Blockchain-based fan tokens are the new digital bridge connecting fans and astute investors to their favorite sports franchises. From the hallowed football grounds of Paris Saint-Germain F.C. and F.C. Barcelona to the adrenaline-packed circuits of Formula 1, the competitive courts of the Davis Cup, and car titans Aston Martin and Alfa Romeo, a growing number of companies are issuing fan tokens.
Fan tokens amplify fan engagement by offering owners voting rights on specific decisions, access to unique rewards, and exclusive entry into vibrant fan communities. As of April 2024, 74 coins in CoinGecko's fan token category boasted a collective market cap exceeding USD 450 million. F.C. Barcelona's token sold out in less than 24 hours!
In this blog post, we unpack the academic study Anticipatory Gains and Event-Driven Losses in Blockchain-Based Fan Tokens: Evidence from the FIFA World Cup published in peer-reviewed journal Research in International Business and Finance – probing into the impact of World Cup matches on football fan tokens.
The World Cup Catalyst
The build-up and publicity surrounding the 2022 FIFA World Cup were powerful catalysts, propelling the value of football fan tokens to extraordinary new heights. In the thrilling six-month leadup to the global celebration of football, tokens issued by national teams soared in value: Brazil (BFT) by 324%, Portugal (POR) by 953%, and Argentina (ARG) by 1,038%, outperforming benchmark cryptocurrencies like Bitcoin (-19%) and Ethereum (-5%) over the same time frame. They also defied the broader cryptocurrency bear market and declining sentiment prompted by the collapse of the FTX cryptocurrency exchange.
From the Stadium to the Stock Market
Quantifying how World Cup matches affect financial markets is a complex puzzle. National football teams do not list on stock exchanges, so we cannot directly track how matches affect their share prices. A workaround could be to look at national stock markets like the United Kingdom's FTSE100 or Germany's DAX. Still, there is a catch: stock markets are only open during specific trading hours, while World Cup matches can occur outside these times.
Insights from the Field
National teams directly issue blockchain-based fan tokens, which are tradeable 24/7, allowing us to track the effects of World Cup matches on national team fan token prices in real time. For the first time, researchers globally collaborated to analyze this phenomenon in a new paper. They discovered the following:
The Pre-Game Optimism: Before each match, the playing team's fan token price typically rises, fuelled by strategic placements of hopeful fans and investors betting on their team's victories.
The In-Game Rollercoaster: As the whistle blows, fan token prices face downward pressure, especially during the suspense-filled halftimes and the nail-biting final stretches of the games.
Victory vs. Defeat: Victories ignite that team's fan token trading volume, indicating a frenzy of buying and selling activity yet curiously do not lift token prices significantly. The paradox highlights a battlefield of optimism and realism among traders as fans cling to their tokens in triumph. In contrast, defeats prompt a swift sell-off of that team's fan token.
Stakes Undeniably Matter: A loss during pivotal rounds (e.g., the round of 16, semi-finals, finals) severely dents the losing team's fan token price, plummetting between -50.74% and -59.43% if the loss results in a knockout. Comparatively, group-stage losses are less consequential.
A Time-Honored Wisdom: The age-old market wisdom of "buy the rumor, sell the news" finds a new proving ground in fan tokens, with prices peaking in anticipation before the World Cup and dipping as the match unfolds, offering a tactical play for keen-eyed traders.
Navigating the Waves: For Investors, Fans, and the Market
As sports, finance, and technology converge, fan tokens stand at the forefront, fusing passion and finance to enrich the fan experience and transforming the World Cup events from a festivity of football to a pivotal moment in financial markets, with important implications for stakeholders:
For Investors: The fluctuating dynamic of fan tokens, especially high-profile events like the World Cup, underscores the importance of timing, due diligence, and informed decision-making. With a strategic approach, investors can navigate the high tides of high-stakes matches to their advantage.
For Fans: Fan tokens offer a unique way to engage with your favorite sports, merging the thrill of support with the intrigue of investment. Yet it is vital to remember they are more than just tokens of loyalty; they are investments, with all the risks and rewards that come with the territory.
For Researchers: The phenomenon of fan tokens, driven by sentiment and fan loyalty rather than traditional financial metrics, offers a fresh lens through which to view the market. It attests to the cryptocurrency market's versatility and underscores the growing need for research on these emerging asset classes.
This article was co-authored by Dr Lennart Ante, the CEO of the non-profit research institute Blockchain Research Lab, and Ender Demir, a professor at Reykjavik University and Korea University Business School.
Reference: Saggu, A., Ante, L., & Demir, E. (2024). Anticipatory Gains and Event-Driven Losses in Blockchain-Based Fan Tokens: Evidence from the FIFA World Cup. Research in International Business and Finance, Volume 70, Part A, 102333. https://doi.org/10.1016/j.ribaf.2024.102333.
Source: Coingecko