The markets for cryptocurrencies are some of the most volatile and rapid growing markets in the world today. Bitcoin, the world’s best-known cryptocurrency has experienced peaks and troughs rarely seen before in economic history. Founded in August 2008 as a website, it was initially a place where people could trade digital tokens. Since then, the market for cryptocurrencies has grown exponentially, and now includes an estimated 4000 different currencies with varying levels of popularity.
As a result of the huge rise in the value of cryptocurrencies (1 bitcoin has increased in value from $1000 in February 2017 to $63,000 in April 2021) many people have become extremely wealthy. With this newfound wealth, some cryptocurrency investors have decided to invest in NFTs. NFTs (non-fungible tokens) emerged as coloured coins in 2012. For the first 6-7 years they were not taken seriously; however, more recently, this idea has begun to lift off.
NFTs are an electronic identifier that proves the owner of a digital collectible. These tokens exist in many different forms such as tickets for music festivals, sport and memorabilia. One of the most famous and most widely renowned form of NFTs is in the art market; these NFTs form a digital signature which proves the owner and the authenticity of a digital work of art through a blockchain.
The real value of these NFTs comes from the non-fungibility of these tokens: they are not interchangeable and are distinct from other tokens. Furthermore, their authenticity and provenance is guaranteed by the blockchain technology and cannot be questioned. The uniqueness of these works is one of the main driving forces of their often-huge price tags. In March 2021, Beeple’s artwork, titled Every Day, set a new record by selling for $69 million, demonstrating that there strong demand for these distinctive phenomena. What remains to be seen, however, is whether this hype leads to a bursting bubble, or will bring about a genuine revolution in the art market.
NFTs in art have been around for years, but only in the last 6 months has their popularity skyrocketed, with collectors and speculators spending $200 million just this March on an array of different NFT based artworks.
Who is putting these exceptional sums of money into digital artwork which you can’t even have in your drawing room? Mostly it is younger, male millennials who are trying to break away from the norm; they are disrupters of the traditional art market and are taking the conventionality of art to new extremes.
Furthermore, there is a distinct link between the rise of cryptocurrencies such as Bitcoin and the rise in the price of NFTs. Investors, also known as “whales” (mostly big risk, big reward, cryptocurrency evangelists) see how lucrative the crypto industry is, making the biggest deals in the NFT art world right now. One of these “whales” is Daniel Maegaard, an Australian crypto trader whose wealth grew by around $15 million when Bitcoin exploded in value in 2017. Maegaard, who has spent millions in the market buying and trading works, has an emotional and psychological connection to some of his work. Referring to an image of a pixelated man who looks similar to that of Breaking Bad’s Walter White, he said it would almost be like “selling a part of myself if I ever sold him.”
In 2020, global sales of art and antiques reached an estimated $50.1 billion. This was a 22% decrease on that of 2019 due to the pandemic shutting auction houses and many galleries. But another factor in the slow demise of the traditional art market is the emerging NFT market. This widescale acceptance of NFTs as an asset with tangible value is demonstrated by recent research by Forbes, which shows the combined market cap of major NFTs sales which have increased by 1,785% in the last year.
In that sense, the NFTs market has revolutionised the economics of the art market, as many investors believe that NFTs will prove to be far more lucrative than conventional artworks. This change in mindset by the investors might force established, orthodox artists to adapt and develop their work in order to stay competitive in an rapidly evolving industry.
Many people are extremely sceptical about where this new, volatile market will head next, believing that “it’s a bubble which will burst in the next ten years”. However, I think that NFTs in the art market are here to stay because there is a new generation (i.e. the millennials) who believe in them very strongly. Those are the investors who are pumping liquidity into the industry and as a result of this, the NFTs market will diversify into new forms and is probably where the art market is heading in the next 10 years.
By Hector Brown