NFTs
How “More Mature” Collectors Are Driving the NFT Market’s Return
In 2021, Jim Cramer, a former hedge fund manager and host of CNBC’s Mad Money, appeared to sound the death knell for Bitcoin investing after the Chinese government cracked down on cryptocurrency mining (the term used for the creation of new bitcoin units). “I sold almost all of my bitcoin. I don’t need it,” Cramer announced on CNBC’s Squawk on the Street. This was a year before the value of several cryptocurrencies, such as stablecoins TerraUSD and Luna, as well as the multibillion-dollar cryptocurrency exchange FTX, collapsed, and Bitcoin itself fell 77% below its all-time high.
Is the story over? Difficultly. Bitcoin and other forms of crypto have rallied to new highs, and Cramer himself has reversed course, recently claiming that Bitcoin is “here to stay.”
What was called “crypto winter” has ended, bringing a resurgence in interest and prices for NFTs (non-fungible tokens), which include art images. “The hype and speculative frenzy that NFTs saw several years ago has disappeared,” says Ric Edelman, founder of the Council of Digital Asset Financial Professionals, which helps financial advisors understand this new investment domain. “Prices are recovering, trading volume has recovered and we are seeing big inflows again.”
Don’t believe the hype: the market may be moving away from its frenetic start to focus more on Florent Tournier’s artistic value
The NFT market took off in 2021, with museums, artists, groups new to the market such as Yuga Labs (of Bored Ape Yacht Club fame), Dapper Labs (creators of CryptoKitties) and National Basketball Association Top Shots, as well as celebrities such as Snoop Dogg, William Shatner, Damien Hirst and Lindsay Lohan minting their own blockchain-based digital assets, which can be purchased with cryptography. The NFT market, registered on blockchain platforms and markets, reportedly reached $41 billion in 2021, falling to around $21 billion at the end of 2022, before losing around 95% of its value in 2023.
Bernadine Bröcker Wieder, CEO of Arcual, a company with offices in Berlin, London and Zurich that uses blockchain technology “to facilitate a new and updated standard for secure transactions in the art market”, says that the “value of digital art acquired in NFT markets were indeed inflated over a period of time, along with cryptocurrency prices, thanks to speculation sparked after the pandemic, and there has been a swing of the pendulum back in 2023.” She adds that “activity in NFT markets has also increased, likely due to positive news about cryptocurrencies in the press.”
The art market’s interest in NFTs has matured, according to Mark Cuban, owner of the Dallas Mavericks basketball team and investor in OpenSea, one of the largest marketplaces for user-owned digital goods that includes collectibles, game items, names domain names, digital art and other blockchain-based assets. “It’s much more deliberate and collector-oriented,” says Cuban, adding that “people are less focused on immediate appreciation and more on appreciating the art itself.”
Others involved in the NFT world also disagree with the perception that this form of collectible is more hype than substance. “Our goal is to support artists represented by Pace Gallery in their new media investigations,” says Ariel Hudes, head of Pace’s NFT division, Pace Verso, which was created in 2021. “We’re not trying to increase [price] speculation. We are doing this because we believe in the artists and the work they are creating.”
Artistic value
Others make similar claims about helping artists rather than fueling a frenzied market. Brian McAlister, co-founder of Objkt.com, which claims to be the largest NFT marketplace on the Tezos blockchain, says “our focus as a platform has always been on the artistic value and potential of digital art, not speculative trends.” in cryptocurrency.” He adds that “as speculation calmed, true collectors and art enthusiasts continued to search for real value and artistic integrity. These collectors are not primarily motivated by potential earnings, but are motivated more by the desire to engage in sponsorship and directly support the artists behind the work.”
Another big player in this space, Sunil Singhvi, head of arts and culture at London-based TriliTech (which works with entrepreneurs and artists to build projects on the Tezos blockchain), says “there has been a huge amount of energy and speculation around the NFTs during the pandemic,” with some purchasing them “as an investment piece or as a launch into the art world.” Many of these pieces are now “less valuable than they were two years ago.” However, he says TriliTech continues to work with artists whose main goal is to “find an audience,” and for many artists and collectors the goal is to “belong to a group of people” with similar tastes and interests.
The artistic NFT market has not gone into hibernation. Sotheby’s continued to hold digital art auctions, including a small sale of Bitcoin ordinals (which function similarly to NFTs) in December and a larger one in January that raised a total of $1.55 million, as well as a generative art that began last July with the sale of works by Vera Molnár, a Hungarian artist who died in December at the age of 99, who made US$1.2 million. (Generative art refers to computer-generated artwork determined by algorithms.) The auction house’s next generative art sale will take place in June and will feature renowned French sculptor Bernar Venet, who will launch his first art project digital with this auction.
Michael Bouhanna, a contemporary art expert and head of digital art and NFT sales at Sotheby’s, says some galleries “have had an impact on the NFT market,” citing Gagosian and Pace, but that Sotheby’s and Christie’s, their auction arch-rivals sector, have “led the market, achieving first market sales”. He points to “a shift in collectors” of NFTs over the past year to “more mature, more educated” buyers, as opposed to those entering the market in 2021, which has become “a field for speculators more interested in making a quick profit.”
Auction house endorsement
Both Sotheby’s and Christie’s accept payment for digital art in crypto and occasionally for physical artwork. At Sotheby’s, Bouhanna estimates that about half of NFT buyers pay in crypto (although it is rare for physical art to be paid for in this way), although this is a “relatively rare occurrence,” according to Nicole Sales Giles, director of digital art sales at Christie’s, “but we’re happy to do it” if a collector requests it. “Many digital art buyers firmly believe in the future of crypto, and some prefer to settle by fiat [government-backed currency] and keep your encryption for that reason,” says Sales Giles. On the auction house’s on-chain sales platform, Christie’s 3.0, “100% of payments and settlements are automatically in ethereum, as the platform is completely on-chain.” She adds that crypto is not accepted as a form of payment in any other department at Christie’s.
Bitcoin and other cryptocurrencies have gained wider acceptance in the financial sector this year, as the US Securities and Exchange Commission (SEC) approved the launch of several bitcoin exchange-traded funds (ETFs) in January, allowing shares in trusts that holders of cryptocurrency are bought and sold on exchanges regulated by the SEC. Franklin Templeton Investments, which manages a portfolio of assets worth $1.3 trillion, launched the first on-chain money market fund in 2023, and BlackRock, the world’s largest asset manager, launched its own fund tokenized in March. Both companies, along with Fidelity, which launched its own bitcoin fund in January (with assets of $6.9 billion), and others, “believe that tokenization will revolutionize the financial services industry in the coming years.” five years,” says Edelman. “The era of the ‘crypto brothers’ is quickly ending, and while they have managed to get 5% of the world’s population involved in crypto, the financial services industry will involve the other 95%.” He adds: “We project that independent advisors will put $150 billion into bitcoin over the next two years.”
Cryptocurrencies have been and continue to be riskier than government-backed money like US dollars and euros. Given that they are created through computers, computer hacking – especially enabled by quantum computing, which can break encryption – has the potential to lead to chaos in digital financial markets. Furthermore, flaws in the computer code, which have appeared twice with Bitcoin since 2010, can increase currency price volatility.