While the crypto art space seems to be growing at an increasingly fast pace, critics challenge its ability to rival the traditional art market in function and efficacy.
Let’s take a quick look into the key features and characteristics of both markets to determine what future value, if any, crypto art may have.
‘Right place, right time?’
In September, Async Art, a blockchain-based programmable art platform, announced that it had made history by participating in the USD 100,000 sale, which at the time was the highest amount a piece of crypto art has ever garnered.
The NFT (non-fungible token)-based digital artwork sold for ETH 262 (around USD 159,000 in December) to a private anonymous collector named TokenAngels.
The piece, named “Right Place & Right Time,” was designed, written, and deployed by artist Matt Kane on the Async platform. The digital artwork is composed of 24 layers, all of which track the price of bitcoin (BTC) over 24 hours. Each layer represents an hour in a day. When these layers come together, they create a non-static work that is aesthetically dynamic while simultaneously meaningful to the more seasoned eye.
The creator said its sale represents a new era in the art sector as it provides a way for living artists to profit from their work, something that is a rarity for artists.
Kane said:
“It’s humbling. I’m most excited I’ve helped open price levels for other digital artists to have their work taken seriously and begin making a living from art sales. Until we could prove provenance and scarcity on the blockchain, how we sold digital art was prehistoric by comparison. The future is finally now!”
Why crypto art?
Digital art has been around since the advent of computers. Additionally, NFTs in the realm of art is not new. As early as 2017, players like CryptoPunks were already laying the ground for a rare art ecosystem in the crypto world. However, the significant challenge for digital art has always been proving rarity. By combining digital art with NFTs, artists are able to create works that have many of the features of physical art; and then some.
For instance, Kane’s ‘Right Place & Right Time’ is unique for reasons beyond its selling price.
- First, it is an ever-changing art piece. Due to its programming, the piece changes every day to represent bitcoin’s price volatility. The piece is set to run for ten years.
- Secondly, the artwork is designed to create additional NFTs over its running time that represent specific times in Bitcoin’s life cycle. These pieces will be of a limited number, only 210. The owners of the new 210 pieces also receive the right to purchase a physical print of their NFT.
- Third, the piece represents a new revenue-sharing model in the art world. The initial buyer, Token Angels receives a percentage of the sales of the secondarily minted NFTs while its creator Kane is also entitled to a percentage. This is a much-welcomed rework of the traditional model where artists do not receive a cut of the sales in secondary markets.
Kane added:
"As a nod to Bitcoin's 21 million fixed supply, the collector receives 21% of the individual NFT and print sales. Only 210 NFTs will be minted. Our partnership, a first between artist and collector, is one we hope inspires future partnerships, which will continue to innovate upon and strengthen this new model we've birthed."
Kane receives 10% of each secondary NFT sale. He has also retained an ownership token that allows him to make aesthetic changes to the artwork.
The record-breaking sale of "Right Place & Right Time" gives credence to the belief that crypto art is a rapidly growing market. Additionally, its experimental yet innovative approach to programmable art combined with its avant-garde revenue model further propels the space to new heights.
Critics, however, worry about whether the crypto art market is being overvalued, bringing us to the question of art valuation.
Valuing traditional art
The most recent Art Basel/UBS report on the state of the global art market valued the sector at a whopping USD 64.1bn in 2019. While it had fallen by 5% from the previous year, the market marked an increase in private sales, favoring dealers’ pockets. The US, UK, and China remain key markets despite drops in sales.
The traditional art market is large and can be highly profitable. However, the valuation of art pieces remains a somewhat murky topic. For an art piece to be sold, it must be given a price.
Art valuation in the traditional art market typically considers four key issues:
- Demand
- Liquidity
- The middle man
- Market data.
Demand, in this context, refers to the artist’s stock in the art community as well as demand for similar art pieces. Therefore, for new, unknown artists, it is unlikely to sell pieces for high prices. This is because an artist’s stock rises the more they create. Additionally, while comparable pieces may work well for the artist, sometimes it is detrimental as rarity or uniqueness is a sought after feature. The materials used to create the art piece also factor in as some mediums are more desirable than others.
Liquidity is related to demand. If an artist is well known and respected, it is easier for the buyer to resell the piece. Due to this factor, only those artists who have demand are able to sell pieces for high values, since it is relatively trivial to liquidate the artwork. Given that high-end buyers typically acquire art pieces as stores of value, this is an important factor.
Art dealers and auction houses play a consequential role in the valuation of traditional artworks. If a renowned art collector or dealer agrees to take on an artist or buys their work, then the artist’s stock goes up. It is somewhat considered an endorsement of the artist’s place in the art scene and further drives up the value of their work.
Lastly, market data may be used to value artwork. This is often employed by auction houses and companies dealing in market research. Market data is often utilized by parties who would like to legally appraise the artworks to leverage it in another way financially, such as collateral for a loan.
While there are factors that determine the valuation of a piece of art, much of the final valuation is subjective. It is based on the decisions of a few gatekeepers.
In his 2012 book, ‘The Value of Art: Money, Power, Beauty’, renowned art dealer Michael Findlay’s explained:
“Like currency, the commercial value of art is based on collective intentionality. There is no intrinsic, objective value (no more than that of a hundred-dollar bill). Human stipulation and declaration create and sustain the commercial value.”
This state of affairs is largely credited to mogul and collector Robert Scull who in October 1965 sold a number of art pieces from rising artists for many times the amount that he acquired them for. Since then, the art market has been on a steady growth trajectory with some pieces selling for millions.
Unfortunately for the artists, they are only entitled to the first sale and do not receive a cut in the secondary markets. For example, artist Robert Rauschenberg sold his 1958 work to Robert Scull and his wife Ethel for USD 900. The piece, named Thaw, was later re-sold at the 1965 auction for USD 85,000 from which he received no royalties.
Valuing crypto art
While Matt Kane made history with the sale of his piece, he is not the only name making waves in the crypto art sector. An anonymous artist (or art collective) named Pak is well regarded in the crypto art scene with his pieces typically selling for thousands of dollars. Moreover, in a historic sale, renowned auction house Christie’s auctioned its first-ever NFT on October 8 for USD 130,000.
These events point to a growing crypto art market. However, critics believe that the sector is likely marred with price manipulation and wash trading, which overestimates the value of the artwork. Additionally, there are concerns about whether the provenance supported by blockchain technology really matters in the art scene.
Crypto podcaster, Guy Swann, stated:
“[...] NFTs seem mostly pointless because Bitcoin (i.e. any blockchain) cannot verify or attest to the integrity of any human input data. Someone creating the NFT for an image/artwork/good gives absolutely no assurances whatever about who created it.”
These is valid criticism. However, if we are to draw parallels to the traditional art market, there are varying levels of quality. One cannot compare a picture drawn by a three-year-old over lunch to a painting created by an artist over a period of weeks. In the same way, one cannot compare an NFT of quality and innovation - say Kane’s creation - with someone who merely took a screenshot of the Mona Lisa and turned it into an NFT. There is an obvious quality disparity that influences the value of the NFTs.
Additionally, it is possible for the four parameters considered in valuation in the traditional art market to be applied to crypto art. Artists like Kane and Pak are well regarded and thus create demand.
In terms of liquidity, there are already marketplaces and platforms through which NFTs are rare digital artworks that can be sold. Examples include OpenSea, Async, and Rarible. Additionally, decentralized finance (DeFi) is making it possible for users to leverage their NFT artwork through services like NFTfi to access loans by providing crypto art as collateral. Since launching in May 2020, the platform has already supported over USD 60,000 in collateral-backed loans between users, proving the market is ready for such a solution.
Crypto art begins to divest from its legacy counterpart at the middleman parameter. By design, blockchain-based technologies, at least open ones, work on a decentralized model that cuts out middlemen in many scenarios where they exist in the physical world. Art is no different.
There are platforms, such as the aforementioned Async, which allow artists to create and sell their work while retaining control and sovereignty. Since an artist’s stock is not affected by physical dealers or collectors, it may be easier for them to make larger profits with their work. Additionally, such platforms typically afford the artists with royalties, commissions, and other stipends on both primary and secondary sales. This is a marked difference between the traditional art sector.
Market data also plays a role in the crypto art sector, albeit in a different manner. Given the open nature of many NFT and rare digital artwork marketplaces, there is bound to be unscrupulous behavior. Some platforms are populated by users engaging in practices like wash trading, which renders them inefficient and fraudulent for the sector in general.
Given the open nature of such platforms, it is hard to control who can join. However, these platforms utilize their market to determine if they need to intrude features that limit such activities. For instance, Rarible introduced fees and a governance token to combat wash trading on its platform after it was called out by NonFungible.com for its high levels of suspicious activity.
Market data helps protect the crypto art sector as it supports an autonomous system of checks and balances that can help guard against improper trading activities.
However, just as in the traditional art sector, the final valuation is truly subjective. Fortunately, what is good for the goose is good for the gander. Therefore, crypto art should be allowed to value itself by the parameters seen in traditional art while leaving room for the same subjective undertones.
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