The New Masters: How auction houses are chasing millions of cryptocurrencies
James Christie couldn’t have known 240 years ago, as he sold masterpieces by Rembrandt and Rubens to Catherine the Great, that his auction house would one day gift virtual monkeys to a crypto company for over a million dollars.
Sotheby’s founder Samuel Baker, who auctioned hundreds of rare books for around $ 1,000 in 1744, also would not have considered selling a copy of the original source code for the web, as a non-token. fungible (NFT), for at least $ 5 million.
The weather is changing.
“Everyone wants to sell an NFT,” said Cassandra Hatton, global head of science and popular culture at Sotheby’s. “My inbox is completely clogged.”
Sotheby’s sold $ 65 million worth of NFT in 2021, while its big rival Christie’s sold more than $ 100 million of the new type of crypto asset, which uses the blockchain to record who owns digital elements such as images and videos, although they can be freely viewed, copied and shared like any other file online.
These sales figures from the world’s largest auction houses represent about 5.5% of their contemporary art sales, according to data from Art Market Research. It’s a jump, considering the NFTs only took off last year.
Many buyers fall into a new category of affluent clientele: people who have made their fortunes through cryptocurrencies, said art specialists involved in NFT sales at major auction houses. At a Sotheby’s online NFT sale in June, which grossed $ 17.1 million, nearly 70% of buyers were newcomers.
Indeed, the three raw cartoon monkey NFTs that were purchased for 982,500 pounds ($ 1.3 million) from Christie’s in London earlier this year were purchased by Kosta Kantchev, who runs a platform of cryptocurrency loan called Nexo.
The cartoons, from a set called the Bored Ape Yacht Club, were Christie’s first NFT sale in Europe and were offered at her biggest in-person auction since the start of the pandemic.
A sign of changing times, Kantchev rubs shoulders with art collectors who bid on works by David Hockney, Jean-Michel Basquiat and Bridget Riley.
“On the one hand there were people in costume up front, and on the sides there were people on the phone who were getting semi-anonymous offers,” said Antoni Trenchev, who runs Nexo with Kantchev. “Then in the back there were entrepreneurs and people in the crypto industry bidding – they don’t come in suits. “
Trenchev said their purchase of monkeys was a gamble that the NFT market would continue to grow, fueled by the rise of the “metaverse” of online worlds where virtually anything can be bought or sold, from avatars to clothing to land. and buildings.
Indeed, digital art is only part of the explosive growth in NFT sales, which topped $ 10 billion in the third quarter of this year alone, eight times more than in previous months.
“We are working on exciting new financial tools for NFTs that will drive adoption of the asset class,” said Trenchev, noting the possibility for Nexo to sell financial products based on NFTs as an underlying asset.
They are not the only ones betting on the metaverse. Facebook – a nearly $ 1,000 billion company that rebranded itself as Meta on the calculation that increasingly immersive virtual environments and experiences are the future.
It remains to be seen whether Mark Zuckerberg is far-sighted or not. The NFT boom, however, is dragging auction houses hundreds of years older than Silicon Valley into a new world.
To chase their new generation of buyers, the big auction houses are turning to social media.
Noah Davis, head of digital art sales at Christie’s, said his potential buyers of NFT were happy that he was abandoning the formalities normally involved in attracting art collectors, adding that he had recently negotiated a contract on the Discord messaging platform and registered buyers for auction via Twitter.
“This is where it happens, this is where customer service is provided,” he said, adding that it was remarkable how much faster this process was compared to traditional methods.
In another big digital shift, auction houses often source NFTs directly from crypto artists – in many cases, little-known figures and pseudonyms.
In the physical art market, on the other hand, artists’ primary sales are normally handled by galleries, while auction houses traditionally focus on secondary market sales.
“For me, the biggest surprise is that artists want to work directly with auction houses. We’ve always been in the aftermarket, ”said Rebekah Bowling, senior specialist in 20th century and contemporary art at Phillips, another global auction house.
“The traditional structure has been turned upside down,” said Bowling, who uses Twitter and Clubhouse to reach out to performers.
Why crypto is risky
Yet these newcomers to a wild metaverse are also facing a new sphere of risk, particularly around cryptocurrencies, which crypto-rich buyers often prefer to use to pay for NFTs.
Auction houses can face legal risks in terms of Know Your Customer (KYC) and Anti-Money Laundering (AML) requirements, said Max Dilendorf, an attorney specializing in cryptocurrency and partner at law firm Dilendorf in New York.
“These products could be titles and when a gallery chooses an artist or a product, they had better do their due diligence,” he said, adding that money laundering through cryptocurrencies was a “known fact”.
Sotheby’s has not commented on its KYC or AML proceedings. Christie’s said its KYC and AML standards in NFT sales were the same as for physical artwork, but declined to go into details. Phillips said he has verified that buyers have sufficient funds in their crypto wallet.
Another problem is that even though NFTs are marketed as a way to indisputably register ownership of a digital asset, problems can still arise.
A Sotheby’s NFT sale in June – in which a buyer spent $ 1.5 million on what was marketed as the very first NFT, a simple geometric animation called “Quantum” by Kevin McCoy – was complicated by the emergence of a claimant claiming to have a previous, original version of the same NFT, both buyer and claimant said. They said the dispute over what could truly be called the first NFT meant the transaction was delayed, and blockchain records show the purchase was only transferred several weeks after the sale.
Separately, after an auction by Sotheby’s of an NFT representing World Wide Web source code, which grossed $ 5.4 million, observers noticed errors in the included video version of the code.
Sotheby’s did not respond to a request for comment on either sale.
Pablo Rodriguez-Fraile, a Miami-based collector who buys both NFT and physical art, said the actions auction houses have taken in the digital sphere have been very positive.
“I think they are normalizing the ecosystem, and I think very soon they will find the right path,” he said.
“But the conservation challenge and the technological challenge are major,” he added, referring to auction houses acting as galleries by handling primary sales.
On November 9, Christie’s sold a new NFT of Beeple, the artist whose NFT grossed $ 69 million from Christie’s in March. It was the first time that a large auction house had sold a work of art that did not physically exist.
However, this time around his work was sold in physical form, as well as NFT form. At Christie’s at least, the real world still has a certain appeal.
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