Yieldstreet Insights: How COVID and Crypto Are Disrupting the Art Market

In a famous story, Pablo Picasso was approached by a woman who asked the artist to draw something for her on a napkin. Picasso agreed and quickly provided the lady with his finished work. “That will be $10,000,” he calmly requested.

The woman was indignant. “How can you charge so much,” she demanded, “for something that took 30 seconds?”

“Ah,” the artist replied. “The drawing took me thirty seconds, but the training took me thirty years.”

The story may be apocryphal, but it highlights the relationship between finance and the art community. In order for art to flourish, it requires a community in which artwork can be bought and sold.

Recently, we’ve experienced a seismic shift in the ways that many businesses operate. Both COVID and the ascendancy of cryptocurrency have moved the art market toward digital platforms. The end result has been something of a tectonic shift, one whose effects may reverberate for years to come.

What disruptions already occurred with these shifts toward a digital world? Let’s start by examining the pressures generated by the COVID pandemic and then explore the impact of cryptocurrency and non-fungible tokens (NFTs) on the global art market.

COVID Has Limited In-Person Business

Like any other industry, the arts have been dramatically impacted by the coronavirus. According to Americans for the Arts, the last year has resulted in an estimated national financial loss of over $15 billion.

It may surprise you, but art collectors are not limited to an isolated group of elitists. For many art galleries, art shows and fairs have been the cornerstone of their trade. Most art galleries are small institutions that have minimal staff. They rely heavily on these public events to fund their industry.

Thus, the art industry is not centralized around any single corporation but exists as a network of like-minded enthusiasts that are passionate about the arts.

Loss of In-Person Events

COVID’s biggest impact, of course, has been the cancellation of in-person events such as fairs and auctions. It’s expected that these events will return in the near future, which should result in an initial surge, followed by a leveling off for museums and galleries.

The Challenge of Engaging Digital Art

Naturally, this has forced art dealers to adapt to the world of digital curation and sale. But artwork isn’t intended to be experienced through a screen or a PDF. The limitations of screens and pixels have had the most impact on smaller, lesser-known artists whose artwork can’t be valued by name recognition alone.

The Crisis Has Revealed a Loyal Customer Base

At the same time, art galleries are not facing a total crisis. In our interview with Tony Karman, the president and director of EXPO Chicago, he explains that many gallery owners are discovering that their most loyal customers are remaining loyal despite the challenges currently posed by the pandemic.

For the dedicated art collecting community, the digital world has actually enhanced their ability to engage with art, as the internet has augmented their available network of galleries and dealers.

Greater Networking Opportunities

This digital network hasn’t only been good for art collectors. Even art dealers can take advantage of the community’s movement into cyberspace.

Tony Karman points out that dealers who have traditionally resisted the digital revolution are discovering ways to connect with one another, allowing for expanded knowledge about artists and their works, which can go a long way in assessing their value.

Limited Cultural Discourse

Of course, the benefits of the digital age can only go so far. While art collectors are benefiting from the convenience of an increasingly digital industry, the greatest loss has been the embodied community that gathers at in-person art sales and events.

COVID has effectively suspended our capacity for cultural discourse, the kind that has traditionally animated the conversations at art events.

After COVID: A Digital Supplement to Physical Business

Art markets require the synergy of knowledge and community. In the near future, we can expect many galleries to shift their business to digital platforms — but only to supplement their in-person sales and events.

COVID has certainly been disruptive, but it’s unlikely that it will eliminate the demand for face-to-face interaction and physical events entirely.

This shows that there is an ongoing demand for the arts. Every great society has celebrated the arts as part of its cultural heritage and legacy. The digital revolution has influenced the way in which artwork is bought and sold, but it has also illustrated that the human demand for art and beauty remains undimmed by the threat of a global pandemic.

Crypto and the Evolution of a New Kind of Artist

While COVID shifted the art market to the digital world, blockchain and cryptocurrency represent a whole new approach to the arts. Cryptocurrency doesn’t just change the way that art is bought and sold, it changes the fundamental substance of art itself.

Beeple’s Millions

The prime example of this new influence is found in the recent sale of a collage by Mike Winkelmann, better known as “Beeple.” The piece, entitled “Everydays: The First 5,000 Days,” is a digital collection of images arranged in loose chronological order. It was recently sold for just under $70 million, which makes it the third most expensive piece of artwork ever sold by a living artist.

What makes the work so unusual, however, is that it only exists in digital form. Copies abound throughout the internet. Instead of having the painting stored away in a climate-controlled bank vault next to a Van Gogh, the auction winner gets a digital file, as well as the rights to display the image.

The real “value” lies in the non-fungible token (NFT) attached to the artwork as a sort of certificate-of-ownership. The owner of the artwork can sell that NFT on a blockchain, the digital ledger technology that underlies cryptocurrency.

In Blockchain We Trust?

In one of our recent podcasts, Noah Davis, a specialist in contemporary art, points out that cryptocurrency isn’t terribly confusing. In fact, he says, many video games already do something like this. When you spend in-game currency such as gold or crystals, you’re already participating in a modified version of the world of cryptocurrency. The difference, of course, is that real-world cryptocurrency can be translated into real money — and lots of it.

Davis predicts that every collectible item can eventually be impacted by NFTs. The COVID pandemic has accelerated this process, of course, as markets increasingly shift from real-life transactions to digital platforms, including those that operate through cryptocurrency.

The end result is that the world of crypto and blockchains will have a definitive, measurable impact on the ways that artwork can be produced, sold, and evaluated.

The Blurred Line Between Art and Currency

First, the Beeple auction raises a curious question: Was the real prize the artwork or the NFT? As Noah Davis helpfully points out, the answer is “both.” It’s perfectly possible for digital art to fill a role as a piece of art in its own right, as well as serving as a symbolic piece of currency.

A good example of this is found in “CryptoPunks.” CryptoPunks is a collection of 10,000 digital characters — basically like little emojis — that can be owned on the Ethereum blockchain. Each one is a unique piece of artwork, though they are only a few pixels in height. You can choose from zombies, pirates, and a whole host of other colorful characters — it’s almost as if Andy Warhol had taken to creating people in the Nintendo realms.

Each CryptoPunk can be bought and sold on the blockchain. If you’re considering buying one, you’re in luck. You can get a CryptoPunk for just under $70,000(!)

Transforming Provenance

To repeat, these little CryptoPunks are unique artistic creations unto themselves, but their true value is in their ability to be bought and sold through the blockchain network. This also means that each CryptoPunk has a history, showing when it was created, who bought it, how much it was sold for, who currently “owns” it, etc.

Traditionally, art historians have had to undergo the painstaking process of establishing a work’s provenance — the origins and history of ownership of a piece of art. But the world of cryptocurrency sidesteps the need to spend hours in a library.

While CryptoPunks seem a simple, perhaps childish form of digital currency, NFTs can be used to establish the detailed history for other forms of digital artwork, too.

A Demographic Shift

Traditionally, art collection has favored older, wealthier individuals. But digital artwork favors affluent millennials, those who have taken to the world of cryptocurrency like a fish to water.

This isn’t necessarily a negative disruption, mind you, as it gives voice to a rising generation of art collectors. But art appreciation can frequently be enhanced by a diversity of perspectives and voices that span the generations.

To limit a cultural conversation to a single demographic group is to miss the wisdom and knowledge that time alone can bring. An art market that disproportionately favors young investors could be a recipe for cultural impoverishment.

A New Kind of Artist

After the auction, Davis was stunned that Beeple’s artwork had garnered so much attention. He contacted Beeple, telling him that because of the high sale price, he was now bigger than Gerhard Richter.

“Who’s that?” his friend replied. He would later dismiss the famous artist’s work as mere “scribbles.”

This highlights something that is vitally important. The digital artists emerging today have no real ties to the art history of previous centuries — or even the current century, in Beeple’s case. Davis has said that these digital artists have emerged from a different form of “primordial soup” and crashed through the branches of traditional art history.

In other words, digital art has a completely independent pedigree from other forms of fine art. This is partly owing to its lack of tangibility; digital artists have no need to learn the finer points of impressionism or dry brush techniques.

The result is a new breed of artists who have no definitive connection to the rich history of the past, but instead seek to forge a new way forward, motivated by the dangling carrot of cryptocurrency.

Real Life vs. Digital Artwork

At the same time, many “real-life” artists are plagued by an urgent desire to remain competitive in this brave new world. Painters who still rely on canvas are struggling to adapt to a customer base that is more attuned to digital currency. This can be a bit of a barrier to those who are trying to market a physical painting that can’t be exchanged through blockchain networks.

This also raises an interesting question about quality and training. Digital compositions are not without artistic merit and excellence, but it’s not as if we’ve seen a true renaissance. A world that incentivizes the creation of “CryptoPunks” is unlikely to encourage the production of another “Starry Night” or even “American Gothic.” Even if digital artwork proliferates, it can never supplant the cultural merits of arts education and the art community.

A Way Forward?

In his recent book, Throwing Rocks at the Google Bus, Douglas Rushkoff speculates that the craft industry will actually shift away from sites like Etsy and occupy a designated space within a larger retail store. The result, he says, will be a hybrid between the digital platform and the tangible products of its sellers.

It’s unclear how realistic Rushkoff’s vision may be. But it certainly suggests the possibility of greater digital adaptation without sacrificing the necessity for human interaction. Applied to the art market, we can imagine how the fusion of the digital and the “real” world could be a boon to art sellers and investors alike.

Learn More

Yieldstreet can help you to understand the latest investment strategies and the ways that markets perform. If you enjoyed learning about the ways that COVID and cryptocurrency are impacting the art world, be sure to check out our recent podcast, “If You Like It, Buy It” featuring Tony Karman.

You can also hear more from Noah Davis about his perspective on the recent Beeple auction in our podcast, “The (r)Evolution of the Art Market.” We look forward to you joining us!

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Yieldstreet is an alternative investing platform that provides retail investors access to income-generating investment products http://yield.st/medium

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Yieldstreet is an alternative investing platform that provides retail investors access to income-generating investment products http://yield.st/medium

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