Hang it on the wall
Vol #29 - March 12th, 2021
Just yesterday, someone paid $69M for a long string of letters and numbers.
Digital artist Beeple auctioned his collage “Everydays: The First 5,000 Days”, and when the hammer hit, Christies became the first major auction house to sell a purely digital piece of art.
Non Fungible Tokens or NFTs have been booming over the last month. They initially cropped up during the last bull market in crypto assets in late 2017 with games like CryptoKitties - Tamagotchi for the blockchain. Most recently there has been everything from NBA highlights to tweets being put out as NFTs.
Fundamentally an NFT isn’t really all that different from any other form of art - it simply has a digital record of who owns it. Distributing art through tokenization distinctly solves one of the industries greatest challenges.
Provenance has always been a dubious question with precious physical goods. Whether it’s wine or a Warhol, knowing an asset’s history is extremely important for questions of valuation. It’s not easy to replicate the work of an Old Master, but without a perfect chain of ownership, potential buyers always have that nagging question in their head.
Unfortunately that question makes for great drama. With provenance and ownership now proved by the blockchain, Pierce Brosnan and company can hang up their hats. My favorite page turner is, “The Gardner Heist'', detailing the obsession and loss that came out of the 1990 theft at the Isabelle Stewart Gardner Museum. Over $500 million of Vermeers and Rembrandts were taken after two men posing as police officers deftly tied up the guards and looted the museum.
“The Storm on the Sea of Galilee” is Rembrant’s only seascape, and the original has still never surfaced thirty years later. We can easily find reproductions to appreciate the work, but something is still missing. Even when I look at a copy of “ La Grande Jatte”, I’m happy to know the original is safely at the Art Institute in Chicago.
With provenance proven, what does the rising popularity of NFTs mean for art as an investment?
Paintings and sculptures don't produce income or dividends, so it’s typically reserved for the ultra wealthy. As an investment, fine art has always been surrounded with as much lore as fundamental value. Shredding a Banksy makes it worth more.
For every Beeple that rings the register, there will be thousands that fizzle. There is a lot of digital gold being mined in crypto these days, which further fuels the speculation here. But whether this is the top or the new frontier is somewhat irrelevant.
I like to think about investing in art the same way as I think about having a “play money” portfolio. Investors should buy art that they enjoy. If you can afford it and love it, hang it on the walls, or play your exclusive NFT album for your friends.
It’s not unreasonable to spend your disposable income on something that you enjoy. Wealth is funded contentment, and holding the exclusive license to a Lebron James dunk is probably really fun to talk about at cocktail parties. But it’s not where you should be investing your first $200,000 of savings.