When a new technology hits the market, it is often met with both hype and distrust. Cryptocurrencies have been around for over a decade, but their future and present value is still squarely in between those two views – hope and doubt.
The latest sub-category of crypto – non-fungible tokens, or NFTs, sit in the same place. The technology grabbed headlines in the art world and the financial world when digital artist Beeple’s “Everydays” collection sold as an NFT for $69M. The sort of number that makes anyone sit up and pay attention. At the same time, the token is just for an ‘original’ that can be copied, so there are doubts about the staying power.
We don’t know yet how NFT valuations will settle over the months and years to come, one of many reasons that Yieldstreet doesn’t invest in cryptocurrencies or NFTs. However, a new technology can both teach us about other markets and apply to existing markets. NFT and blockchain technology have direct application to the art market especially, and understanding this application can be useful for investors in the art finance space more generally.
Cryptocurrencies are at their core currencies, meaning you may be able to pay for things with crypto. Art brokers are starting to adopt crypto as a payment method. Sotheby’s accepted cryptocurrency – namely Ether and Bitcoin – for a Banksy sale. As Cynthia Sachs of Athena Finance points out, art houses could manage the leap thanks to well-established cryptocurrencies that are easily exchanged into dollars: NFTs are traded on Ether, so they are backed by a relatively strong base and track record. There are challenges as well, as Leslie Prouty of Sotheby’s points out. There are rules to be worked out in payments from country to country. On top of that, sellers have to be convinced that cryptocurrency is a reasonable way to accept payment, which can be hard given the volatility in the value of even leading cryptos.
Single NFTs are catching headlines, of course, but as a standalone category or market they are still speculative at best, as Sachs states. That said, another NFT sale, of 9 cryptopunk portraits, went for nearly $17M at a recent Christie’s auction. Learning about a new category may allow enterprising investors a chance to get ahead of the curve.
The high price tags on leading NFT collections so far have stolen the headlines, but the newer technologies can have a more fundamental impact on art markets. Diversifying payment options, solving the verification challenge, and empowering artists through a democratization of the sales process, NFTs and cryptocurrencies have the potential to expand both the value and level of participation in the art market, from a buyers and sellers perspective. Despite process challenges to be worked out, and questions on the long-term value of the cryptocurrencies and NFTs. But the art finance industry, among many others, is starting to figure out the answers.
It’s still early days, and it’s not clear whether NFTs and cryptocurrencies themselves are more hype or reality. But, new technologies that give art market participants options and solve problems are always going to be useful, and can help point to the emergence of a market. Will NFTs soon be able to hold their own against physical art, and potentially be part of investment portfolios like physical art? For more conversations about art finance, investing in crypto, alternative asset classes, and generating passive income, be sure to listen and subscribe to The Yield.
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