Exploring the Volatility Spillover Dynamics Among Non-fungible Token Coins and Bitcoin

Volatility spillover between NFTs and cryptocurrencies is an emerging area of interest among researchers. Even after a decade of its creation, Bitcoin and other crypto assets remain extremely volatile and thus creates uncertainty in the minds of investors especially with increasing extreme events like COVID-19. In this context we investigate the factors that lead to volatility in the NFTC market and attempt to model the volatility spillover that occurs between the NFTC and cryptocurrencies that will help investors to diversify risk. Towards this, we employ DCC GARCH models on daily returns of Bitcoin along with three NFTCs, namely Decentral land, Theta and Eijin coin from 18-01-2018 to 03-12-2021. Our results show significant return and volatility spillover between NFTCs and Bitcoin. We find that the NFTC market is significantly affected by fluctuations in the Bitcoin market. We find significant volatility spillover between Bitcoin and NFTs during significant events that influenced the Bitcoin market, such as the 2018 Bitcoin price crash, the COVID-19 crisis of 2020 and the cryptocurrency bull-run of 2021. Based on the results, we advise against the inclusion of NFTCs in a cryptocurrency portfolio.