NFTs Break Ground In Art Basel’s Market Report, But There’s A Long Way To Go
In our most recent WAC Weekly, we discussed Art Basel and UBS’ 2022 Art Market Report, prepared by Dr. Clare McAndrew. In a survey of trends in the whole art market, including NFTs for the first time, the report attempts to give us some much-needed clarity on what the NFT art market is doing and where it might go in the next year.
Using data supplied by nonfungible.com the report only covered the Ethereum, Flow, and Ronin chains; the numbers don’t account for Polygon or Tezos, which remains popular among artists and writers using platforms like hic et nunc. It also doesn’t include any of the headline-grabbing purchases we’ve seen in sectors like gaming or metaverse platforms.
Big numbers from the art market report
In 2020 the art market suffered its biggest recession in ten years, and many see the rise of NFTs — particularly among museums — as a reaction to that loss. While the art market as a whole rose to $65.1 billion in sales last year, up 29% in 2020, the NFT portion of that grew over a hundredfold to $2.6 billion in 2021. That’s incredible growth, but it remains a vanishingly small piece of the pie.
Outside of the art market as defined by the report — on platforms like Opensea and SuperRare — the NFT market exploded from $4.6 billion in 2019 to $11.1 billion in 2021. The number of people trading art NFTs has also grown massively, from 1,370 buyers and 865 sellers in 2019 to 130,696 buyers and 84,182 sellers in 2021.
The report makes some effort to distinguish between different kinds of NFT where possible. We see that art NFTs grew to 24% of the entire NFT market in 2020, then fell to 14% in 2021. But collectibles shot up from 12% to nearly half the entire market in 2021.
In the report it’s not clear whether something like Bored Ape Yacht Club (the most traded NFT by volume, according to NonFungible) fits into the category of “art” or “collectible”. Perhaps we should ask the experts…
How intermediaries survive “disintermediation”
Iconic Moments’ Chris Cummings brought up the example of independent collectors working for high net worth (HNW) individuals, well versed in digital art, who find themselves unsure how to value NFTs when asked about them by interested clients.
This speaks to the level of interest HNWs have in NFTs — 88% expressing some interest in buying NFT art in future — but also the difficulty individuals have navigating the hype we’re still seeing. As Christiane Paul mentioned in the talk, “there is so much discussion about them having been rendered obsolete through NFTs and artists going directly to the market. But all galleries are saying we need these filters that, without discriminating, make distinctions in terms of aesthetics.”
And as the report concludes, NFTs actually offer an opportunity for dealers, consultants, and smaller auction houses. Not, as some might fear, a world where the institutions are replaced with “democratizing” curation protocols. McAndrew writes:
The effect of technologies on cultural markets has been discussed in terms of ‘platformization’ (or the reorganization of cultural work, practices, and creativity around platforms) and ‘disintermediation’ … however, the impact of disintermediation within the art market has been relatively weak to date, even over 2020 and 2021. Much of the growth of online sales in the art market has been sales conducted directly via existing intermediaries, through dealers’ and auction houses’ own websites and platforms. Third-party platforms have been important but have simply added another layer of intermediation, acting as intermediaries to the market’s existing intermediaries or even in some cases directing buyers to sales that still take place on dealers’ own websites and platforms.
Sotheby’s and Christie’s are the high-profile champions of the NFT in the auction house, but even then they only sold $230 million in NFTs compared to gross revenues of $14 billion altogether. While the survey found only 5% of “second-tier” auction houses had dealt in NFTs, Christie’s alumn Rodania Leong talked about regional auction houses with big ambitions for how they could get into the market, including ideas like developing their own minting platform for artists and buyers.
However many of these small businesses around the world will find themselves navigating legal uncertainties, both in the taxation of crypto assets and in the regulation of the art market specifically. France saw its first NFT auction on March 10th this year, just days after the French Senate made it legal for auction houses to sell “intangible goods”.
This was partly down to the organizers FauveParis campaigning with French authorities to amend the law to remove the need for a physical good linked to a digital art piece. Whether they’re held back by red tape or alone in a regulatory wild west, small-to-medium-sized intermediaries in the art market need regulations that work for them if they’re going to get into Web3. Without leadership from big players in the arts and culture sector, the regulatory agenda will be set by high-powered lobbyists from businesses like Meta, IBM, and Coinbase.
In the world of HNWs, is the NFT going to make it?
With 88% of HNWs interested in buying, the report makes it evident that NFTs have penetrated the very top of the art market. But with only around 30% of those NFT purchases being art, you could argue the art NFT hasn’t quite made it up there yet. What, Stijn Jansen asks, is needed for NFTs to be seen as a legitimate asset for art investors?
Perhaps the art still needs to prove itself outside of online-only pandemic conditions. Perhaps we need to wait until speculation dies down and we can get a better sense of real financial value.
On this topic, collector Sylvain Levy says “my first reaction on the numbers: I never buy with numbers”. For him, in this time of uncertainty traditional collectors just don’t see how NFTs fit into their collection or their journey as a collector. Perhaps, then, what’s needed is for institutions interested in Web3 to continue educating their audience on NFTs and championing the best work — that uses the NFT as a medium, rather than a container — that demonstrates the real value of the technology and the art it enables.
The Art Market report concludes on a similar theme:
Underneath the glittery spectacle of marquee auction prices is the potential for large-scale shifts, not only in the curatorial systems of vetting artworks and in the role of time-based media art conservators, but also in the fledging yet sturdy efforts of artists to create economic sustainability that may, over a long arc, be assembled piece by piece to become the cathedral businesses of our time.
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WAC Weekly is part of WAC Lab, a new program unleashing the full potential of Web3 for the arts and culture produced by We Are Museums in collaboration with TZ Connect and Blockchain Art Directory, and powered by the Tezos ecosystem.
