Non-fungible tokens (NFTs) were all the rage at the pandemic’s start. Fuelled by hype and increased mainstream participation, NFT technology has helped prop the growth and appreciation for digital art.
The first image on the blockchain appeared in 2011 when a tribute to cryptographer Len Sassaman — an image of him made by ASCII art — was created in the Bitcoin block 138725. Then, in 2014, digital artist Kevin McCoy created the first NFT, later sold in 2021 by Sotheby’s for US$1.47 million during its “Natively Digital” auction.
It is hard to pinpoint exactly when NFTs exploded into the mainstream, but many credit it to the sale of digital artwork Everyday: the First 5,000 Days, a collage of 5,000 digital images by Mike “Beeple” Winkelmann. The NFT was sold at Christie’s for US$69.3 million, making it among the most expensive works by a living artist.
According to data from nonfungible.com quoted by the Citi GPS: Money, Tokens and Games report released in March this year, a total of 3.8 million transactions of art and collectables worth US$9.5 billion occurred between March 2022 and February this year.
Unlike in the physical world where artists do not get a revenue share from secondary sales, NFTs can be crafted to ensure the artist gets a percentage of subsequent secondary sales after an initial minting. The shift to digital has led to a stronger focus on diverse artists and genres, and on artists who work outside mainstream platforms, says Citibank.
“We expect this trend to continue in the foreseeable future, along with new synergies between auction houses, galleries, artists, and collectors, as well as sustained growth in private sales,” it adds.
Many touted NFT as the potential disruptor of art at the height of its frenzy, especially impacting the traditional art market. However, as the frenzy of activity subsided on NFT platforms in 2022, and the share of sales via third parties declined or plateaued, it has become apparent that there had been little significant or radical disruption of the incumbents in the traditional art market, according to The Art Basel and UBS Global Art Market Report 2023.
The report found that sales of art-related NFT have experienced an incredible rise in both value and volume, from a low of US$605,000 in 2019 to just over US$20 million in 2020, before its biggest advance in value the following year to US$2.9 billion.
Despite peaking in August 2021, sales cooled substantially in 2022 as the price of Ethereum slumped. Last year, Ethereum hit a low of US$995.25 apiece on June 19, a 74% decline from the year’s peak at US$3,835.40 on Jan 3, according to data from CoinGecko.
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Meanwhile, trade volume also slowed as the market became more saturated. The report says that this substantial drop in the value and volume of trade helped dampen the media mania around NFTs and shook out some of the most speculative traders.
The high liquidity, ease of access and instant traceability of NFTs had attracted very speculative buyers primarily interested in buying and reselling in a short period for financial returns. The pseudonymous nature of transactions also meant there were few barriers to entry compared to the traditional art market, and lower starting prices meant greater accessibility.
That said, the proliferation of NFT and other digital channels has helped to grow online sales; despite subsiding in 2022 with a share of total sales at 16%, this was still considerably higher than the 9% it accounted for in 2019.
By making art more accessible online, there certainly has been more evidence of progress towards democratisation, the Global Art Market report states. Online access to dealers, auction sales, and fairs has allowed much wider access to new audiences, with 40% of dealers’ online sales being brand-new buyers.
Aside from e-commerce, online channels and technological advancements have also been central to the market’s development and continue to impact sales. One of the clearest examples is in the auction sector, where online bidding has evolved from a minority alternative 10 years ago to the dominant bidding method today at all of the major auction houses, the report notes.
