The average investor doesn’t have much fine art in their portfolio. And the reason for that lack of investment is clear.
People don’t invest in art because the barriers to entry are too high.
The vast majority of people don’t have the money to invest in artwork housed in well-known galleries and sold at auctions. They also don’t have the time or knowledge to spot up-and-coming artists and evaluate which works to purchase.
But art tokenization may soon change the dynamic of art investment.
Art platforms that tokenize art essentially provide fractional ownership of works of art. Using either U.S. dollars or cryptocurrencies, individuals can use these platforms to purchase shares in various works of art.
Once they own one or more shares in a work of art, they can treat them like any other investment — holding, selling, or trading it depending on fluctuations in the value of the artwork.
Before throwing money at the market, there are a few things to keep in mind:
Buying art tokens is similar in many ways to buying shares.
Art tokenization has the potential to change art investment and purchasing, but the idea behind it isn’t all that revolutionary.
It’s very similar to buying shares in a company or any other venture. You’re hoping the value of those shares increases, offering a return on your investment. And because fine art often increases in value over time, it does have the potential to be a good investment for many people.
As a collector or an investor, tokenization means you no longer have to buy an entire work of art at a prohibitive price.
Instead, a group of investors can buy the work together. Or a single investor can buy a few shares and hold onto them for years.
The goal in each situation is a return on investment.
Tokenization is great for investors who are involved with the art world.
Creating a token for people to buy actually isn’t all that difficult. The hard part is getting people to buy the token and use the platform you’ve created.
That’s why investing in art tokens makes sense for people who regularly participate in the art community.
Currently, there are a lot of people who have liquid crypto assets, and they’re looking for a way to spend them that isn’t the latest and greatest ICO. The market is there for a platform offering fine art investment in the form of tokenization.
But people only get involved in platforms they care about.
If a platform partners with artists people care about and enjoy following, then people will participate. If it doesn’t, then people simply won’t care.
Think of it like an airlines reward card. If you only fly once a year, you probably aren’t in the market for a card like that. It’s just not useful enough to you. But if you’re constantly flying across the country for business, you’re much more likely to get that rewards card.
You’re paying to play, but you’re also reaping the benefits of playing. It’s about aligning with the ecosystem that will give you the most returns over time, based on things you’re interested in.
If you’re interested in art and know the main players, you’ll be able to choose the right tokens for your portfolio. If you don’t know the main players, you can still test the waters with artworks instead of ICOs, as they both require a risk tolerance and some understanding of who — the artist or team — you are investing in.
Investors are not the only ones who benefit.
Tokenization does have the potential to open up investments in the art world. But it also has uses for industry players and artists themselves.
For one thing, it allows museums and other institutions to raise money without taking out high-interest loans. Instead, they have the opportunity to sell shares in one of the works they already own. Using that money, they could further expand their collection — without reliance on pricey loans.
Living artists could use the investments to crowdfund their own work, selling shares of upcoming works of art and potentially boosting their value through word of mouth and trading.
If the piece sells for more than the overall investment, then shareholders would be entitled to some of the returns, and the artist raises his or her reputation.
Of course, we don’t want to reach a place where artists are essentially owned by investors or companies, which is why we need to educate living artists now about the possibilities and pitfalls of tokenization.
None of this will happen overnight, but there are companies up and running, like Macenas, that allow people to buy shares in artwork. Another is R.A.R.E Digital Art Network — a company that focuses on digital collectibles and lets people invest in a living artist’s work with cryptocurrency.
And someday sooner than you think, you might be able to buy tokens for that Kandinsky or Rouault you’ve always admired.