Crypto millionaires’ love of NFTs is a boon for the aging art market—but galleries may miss out

April 14, 2021, 4:00 AM UTC

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Vignesh Sundaresan entered the bidding with 80 seconds left on the clock. He was taking part in the auction of Everydays: The First 5,000 Days, a digital collage by the American artist Beeple, which went on sale last month at the auction house Christie’s. At that point the bid was $25 million, posted by Justin Sun, founder of the cryptocurrency platform Tron. Sundaresan, an Indian cryptocurrency entrepreneur, began to raise the price in giant leaps—by $2 million, then $8 million, then $15 million in quick succession. With just eight seconds on the clock, he raised it again, to $60.25 million. Sun couldn’t keep up. When the clock hit zero, Sun was frantically trying to post $70 million but was prevented from doing so by a glitch in the system. Sundaresan had just made Beeple, whom most people had never heard of, the third most expensive living artist ever sold at auction behind Jeff Koons and David Hockney, and had ushered crypto art into the mainstream. 

Everydays was auctioned as a non-fungible token, or NFT, a string of code on a blockchain that is linked to images and that acts as a digital certificate of ownership, authenticity, and provenance. Its sale is shaking up the art business. The bidders for Beeple were completely unknown to Christie’s, which typically curates buyers for blockbuster pieces as assiduously as it selects the work itself.

“We signed up more clients that were new to us than ever before for a single lot,” says Alex Rotter, chairman of postwar and contemporary art at Christie’s in New York. “That tells you this is an entirely new category of buyers.”

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Auction houses are scrambling to take advantage. Sotheby’s on Monday launched its first NFT auction, a three-day sale of works by the anonymous crypto artist Pak. On day one it raised almost $10 million. Phillips will sell its first NFTs later this month.

Galleries too are hoping for a new injection of cash from crypto millionaires to supplement their aging client base. “There are people in the crypto community who are important future patrons of the arts,” says Marc Glimcher, CEO of Pace, a leading contemporary-art gallery in New York. “If we keep clinging to our old group of patrons we are going to be going to a lot of funerals and not a lot of birthdays.” 

But those commercial opportunities are offset by threats, which will be felt more by galleries than by auction houses.

Galleries make money by plucking the most interesting artists out of the crowd, building a promotional narrative about why their new work is important, and flogging it to their wealthy clients. For their trouble, they take a big cut from each sale—as much as 50%, with artists pocketing the rest. Auction houses make money by charging both buyers and sellers a percentage of the hammer price. When art is resold at auction houses, artists get almost nothing. When David Hockney’s Portrait of an Artist (Pool With Two Figures) went for $90.3 million at Christie’s in 2017, it became the most expensive artwork by a living artist ever sold at auction. Christie’s made a killing, but Hockney didn’t make a dime. 

The NFT market works differently. Its artists, usually immersed in the world of blockchains and cryptocurrency, use social media to build their audience in that community, and then sell their work directly to crypto collectors through specialist online platforms like MakersPlace and Nifty Gateway. These platforms take a roughly 10% commission on each sale and offer artists automated resale royalties at rates set by the artists themselves. According to a British crypto artist who goes by the name Robert Alice, “sometimes, after three or four weeks, you are making more money from the resale than you are from the initial value of the drop.” 

There’s no reason in principle why artists who make paintings or sculptures shouldn’t follow the example of their crypto colleagues. Last year, Alice became the first artist to sell an NFT at Christie’s, and the token was linked to a physical painting. In March, Mintable, an NFT platform based in Singapore, sold an NFT version of a painting by Wladimir Baranoff-Rossiné, a Ukrainian artist born in 1888, which had been digitized and “minted” on a blockchain. The buyer, who paid $47,000, got the canvas as well as the token.

Artists who have never worked with NFTs are beginning to do so—not through galleries, which have little access to the crypto community, but through NFT specialists. Daniel Chu, CEO of the NFT platform MakersPlace, predicts that companies like his will, in time, cannibalize traditional firms. “If there’s any indication from past examples,” he says, “things that are taken over by a digital movement tend to not exist anymore.” 

That won’t happen anytime soon. NFT platforms still struggle to curate and promote auction pieces, a craft galleries and auction houses have mastered as a way to drive up value. The art market’s central idea is that the object itself is less of a determinant in price than the story you tell about it. But anybody can put an NFT up for sale on these sites, and visiting one is to wade through an undifferentiated mass of images. 

Yet here, too, there are signs that the NFT world is catching up. In March, Casey Reas, an artist and curator in Los Angeles, launched a new venture called Feral File. Reas selects small groups of NFT artists working with similar themes and presents their work in an online exhibition, selling limited editions of their pieces. It is a middle ground between NFT platform and gallery, adopting the technology and economics of the former and the rigor of the latter. 

Reas, though, remains a rarity, and operations like his are too small to appeal to digital artists at the top end of the market. Increasingly, those artists are turning to traditional auction houses to sell new work. Firms like Christie’s and Sotheby’s take a smaller commission than the major galleries that ordinarily handle the primary market, and their brands carry more cultural capital. They also are experts at generating buzz around their events. “There’s less of a tradeoff to working with an auction house,” says Alice, Christie’s first NFT artist. “It’s becoming obvious that if you want exposure that platform is much better than a gallery.” 

Right now, auction houses aren’t set up to handle the technical aspects of NFT sales themselves, such as making the token on a blockchain and transferring it to the buyer’s crypto wallet after the auction. Christie’s, for example, collaborated with MakersPlace when it sold Beeple’s work. But Alex Rotter of Christie’s expects that to change: The company is building its own infrastructure to handle NFTs on its own. “I think blockchains will be adopted by the regular art world,” he says.

But perhaps the biggest threat NFTs pose is to the incumbent art world’s sense of itself as the arbiter of taste and value. During a recent discussion on Clubhouse, an audio app popular with the tech crowd, one contributor likened Cryptopunk 7804, one of a series of NFT images of pixelated cartoon faces in funny hats and glasses, to the Mona Lisa (several Cryptopunks are being auctioned at Christie’s in May). Sundaresan himself compares the arrival of NFT art to van Gogh’s contribution to painting. He plans to create a virtual museum of crypto art to display Beeple’s Everydays, which is made up of gross-out, cartoonish images including Donald Trump being spanked by Abraham Lincoln, Hillary Clinton with a penis, and figures inspired by anime porn. “It’s not just that I want to create a museum,” Sundaresan says. “It’s that I want to create a museum like MoMA.” 

This kind of overheated talk shows how committed the crypto crowd is to the art that expresses their community’s brash, brotastic, antiestablishment culture, and it raises exasperated eyebrows in the traditional art world. As Rotter puts it, when it comes to crypto art, “we are still in the cave painting stages.” When Max Moore, an auctioneer at Sotheby’s, first pitched an NFT sale to his colleagues earlier this year, some of them told him to “piss off.” 

Potential profits may be forcing a reappraisal, but there is a tradeoff. “We can no longer be the gatekeepers of what has value,” says Marc Glimcher of Pace, the contemporary art gallery. “If the two sides are going to come together, everybody is going to have to give up something.”