Secondary Market for Art via NFTs
The following are my own observations and opinions formed as I learn about the emerging art market via NFTs. I credit many others far more experienced and intelligent than I and the amazing conversations being held amongst a vibrant community from whom I’m constantly learning.
Every article I’ll start by shouting out people who have have inspired me with their community & thought leadership: Allen Hena & Laurence M White (note this in no way means they hold the same opinions as me on the following). This article I was inspired after a Clubhouse room today by Laurence Whites ART club (go follow!)
It also has to be noted that what I write is not to state absolute facts but to pose questions and talking points plus offer a few of my own opinions. Statistics on the art market are very inconclusive because it’s such a diverse and unquantifiable market. Read more on this at artmarket.com
First thing to say is that it really is too soon to make any accurate assumptions and predictions on the secondary market when it comes to art via NFTs. So why am I writing about this? Because it’s a conversation worth having as we all attempt to map out the future potential of art via NFTs.
Should we make comparisons to the traditional art market? Yes and no. It helps to give context but it should not be made to determine whether art via NFTs have a better or worse secondary market because they are at such different stages of their journey and have many different factors to consider.
The traditional secondary art market likely emerged through the 15th century during the renaissance period as the concept of art (along with money and power) moved away from the church and into the new wealth as a status symbol. This all happened as a new economy emerged beginning with ledger based finance and the printing press opened up wider communication and community engagement about what was happening in the world. I always refer people back to the Bankless podcast with Josh Rosenthal on this very subject which is a must listen.
Why is a secondary market important? When we’re talking ‘markets’ we are ultimately talking money so let’s for a moment forget about the cultural value of art. The secondary market can be said to provide liquidity for the primary sales market… without it the primary market would still exist but it would take a huge chunk of buyers out of the primary market for whom there is at least some security in knowing they could sell a piece if they had to. A majority are not buying solely to flip or resell in the near future but knowing they ‘could’ with mitigated loss is a factor.
In the traditional art market secondary sales happen at all levels but for the most part it is very hard to quantify because so much of the art market is so segmented and large volumes of trading take place off the books of the large auction houses and galleries which supply data for research. That mystery is certainly part of the intrigue and allure in the traditional art world and some undoubtedly prefer it that way.
The blockchain allows a greater degree of traceability of every single work of art sold as an NFT and that brings with it greater opportunities to seek out the body of work from a particular artist who is gaining attention and that I believe will in time result in greater number of secondary market sales.
This is how I think that will happen…
Right now there are a huge number of creators and artists trying the NFT market out for their work and there is literally an overwhelming glut of work available. Many will come and go and the ones who stick it out will be fewer in time. That means the currently high volume of new work entering the NFT space will ease back. As the market matures we will also see a broader base of buyers and collectors emerge, both from within the crypto economy as well as from the traditional art world. Throughout this shift the marketplaces themselves will be introducing better discoverability and tools for buyers to explore and find secondary market sales. Some sites already offer a dedicated section of their site that lists only work available to buy on the secondary market from existing collectors, add to this an ability for buyers to easily view a report on a particular artist showing their history of sales and secondary sales plus who currently own their work and makes offers right there. Suddenly an excitement builds around seeking out those artists who don’t have new work available on a regular basis but who have a proven sales history. The combined effect of these factors will naturally see supply and demand drive more secondary market sales.
Royalties are a draw card for artists on the secondary market however it as yet is not standardized so that royalties won’t always transfer between marketplaces but those standards are starting to get implemented. The secondary market is of interest to the artists in this emerging market predominantly because of the ability to earn royalty percentage from your work when it resells but at the time of writing most of the focus is on the artists first sales. The other interest in secondary sales comes from the nature of NFTs being part of the blockchain and the conversation around blockchain that is naturally related to it’s longevity and permanence. For many artists the indelible record of their work on the blockchain is of value alone.
It’s also very hard right now to specifically track ‘art’ sales in the NFT market because NFTs can be pulled apart to a few very different types such as art, collectibles and utility tokens. Being a very subjective term, art can certainly be said to include all these categories, particularly in the new digital age where a developer can literally use code to create generative art that adapts and changes over time based on external input. However for the purpose of some comparison to the traditional art world I’ll detail the following in particular;
Art: literally pieces of art sold as single editions with no specific utility and a most direct comparison to what you’d buy walking into a high street gallery. These are collected primarily (though not exclusively) for their aesthetic value to the buyer though investment value is obviously a consideration as it may be in buying art in the traditional world where you are also buying into the artist and their status or potential status as well.
Collectibles: many collectibles utilize art but the defining difference here is that they are collected not only for their aesthetic value but for a range of traits or community utilities that comes with the collectible. These mean the primary consideration set (again not the only) is based on potential resale value in the future. The aesthetic does play into this both for personal preference and also in speculating on what the market might find most appealing both short and long term.
Utility Tokens: This aspect is the hardest for people to grasp when they first enter the NFT space and due to limitations of the standard smart contracts and the need to build custom contracts to best implement utility tokens this is the most unchartered areas of NFTs at this point. There is a natural crossover with collectibles and art already but an example is the ability for the holder of an artists work to get exclusive access to buy a limited release only available to those existing collectors. The original artwork acts as a ticket to gain access to that sale. The same for real life events, an NFT can act as a pass to those events.
The other factor that plays into all of the above is ‘community’ which is tied to the utility aspect already mentioned but what drives higher value in the secondary market particularly for collectibles is proving to be community engagement of the NFT owners from a collection. Bored Ape Yacht Club is a perfect examples of this, where the developers create clever ways to engage the community with exclusive access to Ape holders on their Discord or sections of the website and exclusive merchandise. Social media has an entire ecosystem of Ape accounts. My Ape has it’s very own profile and has gained over 500 followers with no effort at all!
In the early stages of a new market like the NFT space, many overlook the broader historical significance of certain artists and their work as well as certain collectibles. The community aspect of collectibles mentioned above is strongly linked to this, we simply have to imagine we’re looking back from the future and consider what will be remembered as talking points in the emergence of this new market? What will be the collectibles that made enough noise that the echo is still heard 20 years later as that community sit around and say “Remember how hyped we all got about Bored Apes?”
As artists and collectors we need to think from this perspective too, who are the ones that will be remembered not only for their art but for being part of that community and part of this ‘movement’? Art movements have always been a critical factor in art history and we always associate a group of artists who were remembered as being symbolic of that movement, be it cubism, impressionists or pop art. It’s hard to say for sure how the future will remember this but it’s almost certain that the NFT space and many artists within it are already writing their own entry into art history right now and it’s not just the names who are hitting media headlines, they’re also the names yet to emerge… who are right next to you in Clubhouse rooms or who you’re retweeting every week.
There is a lot we can’t predict. The fact that art via NFTs is so linked to crypto is a blessing and potentially a curse. Crypto is the new wealth that is helping to drive sales and nurture interest in the market but a hot topic for debate is what impact that will have if the value of Ethereum for example quadruples in price or falls off dramatically. Crypto is still very volatile but many people expect it to stabilize in time as more and more people enter the market. This opens a can of worms when it comes to pricing which I won’t cover here but I’ll soon publish something titled “ETH = ETH?”.
The NFT market is still in discovery mode so we’re still not seeing anything like the potential of the secondary market but like many things in the digital space it’s a market that moves very rapidly. This discovery means the market is yet to resolve who those long term artists will be that find a healthy level of resale value.
The best comparison to such a new art space might be to look at how the secondary market emerged back in those renaissance times. I expect it will mature a lot faster than the secondary market did during the renaissance because time in the digital/crypto space is always compressed.
In 20 years time I think we’ll be looking back and laughing at how many people were skeptical of this thing called NFTs. In fact we’ll be laughing at how we even called it NFTs… as if we ever called websites HTTPs?! It will just be ARTs.