Analysis

Cryptocurrencies and art: what future prospects between innovation and tradition?

Auction houses integrate innovative solutions to meet the needs of digital customers and the use of blockchain technologies, but the traditional sector remains tied to conventional payment methods

by Maria Adelaide Marchesoni

30 November 2024

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5' min read

Key points

5' min read

Bitcoin is in a recovery phase, having emerged from the so-called 'cryptocurrency winter' when values fell below $20,000, freezing the growing Nft market. According to a report published last August by NFTevening, since the dramatic collapse in 2023, the average Nft owner has suffered a 44.5 per cent loss on their investment and 95 per cent of Nfts are considered 'dead'. What has happened in recent weeks involving cryptocurrencies has nothing to do with Nfts but with the traditional art market.
What, then, does the recent cryptocurrency rally mean for the art and collectibles market?
On 22 November, Bitcoin soared to an all-time high, surpassing USD 98,000 (EUR 94,760) with an increase of 120% since the beginning of the year. Driving the rally wasDonald Trump's decisive victory in the US elections and promises to make the US 'the cryptocurrency capital of the planet'. Events that brought the global crypto market to a value of USD 3 trillion: the figure is updated to mid-November and is up 79.2% compared to January 2024, when the total turnover of Bitcoin, Ethereum and other crypto was around USD 1,680 billion.

Cryptonews

Raising the profile of cryptos was the purchase of Comedian, Maurizio Cattelan's viral silver-taped banana by Justin Sun, founder of cryptocurrency platform Tron (TRX) for $6.24 million (about TRX 32 million) in Sotheby's "The Now and Contemporary" evening auction on 20 November. Sun's Tron blockchain network facilitates a large volume of USDT stablecoin transactions. In March last year, the entrepreneur proposed buying the failing Swiss investment bank Credit Suisse for $1.5 billion to 'integrate it into the Web3.0 world.

What is the significance of buying a conceptual artwork with payment in crypto?
For Sun, the work represents a marketing opportunity and his gesture not only reinforces his public image, but also underlines the role of cryptocurrencies as a means of participation in mainstream markets, and the inclusion in the auction can be seen as a further step towards their mainstream acceptance. However, the road is still uphill, there are many open questions about cryptocurrencies, not to mention the extreme volatility.

Auction houses and crypto

Sotheby's and Christie's have introduced crypto for digital art transactions, whereas for physical art it is a rare event. In 2021, Sotheby's allowed bids in ETH (Ether) for two works by Banksy, 'Trolley Hunters' and 'Love Is In The Air' (2006), becoming the first live auction with cryptocurrency as the standard currency for real-time bidding on physical artworks. Rival Christie's operates its Christie's 3.0 platform completely on-chain, i.e. with transactions verified and recorded on an Ethereum blockchain (ETH) for digital art only. However, as Christie's points out, many collectors prefer to pay for digital art purchases in traditional currency to preserve crypto as an investment.

And the Italian auction houses?
"At Pandolfini," explains CEO Pietro De Bernardi, "we have adopted a rigorously selective approach to the implementation of cryptocurrencies as payment instruments, maintaining a position of absolute caution even with regard to emerging sectors, including NFT, which also present a natural predisposition to the use of such instruments. This choice,' De Bernardi continued, 'is a precise corporate strategy aimed at combining technological innovation with maximum financial transparency, to guarantee full traceability of transactions, ensure maximum transparency in financial flows, and fully comply with anti-money laundering regulations, also to protect customers and market integrity. For Pandolfini, the prospect of future adoption in the art market "is not precluded, but must be accompanied by a comprehensive regulatory framework, effective control systems, and traceability mechanisms comparable to those of traditional financial systems; in the medium term and on a large scale, we envisage a possible scenario of progressive integration, subject however to the fulfilment of certain conditions such as full legislative compliance, the implementation of advanced protection systems, and the significant mitigation of money laundering and volatility risks," concludes Pandolfini's CEO.

Another Italian auction house has already experimented with crypto in the past. In July 2021, Cambi Casa d'Aste organised 'Dystopian Visions' an auction in cooperation with SuperRare, exploring NFTs with Ethereum. The event," explains Matteo Cambi, president of the auction house, "involved both traditional and crypto collectors, marking a significant rapprochement between these two universes. "In the Nft digital art sector," the president continues, "we aim to continue the use of cryptocurrencies, considered the ideal payment method for this market, thanks to the positive results obtained so far; the objective is to make traditional collectors more aware of Nft, considered increasingly relevant for contemporary art, however, for physical works, clear regulations and a greater diffusion of cryptocurrencies are needed to ensure their safe adoption".

While to date Bolaffi has never used cryptocurrency as a payment currency in its transactions with customers Filippo Bolaffi, the auction house's CEO. states that he is "a firm supporter of Bitcoin, not of all cryptocurrencies in general, but to date, on the one hand, there has never been a real need to open a payment gateway for cryptocurrencies, given the little or no demand from our clientele, and on the other, the current Italian anti-money laundering regulations are very strict and tracing the origin of the funds with which the cryptocurrency used for payment was purchased is technically feasible, but the user is unlikely to want to reveal it; so the game is not worth the candle. Moreover, like any other currency, cryptocurrencies can be converted into other currencies (euro or dollar) at any time, so the cryptocurrency holder who buys at auction has a much more streamlined and autonomous system of converting his Bitcoins and then paying in the traditional way. If he cannot do that... then he is not a customer for us."

For the future, Filippo Bolaffi does not rule out the use of crypto, but 'there has to be a real need on the part of customers, and to date the only type of object for which I see any real sense in accepting cryptopayment are digital tokens (NFTs for example), which have quickly gone out of fashion, but which have in their DNA a payment with another token (the cryptocurrency). Finally, as long as the law obliges us to act as policemen with regard to the origin of the funds with which our clients pay us in cryptocurrency and does not bring this activity back into the realm of police investigations, eliminating it as the duty of auction houses, then I see difficulty in its use in transactions in the art market at the Italian-European level: the impact will be minimal while it will be high in emerging economies,' concludes Filippo Bolaffi.

In the gallery

From Gagosian's unexpected breakthrough in 2022 to Pace Gallery's more aggressive move with Pace Verso, the Nft platform, cryptocurrencies are only being used for digital art and Nft in particular. "So far," says Alice Conconi, partner at Andrew Kreps Gallery in New York, "we have not received any requests, and we will evaluate later if the use of crypto becomes common practice. However, I believe that this trend is influenced by politics, especially here in the US, and, for now, limited to collectors who are distant from the agenda that our gallery pursues, and I do not know if this will change in the short term'.

"We have never used cryptocurrencies in transactions because of their volatility," says Carlo Repetto, of the art gallery of the same name founded in 2007 and based in Lugano since 2022, "however I do not exclude doing so in the future, without limitations with respect to the collector or the work; the adoption of cryptocurrencies will grow as the new generations approach the art market. Gallery owner Raffaella Cortese believes it is impossible to predict the trends of the coming years with any certainty, "we certainly follow market developments but for the moment it seems to us that Italian collectors are not expressing much interest in cryptocurrencies". So much for the great marketing done by Justin Sun with the purchase and then consumption of Cattelan's banana.

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