Investing in crypto art: attractive but risky

Although this market is attractive, it is still difficult for investors to understand. “The NFTs market is very cyclical and its movements are difficult to predict,” warned Yannick Folla, crypto-art collector and co-founder of 0x Society, an art gallery in Montreal that specializes in NFTs.

The market for non-fungible art or crypto-art tokens has experienced significant growth over the last few years. It exceeded $ 3 billion (B $) per year. December 31, 2021 for 77,307 sales to 122,311 buyers according to the NonFungible platform.

A DIFFICULT MARKET TO ASSESS

One of the biggest challenges for investors is assessing the value of digital art. “It’s based on a promise of growth within a 5 to 10 year horizon depending on the adoption of the digital media by the traditional artistic sphere,” reports Yannick Folla. The NFT market is currently experiencing a lot of ups and downs. It underwent a sharp rise from March to June 2021, then a break before starting to climb again during the autumn and falling to stagnate at the moment, the entrepreneur illustrates.

This difficulty in predicting market fluctuations is mainly due to its novelty, the limited number of comparable products and large collectors and the reluctance of museum institutions to invest in this type of work. “Certain prices are rising among artists who started their production only a year or two ago and who achieve higher prices than certain renowned creators in contemporary art,” says Yannick Folla. The example of digital artist Beeple (Mike Winkelmann), who sold a work at Christie’s for $ 69.3 million in 2020, is often cited to illustrate the recent explosion in prices in this market.

PROTECT AGAINST RISKS

This situation arouses both envy and skepticism. “NFTs are a polarizing subject. Discourse lacks nuance,” says Nathalie Casemajor, a researcher at the National Institute of Scientific Research (INRS), who characterizes this art as “creative scenes in search of legitimacy.” in the media of risks related to fraud, cybersecurity, energy consumption problems, speculation and hypercapitalism, she adds.

Money laundering, counterfeiting and data theft are among the biggest risks seen in NFT exchanges. According to a study conducted by the Nansen Analytics Platform for FinancialTimesThis unregulated area is fraught with fraud, scams and market manipulation, not least because the real identities of buyers and sellers are difficult, if not impossible, to uncover due to transactions processed through blockchain.

“A large number of buyers mismanage the security of their portfolio of works and risk having them stolen in case of mistakes or by sharing their private information with bad parties,” explains Yannick Folla, who published a virtual guide for NFT collectors. He advises to keep works on an external device, to avoid clicking on unknown links, to type the names of sites in the browser window so as not to be redirected to a fake site and never to accept help from unknown persons on the Internet.

Another real risk is the possibility that the artist will stop creating works in the form of NFTs from one day to the next. The buyer then risks not achieving growth, or even suffering a decline in the value of the artist’s works.

TO KNOW BEFORE INVESTING

Here are some tips for clients who would be tempted to invest in crypto art:

  • Choose your platforms: there are dozens of platforms offering digital artwork in NFTs. A first approach is to explore them to understand how they work. For example, some use a subscription system, others take a percentage on each transaction.
  • Who sells and why: Personal marketing is a very important element for digital artists, emphasizes Yannick Folla. They are often the actors in their own promotion. Observing how they present themselves and how they promote their art on social media allows you to get an idea of ​​the seriousness of their approach, their commitment to their art, and their sustainability in the marketplace.
  • Find your style: these approaches also make it possible to identify one’s style, to target the type of works and artists one wishes to bring together to create a coherent art portfolio that is likely to increase in value, as the process of traditional investment in art.
  • Start small: one way to get started is to acquire NFT works that are part of multi-edition series that are generally cheaper than single works, or to select works by new artists, recommends Yannick Folla. This approach also makes it possible to understand how to buy the works and how to keep and secure them before embarking on major purchases.
  • Look after blue chips: several creators are identified as safe values ​​in the market, such as Beeple, the transgender artist FEWOCiOUS, fvckrender, the anonymous artist Pak or even XCOPY, one of the pioneers of digital art. In the absence of being able to obtain a unique work, it is possible at a lower price to invest in a version of a series of the 5 to 10 most famous artists.
  • Invest in a collective: investment through a decentralized autonomous organization (DAO), which issues shares acquired in the form of tokens, donated or purchased, makes it possible to own a share that gives voting rights, to trade for, for example, the management of a project or raise funds. Several artist collectives use it experimentally.

You can also buy tokens within an art portfolio and thereby own part of a work of art whose ownership is divided between several token holders. The return on investment is then in the form of a dividend.
However, these approaches are more complex on a technical level because they require more research to find the right vehicles and the collector does not have full control over the decisions and the money, temper Yannick Folla.

Due to its characteristics and its market, investing in cryptocurrencies falls into the category of alternative investments, which stand out for their highly speculative nature and illiquid assets. Investors who choose to invest there do so above all for the sake of pleasure. It is important to remind customers that gains are possible, provided they follow the market regularly and take certain precautions to protect themselves against the biggest risks.

FURTHER

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