Explained: How auction houses are chasing crypto millions
(SOUNDBITE) (English) SOTHEBY'S, VICE PRESIDENT OF CONTEMPORARY ART DEPARTMENT, MAX MOORE, SAYING: "Kevin McCoy's piece 'Quantum' is the genesis NFT, the origin, the creation of this NFT movement…”
Little could Sotheby’s founder Samuel Baker have known while auctioning rare books for $1,000 in 1744, that his auction house would one day sell a copy of the original source code for the web, as a non-fungible token, or NFT, for north of $5 million.
Times change.
In 2021 alone, Sotheby’s has sold $65 million worth of NFTs, while arch-rival Christie’s has sold more than $100 million of the crypto asset.
Here’s how digital assets are upending the traditional structure of the art market, and how centuries-old auction houses are chasing crypto millions.
In March of 2021, Christie’s sold a digital work by American artist Mike Winkelmann, known as Beeple, for nearly $70 million in the first ever sale by a major auction house of a virtual artwork.
Noah Davis is head of digital art sales at Christie’s.
“We are in a very unknown territory. In the first 10 minutes of bidding, we had more than 100 bids from 21 bidders and we were at $1 million dollars in 10 minutes with a starting bid at $100. And that just truly is, we've never seen anything even remotely close to that kind of activity."
Many buyers are from a new category of wealthy clientele: people who made their fortunes through cryptocurrencies.
That’s according to art specialists involved in NFT sales at major auction houses.
In a Sotheby’s online NFT sale in June, which brought in $17.1 million, nearly 70% of the buyers were newcomers.
Max Moore is vice president of the contemporary art department at Sotheby’s.
"As we move more and more into that type of society where technology is intertwined and intersected and more powerful in increasing ways that NFTs and digital assets will just be a reflection of our preferences and our values as a human society.”
To hunt new buyers, the auction houses are taking to social platforms.
Davis said his potential NFT buyers are happy to ditch the formalities normally involved in attracting art collectors.
The digital shift has also led to auction houses sourcing NFTs directly from crypto artists.
A shift from the physical art market, by contrast, where artists’ primary sales are normally run by galleries, and auction houses traditionally focus on secondary market sales.
Yet, the untamed metaverse also involves a new sphere of risk, particularly around cryptocurrencies.
Auction houses can face legal risks in terms of know your customer (KYC) and anti-money-laundering (AML) requirements.
And while NFTs are marketed as a way of indisputably recording ownership of a digital asset, problems can still arise.
In June, a buyer spent $1.5 million on what was marketed as the first-ever NFT, a simple geometric animation called “Quantum” by Kevin McCoy.
Then a claimant emerged saying they owned an earlier, original version of the same NFT delaying the blockchain transaction by weeks.
But many believe these hurdles will be ironed out as the burgeoning market stabilizes.
MAX MOORE: "We're coming back down to reality now, which I think is actually very healthy for the long-term growth of the market. But I do think that, you know, we're scratching something that's quite interesting and unique and revolutionary and reflective of the future in some ways."
