NFTs. Currently, ETF investors can invest in public equities of the companies that have exposure to the NFT market, but not directly in NFTs. 

Defiance ETF has launched an ETF named NFTZ that invests in “Digital Economy with NFTs, Blockchain and the NFT Marketplace”. NFTZ is listed on the New York Stock Exchange. This NFT is labeled as “the first NFT focused ETF”. NFTZ does not invest directly in NFTs or cryptocurrencies but instead invests in global public companies that either drive more than 50% of their revenue from blockchain or cryptocurrency activities or have exposure to NFTs.

This ETF does not provide full exposure to the NFT market, as by end of March only 28% of its holding is invested in NFT-related equities. 

NFT Investment companies 

Traditional investment companies

• NFT Investment  PLC is a London-based investment company that invests in NFTs, cryptocurrencies, and companies that have exposure to NFTs or blockchain technologies. It is traded on the AQSE Growth Market.  
• Sfermoin is an investment firm that has 2 funds. Fund 1 was founded in 2019 and focuses on Direct investment in NFTs and fund 2 focuses on Metaverse infrastructure. 

Crypto based investment companies

• JPG NFT Index tracks blue-chip NFTs that pass its screening criteria. This index utilizes NFT vaults and fractionalized NFTs to compose its index of the fungible versions of NFTs and to provide a liquid market that enables this index to be traded freely. The platform uses smart contracts. The JPG NFT index is claimed to be fully collateralized and it is tradeable on the Index Coop, the index-founding company website. Currently, they have more than $110 million in assets under management. 

NFT venture capital funds 

Investors can invest in Venture Capital funds (VCs) that have jumped on the NFT hype wagon. However, contribution to VC funds is not publicly traded and have minimum contribution requirements. Limited Partners (LPs) (i.e. investors) of VCs tend to be wealthy institutions like pension or endowment funds that want to diversify their investments.

VCs invested $7.4 billion in NFT-related companies in Q1 2022. Most of the investments went into the NFT gaming segment (Figure 2). 

Figure 2. Venture capital investments in NFT companies in Q1 2022

VCs tend to specialize in certain industries. For example:

• A16z is a well-known VC that has invested in cryptos and NFT-based companies. Some of their investments include Axie Infinity and Royal. 
• Paradigm, one of the prominent VCs that focuses on blockchain and NFTs, helped to raise $725 million in November 2021 for Forte, an NFT-based gaming platform. They also led the $300 million Series C funding round for the leading NFT marketplace OpenSea. 

Further reading 

• Top NFT use cases
• Top 14 NFT types