The Bitwise Blue-Chip NFT Collections Index was developed to provide investors with a clear, rules-based, and transparent way to broadly track the price of the largest and most established (“blue-chip”) art and collectible non-fungible token (NFT) collections. The index is designed for benchmarking active strategies, serving as the underlying index for index-tracking funds, and measuring the returns of the market over time.
The NFT market is new and presents many challenges to well-established protocols for indexing traditional assets such as stocks and bonds, as well as for indexing crypto assets. The Bitwise Blue-Chip NFT Collections Index aims to combine the best of traditional indexing methodologies with appropriate adjustments to adapt those practices to the NFT market.
The guiding principles of the Bitwise Blue-Chip NFT Collections Index include:
Index and pricing decisions must follow a clear, rules-based, and transparent process.
If the judgment of the Bitwise Crypto Index Committee is required when applying those rules, decisions will be made public with full documentation of the decision-making process.
Indexes are designed to be investable and replicable; as such, they will take into account measures surrounding liquidity, custody limitations, and other factors in a rules-based manner.
The Bitwise Blue-Chip NFT Collections Index is governed by the Bitwise Crypto Index Committee.
Bitwise Crypto Index Committee
Overview: The Bitwise Crypto Index Committee has sole responsibility for developing, maintaining, and adjusting the Bitwise Blue-Chip NFT Collections Index Methodology, and for verifying the data sources used to calculate the index.
Responsibilities: The Committee meets monthly on the third-to-last Business Day of the month with the following goals:
Review and verify all data sources — existing and proposed — that contribute to the Bitwise Blue-Chip NFT Collections Index for uptime, accuracy, and robustness.
Review and approve changes to the methodology for the Bitwise Blue-Chip NFT Collections Index.
Review and approve methodological decisions that require judgment, and provide detailed public explanations of those decisions.
Handle other matters on an as-needed basis.
The indexes rely on the New York Stock Exchange’s public holiday calendar to determine what counts as a “Business Day.”
Voting: Decisions are made by a simple majority vote of the members of the Committee present at the meeting. A quorum of two members is required for a meeting to take place.
Committee Members and Bios
Chairman: Matt Hougan
Matt Hougan is Chief Investment Officer for Bitwise Asset Management. He oversees development of the Bitwise index methodologies, conducts fundamental research on crypto assets, and works to educate professional investors on the role crypto assets can play in a portfolio. Prior to joining Bitwise, Hougan was CEO of Inside ETFs and managing director of Global Finance at Informa. Earlier, he was CEO of ETF.com. Hougan is a member of the ETF Hall of Fame, co-author of the CFA Institute’s monograph of ETFs, and co-author of the CFA Institute’s research brief on bitcoin, blockchain and cryptocurrencies.
Member: Hunter Horsley
Hunter Horsley is co-founder and Chief Executive Officer of Bitwise Asset Management. He heads the company’s efforts to be a leader in the crypto asset indexing world. Prior to founding Bitwise, Horsley was a product manager at Facebook, and earlier, a product manager at Instagram.
Member: Hong Kim
Hong Kim is the co-founder and Chief Technology Officer of Bitwise Asset Management. He leads the company’s engineering team and researches technological developments native to crypto protocols. Prior to founding Bitwise, Hong worked as a software security researcher in the South Korean Military.
The Bitwise Blue-Chip NFT Collections Index is designed to broadly capture the investable market opportunity for the most valuable arts and collectibles NFT collections. NFT collections must meet each of the following Eligibility Requirements to qualify for potential inclusion in the index:
Must be a collection of NFTs: cryptographically secured, unique digital items whose ownership is recorded on a public blockchain.
The Bitwise Blue-Chip NFT Collections Index uses a broad general definition of NFTs that requires ownership to be recorded on a public, decentralized blockchain.
Must be composed of NFTs that, in the opinion of the Bitwise Crypto Index Committee, qualify as “arts and collectibles” NFTs, meaning that each NFT’s primary value lies in its artistic, cultural, and community value, as opposed to functional value in the physical and/or gaming worlds.
The Bitwise Blue-Chip NFT Collections Index focuses on the arts and collectibles segment of the NFT marketplace, and does not consider NFTs linked primarily to music rights, tickets, gaming, or other functional activities. While arts and collectible NFTs may accrue certain physical and/or gaming benefits — product drops, attendance at events, etc. — this rule is meant to screen out NFTs whose primary use lies in their utility function.
Must include at least 100 related existing NFTs inside a single identifiable collection.
The Bitwise Blue-Chip NFT Collections Index focuses on groups of NFTs that share certain commonalities and are accrued under a single named collection. The index does not consider “one-of-one” or “one-of-few” NFTs.
Is freely traded, does not face an undue risk of foreseeable illiquidity shocks, and can be custodied in a manner acceptable to professional investors.
This requirement exists to ensure that all NFTs included in the index may be traded and custodied in a manner that is acceptable to a professional investor.
This section outlines how Bitwise Index Services identifies the representative floor price for NFTs in a given collection, how it calculates the relative market capitalization of different NFT collections, and how it handles airdrops.
Bitwise Adjusted Floor Price
The Bitwise Blue-Chip NFT Collections Index utilizes the Bitwise Adjusted Floor Price to value NFTs in a given collection, establish the relative market capitalization of different collections, and strike index values. The Bitwise Adjusted Floor Price is designed to reflect the price at which an investor can buy or sell the lowest-price NFT in any given collection.
The index’s use of the floor price to value an NFT collection — rather than trying to estimate the value of each individual NFT in the collection — is driven by the fact that “floor NFTs” have significantly higher liquidity than rarer members of a collection. Leading NFT collections will experience relatively large numbers of floor transactions in any given day, while rarer NFTs in those collections may not trade for weeks, months, or years at a time. Historically, floor prices have retained a steady pricing relationship to rarer NFTs — i.e., if a floor NFT had 1/10th the value of a rare NFT in the past, it has tended to retain a roughly 1-to-10 relationship going forward — making floor prices a valid proxy for the pricing trends of a collection overall.
The Bitwise Adjusted Floor Price is priced in U.S. dollars. The methodology for calculating the Bitwise NFT Floor Price is as follows:
Identify the Primary Market for Trading Each NFT: Using publicly available data, at the start of each calendar quarter, determine the most liquid trading venue for each NFT Collection on a trailing 30-day basis.
The Bitwise Crypto Index Committee reviews all data for accuracy and data integrity.
Measure the Floor Price for Each Collection on an Hourly Basis on this Primary Market: This data is recorded for documentation and testing.
This data is used as a key input in determining the Adjusted Floor Price.
Record All Trades for Each Collection on an Ongoing Basis: This data is also recorded for documentation and testing.
Additionally, evaluate each trade and label as “Floor Trades” those where the trade price was within a 10% band of the last hour’s reported floor price (or the last hourly floor price that was recorded).
This data is used as a second key input in determining the Adjusted Floor Price.
Determine the “Adjusted Floor Price (ETH)”: For each collection, evaluate and determine a 4pm ET “Bitwise Adjusted Floor Price (ETH)” by:
Taking the 4pm ET reported floor price and the last actual Floor Trade trade price.
Comparing the two values.
Selecting the lower of the two values.
This process is designed to ensure that the valuation cannot increase indefinitely without higher-priced Floor Trades having occurred.
Review Anomalies: All data is stored and recorded, and any major anomalies or differences are reviewed by the Bitwise Crypto Index Committee.
This step is taken to allow the Bitwise Crypto Index Committee to investigate and correct for potentially anomalous pricing.
Convert to USD: After identifying the Adjusted Floor Price (ETH), convert the price to USD by using the Bitwise Crypto Asset Price (CAP), as detailed in the Bitwise Crypto Indexes Methodology.
This step is taken because floor prices are typically quoted in terms of their underlying crypto asset value, rather than in U.S. dollars.
Bitwise Adjusted Floor Price Market Capitalization
The Bitwise Blue-Chip NFT Collections Index aims to capture the importance of each NFT collection in the ecosystem, as measured by the aggregate value investors assign to that collection. It does this by multiplying the Bitwise Adjusted Floor Price by the total number of existing NFTs in each collection.
Current Minted Supply x Bitwise Adjusted Floor Price = Market Capitalization
Treatment of Air Drops
Air drops can be an important part of the NFT ecosystem. The Bitwise Blue-Chip NFT Collections Index does not claim or value any airdrops, but funds tracking the index may at their own discretion.
Claiming air drops requires agency that is beyond the native capacity of an index. It is our expectation, however, that funds tracking the index may claim valuable air drops if those claims can be made in a secure and efficient manner.
The Bitwise Blue-Chip NFT Collections Index is designed to provide investors with a clear, rules-based, and transparent way to track the value of the largest and most established (“blue-chip”) art and collectible non-fungible token (NFT) collections. This section details the core rules around the construction and maintenance of the index.
The Bitwise Blue-Chip NFT Collections Index captures the 10 largest NFT collections, as selected and weighted by the Bitwise Adjusted Floor Price Market Capitalization.
The NFT marketplace is a fast-moving marketplace. To ensure its indexes stay up-to-speed with changes in the NFT ecosystem, the Bitwise Blue-Chip NFT Collections Index uses specific guidelines around reconstitution events.
Reconstitution Timing and Frequency: The Bitwise Blue-Chip NFT Collections Index is reconstituted quarterly at 4 p.m. Eastern Time on the last Business Day of each quarter (March, June, September, December).
The “record date" that determines which new NFT collections enter the index occurs at 4 p.m. Eastern Time one week prior to the rebalance date.
The selection of 4 p.m. Eastern Time on the last Business Day of the month is intended to ensure the indexes are reconstituted at a time of normal trading liquidity.
Buffer Zones: At the Record Date for each reconstitution event, new NFT Collections will only qualify to enter the index if they:
Have a Bitwise Adjusted Floor Price Market Capitalization that is 50% higher than the NFT Collection it is looking to replace; and,
Have sustained that 50% market capitalization buffer for each of the 30 calendar days preceding the record date.
Buffer Zones are common practice in traditional asset indexing, and are used as tools to reduce noneconomic switching of assets due to minimal or fleeting differences in market capitalization.
Index Inception, Levels, and Other Specifics
Inception: The inception of the index is December 14, 2021.
Inception Level: The index’s inception level is 1,000.
Available Levels: The Bitwise Blue-Chip NFT Collections Index strikes one Daily Index Level. This Daily Index Level is struck at 4 p.m. Eastern Time and distributed by 5 p.m. Eastern Time, unless data or other issues preclude or delay the publication of an accurate price. In that event, Bitwise will distribute the daily index level as soon as reasonably possible.