Cast your mind back to 2020, when a global population of thumb-twiddlers was looking for something – dear lord, anything – to occupy itself over lockdown. With cash to burn and excitement a priority, people flocked to invest in NFTs and, in turn, pushed the digital tokens into the mainstream.
Fast forward to 2022 and NFTs were barely a footnote in the cultural conversation,with monthly spending collapsing almost 90% between March and November. This, even as a chaotic global economy propelled traditional art investment to new heights. So as we head into a new year, it begs the question: what might 2023 look like for the two markets?
The key difference between NFTs and traditional art
To be clear, we’re not sneery about NFTs here at Mintus HQ. We’re keen advocates for the technology behind them, but we aren’t convinced by the current business models associated with them, nor their current usage. Though time will likely change that.
When it comes to art, digital and physical art isn’t as far apart as traditionalists like to argue: they’re both subjective, non-replicable works that are only as valuable as buyers decide. Even Damien Hirst has leaned into the overlap, offering collectors the choice of an NFT or physical version of his recent work “The Currency”.
Second, if we put aside the likes of Beeple’s “Everydays: The First 5000 Days” (which sold for $69 million in March 2021), the NFT market has got one thing very right: it democratised art investing in a world where it’s been the preserve of the privileged few. No matter what you think of NFTs’ cultural or investment potential, the idea that you shouldn’t need to be own a private jet to buy into art sounds pretty appealing to this fractional art platform.
Still, there is one unignorable difference between the two markets: NFTs’ rapid hype-to-crash trajectory is a far cry from the traditional art market’s tireless uptrend.
NFTs’ hype-to-crash trajectory
The NFT boom could be put down to any number of things. Social media culture definitely bolstered the market, along with (ethically questionable) celebrity endorsements. Throw in pandemic-induced boredom and an influx of government stimulus, and the crypto market was awash with cash.
But at the heart of it, the reason for the hype was simple: it was an opportunity to make big money, fast. Faster than stocks, faster than bonds and certainly faster than the art market. Buy a Cryptopunk today, so the pitch went, and you’ll be a millionaire in next to no time.
That didn’t quite pan out. Crypto was arguably already facing economic headwinds at the start of 2022, but two scandals swiftly eradicated the world’s confidence in the digital rascals: the collapse of the so-called “stablecoin” TerraUSD in May, and the bankruptcy of the third-biggest crypto exchange FTX in November. Those caused bitcoin to nearly halve in price from the start of 2022, and ether to drop even further.
As for NFTs, the writing was on the wall when dedicated marketplace OpenSea laid off 20% of its staff in July. Today, thereare about a third as many NFT buyers and sellers as therewere at the peak in January 2022, and the tokens themselves are being minted around 60% less often.
And there’s the rub: NFTs’ short and choppy track record is the polar opposite ofthe long and successful performance of traditional art, which years of data has proven to hold up through times of war, high inflation and slowing growth. You can see as much from Sotheby’s Mei Moses Index, which rose an average of 8.5% every year between 1950 and 2021.
So it stands to reason that physical art investing would’ve been in particular favour last year, and early data suggests it was: the total auction sales of Old Masters, Impressionist, Modern, Post-War and Contemporary Art at Sotheby’s, Christie’s and Phillips hit $7.5 billion in 2022 – up around 15% from the year before, and a new record.
Which should you back in 2023?
Let’s not be glossy-eyed here: just because the art market had a stellar year in 2022 doesn’t mean it’ll keep up the same pace. Consider that a year of non-stop inflation, the outbreak of war and the prospect of a sharp economic slowdown sent investors to alternatives like art for returns and security. But while we’re not out of the woods yet, investors are a little more at ease than they were. That could usher them back to stocks and bonds at the expense of art as an investment.
You can’t entirely write off the NFT market, either. Digital collectibles might have flamed out, but those with fan bases are still trying to diversify their IP by creating products and building out entertainment franchises. And keep in mind that Ethereum – the home of NFTs – has recently swapped an energy-intensive mining model for a greener staking alternative. That could drive usage of the platform up, and nudge investors towards giving NFTs a second chance.
In the words of Tamer Ozmen, Mintus CEO, “Even if the NFT market does make an unlikely resurgence, let’s face it: the days of choosing a Bored Ape over an Andy Warhol are probably long gone. Investors must remember than any ebbs and flows in the art market are features, not bugs, in the lifecycle of any long-term investment. The performance of all traditional asset classes in 2022 reflects that. Whilst the art market may have had a record-breaking year in 2022, the biggest takeaway was that high-quality, fresh-to-market artworks will fetch premium prices, no matter the wider economic climate.”
The difference this time around is that with Mintus, you get to buy in and set yourself up for the potential to profit.