MoneyThe Unexpected Connection Between Investing in Blockchain and Soaring Art Prices

With the rise and fall of cryptocurrencies like Bitcoin, analysts and investors in today’s markets are conducting research into new types of profitable financial products. Secure ledgers of blockchain have drawn interest among investment firms all over the world for its potential to transform the art sector of the economy. Because these new types of financial products are designed to encourage transparency, many believe that stronger art markets could emerge from building trust in transactional...
David LeeAugust 26, 2018

With the rise and fall of cryptocurrencies like Bitcoin, analysts and investors in today’s markets are conducting research into new types of profitable financial products. Secure ledgers of blockchain have drawn interest among investment firms all over the world for its potential to transform the art sector of the economy. Because these new types of financial products are designed to encourage transparency, many believe that stronger art markets could emerge from building trust in transactional relationships through this technology.

Investing directly in art is not an entirely new concept, but structured solutions offered by art funds give investors the option of investing in a diversified art portfolio. All art funds raise a certain amount of capital to provide investors with various options to invest in different markets of fine art, such as Indian and Chinese Art.

New technologies have called for new art funds to create itself in order to adapt to a dynamic market. UTA Brant Fine Art Fund aims to invest $250 million in top-notch postwar and contemporary works, taking advantage of the expertise of art collectors who are well-versed in the financial field. The firm, collaboratively created by New York collector Peter Brant and the United Talent Agency in Los Angeles, has publicly said that the minimum investment is $1 million, and the target hold period is around 5 to 7 years.

The entire idea behind blockchain is to fractionalize art, dividing a certain percentage value of the artwork into shares that can be traded on a certain platform. Some startups have priced each share to be valued at around $10,000. Dividing art into certain percentages and trading in the form of tokens will bring much-needed liquidity to the market. Experts in the field like Duncan Macdonald-Korth believe that the strong foundational integrity of the technological blockchain will direct the industry into a completely different direction.

“We’re in a special moment in the economics of the art market.” Mr. MacDonald-Korth said in a telephone interview. “The higher the values get, the more incentive there will be for the market to be properly financialized.”

“The higher the values get, the more incentive there will be for the market to be properly financialized.”

The nature of this technology allows for decentralized record-keeping in blockchain and creates an ideal platform for fine art to thrive in. Ideally, art collectors would simply verify the authenticity and the ownership of artworks on one secure registry. However, blockchain could be slow to be implemented because the world of art has been reluctant to embrace new technological developments to stimulate the art trade.  

Nevertheless, Blockchain is already revolutionizing the art industry, specifically in one niche of the market—digital art. Although digital art can easily be reproduced by a computer, companies integrating blockchain from cryptocurrency with proof of ownership technology have already shown tremendous success in creating stronger art markets.

New York-based CryptoPunks attribute the equivalent of $14,000 in sales. An equally prominent startup, Crypto Kitty, has attracted over 250,000 users and recorded over $25 million in transactions. This commercial success can be attributed to investor confidence in the blockchain, suggesting that other segments of the market will benefit from this technology in the future.

A new technology called “tokenization” is also heralded as the next step towards progress in the art industry by using the value of an artwork to finance tradable digital tokens. These tokens represent a percentage of the artwork and can be sold several times a year. The biggest challenge faced by firms looking to invest in tokenization to find artwork that will retain its value even after it is traded using tokens.

Opening up the art industry by employing blockchain creates a safe and accessible platform to prospective investors. Because fine art is becoming an ever more lucrative sector of the world market, it is just as necessary that it becomes regulated to protect investor confidentiality and assets.

David Lee

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