Investing in the art of crypto: Attractive but risky

Despite the attractiveness of this market, it can still be difficult for investors to understand. “The market for NFTs is very cyclical and its movements are hard to predict,” warned Yannick Volla, crypto art collector and co-founder of 0x Society, a Montreal art gallery that specializes in NFTs.

The market for non-fungible art or crypto art tokens has been growing exponentially over the past couple of years. It exceeded $3 billion ($1 billion) as of December 31, 2021, for 77,307 sales to 122,311 buyers, according to the NonFungible platform.

Difficult market

One of the main challenges that investors face is assessing the value of digital art. “It is based on a promise of growth over a 5- to 10-year horizon depending on the adoption of the digital medium by the traditional art field,” Yannick Volla reports. The NFT market is currently experiencing a lot of ups and downs. It underwent a strong rally from March to June 2021, then lulled, before starting to climb again during the fall and fall into stagnation for now, the entrepreneur explains.

This difficulty in predicting market fluctuations is due in particular to the novelty of the market, the limited number of comparable items, and the reluctance of major collectors and museum institutions to invest in this type of business. Yannick Volla points out “certain price hikes among artists who only started their productions a year or two ago and who fetch higher prices than some of the famous creators of contemporary art.” 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 price explosion in this market.

Protect yourself from dangers

This situation arouses envy and suspicion. “NFTs are a polarizing subject. Describing this art form as “creative spectators looking for legitimacy,” the discourse lacks nuance,” says Natalie Casmagor, a researcher at the National Institute for Scientific Research (INRS). She adds that the crypto art market is characterized Already in the media the risks related to fraud, cyber security, energy consumption issues, speculation and excessive capitalism.

Money laundering, fraud and data theft are among the main risks that appear on NFT exchanges. According to a study conducted by Nansen Analytics Platform for financial timesThis unregulated space is riddled with fraud, fraud and market manipulation, not least because it is difficult, if not impossible, to reveal the true identities of buyers and sellers due to transactions processed through the blockchain.

“A large number of buyers mismanage the security of their business collection and risk it being stolen in the event of errors or by sharing their private information with bad parties,” explains Yannick Volla, who has published a virtual guide for business collectors at NFT. It is advised to continue to work on an external device, to avoid clicking on unknown links, typing the names of sites in the browser window so as not to be directed to a fake site, and not to accept help from unknown people on the Internet.

Another real danger is the possibility that the artist will stop creating works in the form of NFTs overnight. Hence the buyer risks not achieving growth, or even decreasing the value of the artist’s work.

You must know it before investing

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

  • Choose your platformsThere are dozens of platforms that offer digital artwork in NFTs. The first approach is to explore them to understand how they work. For example, some use a subscription system, while others take a percentage on each transaction.
  • Who is selling and why: Personal marketing is a very important component of digital artists, assures Yannick Volla. They are often 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 ​​how serious their approach is, their commitment to their art, and their continuity in the market.
  • Find your method: These methods also make it possible to define an individual’s style, to target the type of works and artists they wish to bring together in order to create a cohesive art portfolio likely to increase its value, much like the process of traditional investment in art.
  • start small: One way to get started is to acquire NFT works that are part of a multi-issue series, which are generally less expensive than individual works, or to choose works by emerging artists, Yannick Volla recommends. This approach also makes it possible to understand how a business is purchased and how it is held and secured before embarking on larger purchases.
  • Search blue chips: Many creators are identified as emphasizing market values, such as Beeple, transgender artist FEWOCiOUS, fvckrender, anonymous artist Buck, or even XCOPY, one of the pioneers of digital art. In the event that it is not possible to obtain a unique work, it is possible to invest at a lower cost in an edition of a series of 5-10 most famous artists.
  • Invest in a group: Investing through a Decentralized Autonomous Organization (DAO), which issues the acquired shares in the form of tokens, is donated or purchased, makes it possible to own a share that gives voting rights, to work for example in project management or fundraising. Many artist groups use it experimentally.

One can also purchase tokens within a collection of artwork and thus own a portion of a work of art whose ownership is divided among several token holders. Then the return on investment is in the form of profits.
However, these methods are more complex on a technical level, because they require more research to find the right compounds and the collector does not have complete control over decisions and money, which is what annoys Yannick Fola.

Due to its characteristics and market, investing in crypto art falls into the category of alternative investments, which are distinguished by their highly speculative nature and illiquid assets. Investors who choose to invest there do so above all for fun. It is important to remind clients that gains are possible provided they monitor the market regularly and take certain precautions to protect themselves from major risks.

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