NFTs: We don't think clicks will drive sustainable value in the art market

 

Art Market Today

NFTs: We don't think clicks will drive sustainable value in the art market

I’m still an NFT skeptic. I don’t see equating sales values derived in an unstructured and unregulated NFT marketplace with the staying power of art values derived in an established, organized market. Quite simply, the NFT model is right now fueled by social media-driven “in the moment” popularity; but these kinds of bullish markets built on euphoria rarely last very long (again, the “few early winners and lots of losers” problem). To get a better handle on the NFT phenomenon we will compare a recent art sale in the established art auction market, to a recent NFT transaction. 

Let’s first consider the drivers of value in the traditional art market

We’ll use the recent $562,000 Christie’s sale of Jean-Michel Basquiat’s ‘Bad Foot’, as an example of a traditional auction sale. The key drivers of value are:

1. Only one person or entity can own and decide who sees it, where it resides, how it is maintained and what to do with it.
2. There is a relative scarcity of works. Only one Bad Foot exists, even a perfect copy of the work would be of little value because it is not the original.
3. Basquiat has a long, proven market track record; pre-sale estimates and sale prices are readily available not only for his works, but similar artists working in an expressionist genre, in the city of New York, during the 1980s, as comparison.  
4. Basquiat has an established place in the canon. If you don’t agree with this, consider the $93 million sale of Basquiat’s ‘In This Case’ (an acrylic and oilstick on canvas sold at auction in 2021)

It is easy to understand how the value of Bad Foot was reached; its value can be tied to established drivers, which is why I believe the value will be sustained.

Now let’s consider what drives the value of NFTs

Let’s take ‘Nyan Cat’, an NFT that sold for around $580,000. This meme of a cat with a Pop-Tart body propelled through space by seemingly farting rainbows, resembles a character in a mid-1980s gaming system.  Quite the opposite of the established art market model, NFT sales are driven by clicks, copies and downloads. Juxtaposing Nyan Cat to what drove the value of Bad Foot, we see:

1. NFTs convey something akin to quasi-ownership at best. What the collector is really buying is the authentic version of a readily available digital artwork; the more people who have it, the more the owner can boast to friends, acquaintances, and anyone on the street about being in possession of the authentic version.
2. Nyan Cat is readily available. I can get it, as I have here.
3. No NFT has an established sales record; the high demand seems partially based on being one of the first to own.
4. Hype trumps artistic genius. This is why “name brands” and social media influencers are rushing to leverage their celebrity and cash in on NFTs in a way even QVC must admire.  

So where do we go from here

NFTs are a fragile proposition right now. I still come back to why would someone pay such a high pricefor the one authentic copy of Nyan Cat that has been clicked, copied, downloaded hundreds of thousands of times?  And, what happens when the owner tries to sell it when the clicks fall off?

Here is the very insightful 5 ½ minute video by the Wall Street Journal on NFTs starring Nyan Cat:

The Post-War & Contemporary Art Market - Poised for a healthy May

 

Art Market Today

The Post-War & Contemporary Art Market - Poised for a healthy May

As we head into the defining New York auctions this week, we can safely say that through April the market has been buoyant, and we expect it to stay that way. Artist Market Values (“AMVs”) have been strong and should remain so through the Post-War & Contemporary Art auctions. We see little downside risk in the near-term.  

The market is poised for a healthy May and this shows up in our Index Indicators and Bellwether Artist Indicators:

• Index indicators - The AAA 100, AAA Blue-Chip 35 and AAA Conceptual 32 all maintaining upward trajectories, with the AAA Conceptual 32 the more volatile of the three.
• Bellwether Artist Indicators - Four highly traded blue-chip artists, with three holding steady and one soaring in value

Index Indicators: Observations

• The art market is hitting its stride in time for May.  AMVs are trending upwards for all three indexes.
• Incremental gains exhibited by the AAA 100 and AAA Blue-Chip 35 are maintainable. Even though both are nearing historic highs their trends are smooth. Collectors are spending at all levels and we still seem to be in a high confidence/snap back from Covid mode.
• Do not be fooled by the sharp jump of the AAA Conceptual 32.  It is attributable to significant appreciation in the AMS’s of three artists, with several comparatively low AMV artists realizing incremental, but still lower than the median, appreciation.  Conceptual artists as a category are higher risk today, and the AAA Conceptual 32 could easily pivot.

Bellwether Artists: Observations

• Nothing in the bellwether artist trending hints at a downturn.  The AMVs of three artists held relatively steady while that of the fourth, Kusama, has skyrocketed.
• Steady recent trending bodes well for the market.   AMVs have realized comparatively little Auction Cycle-to-Auction Cycle volatility.  Buyers are not making rash decisions typical of surging or sluggish markets.
• Kusama’s AMV might swing back but her normal is still very good.  Today’s overheated market should be relatively short lived, and when it does normalize, it will stay within range. Demand for her work is strong and the market knows her value.     

Our next update will be in early June. In the meantime, we have several indexes we are tracking. Just ask; if it is not an Index we are tracking, we probably could cook it up.  

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