NFT artworks and other collectible collaborations surged in popularity during the Covid pandemic, but transaction volumes and values have since slumped. Nina Plowman examines what the future holds. 

Late last year, NFT – or non-fungible token– transaction volumes hit freefall and public interest declined. Deal values on OpenSea,the largest marketplace, fell 89% between December 2021 and December 2022, and there were similar downturns among curated platforms over this period. Auction house Sotheby’s has also reportedly trimmed its team of NFT and metaverse specialists, despite a number of recent high-profile NFT sales.

However, the original rapid rise of the NFT phenomenon served to diversify the market. In its wake, the cultural whipping-up of the art world created not only a new category of collecting, but also new generations of collectors in the cohorts we have come to know as Gens Z and Y.

So, despite the wider collapse in crypto assets, there is still something to be said for the broader art world's confidence in the utility and reach of NFTs.

This year, for example, there have been signs of a revival to an extent. Transactions hit US$4.7 billion in the first quarter of 2023, compared to just US$1.9 billion in the previous three months, according to sector analyst DappRadar. Though this was still a long way off the US12.6 billion scored in the first quarter of 2022. Nothing has come close to the dizzy heights hit in 2021 by the digital artist Beeple when his seminal work Everydays, The First 5000 Days stunned the art world when it was auctioned by Christie’s in March for US$69 million, followed later in the year by the installation/NFT Human One for US$28 million. Even the million-dollar plus prices regularly paid for single Bored Ape Yacht Club editions by celebrities such as Justin Bieber seem a distant memory. But NFTs produced by well-regarded digital and generative artists are still selling for decent sums of money.

In New York this May, for example, Christie’s 3.0 – the auction house’s digital arm – sold Jack Butcher: Checks Elements – This artwork may or may not be notable for 50.1 ether, the equivalent of US$93,000. A month later, at a sale raising funds for the Multidisciplinary Association for Psychedelic Studies, works by leading digital artists fetched a total of US$372,570. The top lot of the sale was Self-Discovery by DeeKay, realising almost 49 ether.

Provenance and a shade of notoriety also helps. Sotheby’s realised almost US$11 million– double the high estimate – in June when it sold off 40 digital artworks that belonged to the bankrupt crypto business Three Arrows Capital. Generative artist Dmitri Cherniak’s Ringers #879(The Goose) went for US$6.2 million. According to Claudia Schürch, Christie’s Senior Specialist in Post War & Contemporary Art, the level of investment in NFT artworks and the attention the auction house is paying to digital creators stands to reason when considering the changing face of art history.

“Art is always revising itself. For digital art and for every single category, there’s always a newly discovered artist or someone we want to include."

Globally renowned as one of top three auction houses, it is not only important for specialists at Christie’s to ensure they are representing interesting new names in any major art movement, it’s also crucial that the contents o fthe sales reflect changing tastes and attitudes. Claudia is a proponent of the notion of the eclectic collector. “You can like contemporary art and Old Masters, and you can like the Impressionists and digital art." She believes that NFTs have opened up the art world to a new collector as an access point. “Once they are in,they will then transition to new and different art choices.”

But where are we now when it comes to broader perceptions of art on the blockchain? It seems that the market has moved beyondits initial ‘gold rush’ stage, and collectively, the art world is reaching a more measured understanding of where it stands.

Anders Petterson, founder and Managing Director at art market analysis firm, ArtTactic agrees: “Many media reports have historically focused on either euphoria or doom to describe market performance. But change is happening. The market is evolving, technology is developing and our perception about how we can use NFTs is moving on.”

A new-and-improved ‘NFT-as-utility’ paradigm is developing and the blockchain is being used as a tool for authentication, verification and community. This could be read as a reflection of the community’s addressing of its teething issues around regulation, making NFTs easier to deal with and the blockchain a safer place in which to transact.

Efforts to create sound frameworks have inevitably increased trust for all players. Unsurprisingly, the opacity of the language surrounding NFTs has generated increased levels of exclusivity, shutting out some collectors.

Bernadine Bröcker Wieder, CEO at Arcual, the art market’s first blockchain platform, is breaking through these linguistic barriers and focusing on functional benefits in real terms.

“It is about the underlying functionality. The art market has been reluctant to use technology until recent years, often due to concerns about the custodians of secure information; who they are, where data is being stored, and how it can be trusted. Blockchain allows us to create trusted spaces for information to be stored that weren’t there before."

The next chapter for NFTs is full of promise. Wider adoption is an inevitable next step once regulation becomes more sophisticated and both creators and consumers are better protected. The market is working through challenges with the technology itself and reflecting on how NFTs and the broader Web3 can solve the many of issues in the art and luxury market relating to authentication, provenance and security of ownership, as well as potentially reducing transactional costs.

Anders goes on to observe that the values have changed but the appetite still exists: “since the NFT market peak of 2021, there has been an adjustment and a correction in the market. We have seen Bored Ape Yacht Club, a popular series of NFTs which were, and still are, incredibly valuable, reach a floor price of around US$260,000 a year ago. Today this is about US$80,000.”

While values may have reduced, mindsets are turning. According to the Art Basel UBS Art Market Report 2022, art and collectibles NFT sales increased over a hundredfold from $4.6 billion in 2019 to $11.1 billion in 2021 and 74% of high-net-worth collectors had purchased art-based NFTs in 2021.

Almost 90% said they were interested in purchasing NFT artworks in future. While 46% of dealers were reported to have no interest acquiring or selling NFTs, 19% were interested in doing so in the next one or two years. We are also seeing NFT acquisitions by major institutions to support a sustainable revenue model for the future, and to engage audiences.

At the start of 2023, Centre Pompidou became the first museum for modern and contemporary art to invest in the art form of NFTs, acquiring 18 works by 13 different artists, both French and international. Not only is this a step forward in the medium being accepted into the art world, but also recognition of the creative appropriation of this new technology by the artists, says Alex Estorick, journalist and media theorist.

“NFTs have provided a vehicle for diversifying the marketplace and have given a platform to new mediums that people previously ignored, including artists, illustrators and creators.“

"The technology has the ability to connect artist and brands with new audiences and while there is uncertainty about the value of NFTs, the development of digital art will be determined by the platforms that support them in the future.”

We can also safely anticipate that the role of NFTs will continue to change. Luxury brands and consumers are seeing how this technology can be applied to our everyday lives and how it can be complementary to traditional collecting modes. Tiffany & Co, for example, is no longer talking about NFTs, but focusing on how the technology can create valuable assets and an enriched user experience of collecting. It is true to say that the established art world has reinforced the blockchain with a blueprint, but other asset classes and luxury sectors are catching up fast.

The fashion world is recognising that blockchain technology provides an opportunity to connect with the digitally native luxury consumer of the future. As Alex points out: “75% of children in the US between the age of nine and 12 have a Fortnite or ROBLOX account. They can buy ‘skins’ [digital assets to customise their own game] for these from Balenciaga and Chanel, and so on. What these luxury brands are doing is putting a down payment on their mind space.”

“This move towards wider adoption is all about accessibility,” adds Sian Rodway, COO at MDRx. “In order to see adoption of this space, brands have to unlock wider and new audiences by making the way that we collect and own digital assets straight forward to understand and adopt… It should be described in terms of the user experience,” she explains.

High-value luxury goods purchases through social media would have been unthinkable just a few years ago, yet today these transactions can be a regular feature of our lives. In a similar way, the technology of the blockchain, NFTs, and crypto will ultimately become tech-vocab of the past as will our preoccupation with how these system works. It will become part of our every day.

In Bernadine’s words, “the blockchain movement was initially focused on creating or proving the value of digital assets by adding them to the blockchain. We’re now at a point where we’re seeing how the technology can be used to preserve and enhance the value of many more asset classes and processes.”

This article is reproduced from the Knight Frank Wealth Report into Luxury Investments, please click HERE to read in full.