Art vs NFTs

What are NFTs and how do they compare to physical art as a form of investment?

Investing in Fine Art vs NFTs

What are NFTs and how do they compare to physical art as a form of investment? In 2020, investing in NFTs was a hot topic that has been on everyone's minds. However, by 2022, the NFT market saw a decline with the crash of TerraUSD in May and the bankruptcy of FTX in November, while the physical art market flourished.

The Key Differences

At Mintus, we believe in the technology behind NFTs and see their potential for the future. However, we're cautious about their current business models and usage, which may change with time.

While there are similarities between digital and physical art, they differ in one unignorable way: NFTs' short and volatile track record is the polar opposite of the long and successful performance of investing in physical art. NFTs' rapid hype-to-crash trajectory, along with scandals and economic headwinds, caused a decline in the NFT market. In contrast, physical art has held up through times of war, high inflation, and slowing growth, as proven by years of data.

Historical Markets

While NFT investments may have gained popularity due to social media hype and celebrity endorsements, their short and turbulent history has not proven to be a solid investment strategy.

The NFT market experienced significant setbacks in 2022, with two major scandals further eroding confidence in the digital currency. The collapse of the so-called "stablecoin" TerraUSD1 in May and the bankruptcy of the third-biggest crypto exchange FTX2 in November caused bitcoin to nearly halve in price from the beginning of the year, with ether also dropping significantly.

In addition, the NFT market has seen a sharp decline in activity, with dedicated marketplace OpenSea laying off 20% of its staff in July3. Today, there are only about a third as many NFT investors as there were at the peak in January 2022, and the tokens themselves are being minted around 60% less often4.

In contrast, physical art investment has a long track record of success, with data showing its ability to withstand times of economic uncertainty. The Sotheby's Mei Moses Index indicates that fine art has increased in value by an average of 8.5% annually since 19505.

In fact, early data suggests that 2022 was a strong year for art investing, with auction sales of Old Masters, Impressionist, Modern, Post-War and Contemporary Art at Sotheby's, Christie's, and Phillips reaching $7.5 billion, up approximately 15% from the previous year and a new record.

Outlook for 2023

Despite a strong performance in 2022, the art market may not continue at the same pace in the coming year. Digital collectibles with fan bases may still find success in building out entertainment franchises. Additionally, Ethereum's recent move towards a greener staking alternative could drive usage of the platform up and give NFTs a second chance.

In the words of Tamer Ozmen, Mintus CEO, “Even if the NFT market does make an unlikely resurgence, let’s face it: the days of choosing a Bored Ape over an Andy Warhol are probably long gone. Investors must remember that any ebbs and flows in the art market are features, not bugs, in the lifecycle of any long-term investment. The performance of all traditional asset classes in 2022 reflects that. Whilst the art market may have had a record-breaking year in 2022, the biggest takeaway was that high-quality, fresh-to-market artworks will fetch premium prices, no matter the wider economic climate.”

The difference this time around is that with Mintus, you get to buy in and set yourself up for the potential to profit.

  1. The Guardian, Could terra fall prove to be Lehman Brothers moment for cryptocurrencies?, 2022
  2. Reiff, N., The collapse of FTX: What went wrong with the Crypto Exchange?, 2023
  3. Mattei, S.E.-D.,NFT platform OpenSea announces massive layoffs, letting go 20 percent of employees, 2022
  4. Gabert-Doyon, J. and Criddle, C. ,NFT creators diversify into real-world assets to generate new revenues, 2022
  5. Sotheby’s, The Sotheby's Mei Moses Indices

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