The changing art market: A new, digital era has begun

2021: A pioneering year of art

The international art market has changed significantly in recent years, primarily due to three influencing factors: rapidly advancing digitization, the corona pandemic and a new clientele that sees art as an investment in tangible assets.

Blockchain technology in particular, which only gained enormous popularity thanks to Bitcoin, has helped digital art achieve a breakthrough. So-called non-fungible tokens (NFT) embody a digital work of art on the blockchain and also serve as proof of ownership. However, NFTs differ from other blockchain tokens — which include cryptocurrencies — primarily in that they cannot be exchanged, shared, or replaced with identical tokens. They consist of one or more smart contracts, which ensure their uniqueness through their implementation and interaction. This makes it possible to trade digital art quickly and relatively securely via many online channels.

The NFT technology came at just the right time because due to the corona pandemic, many galleries were closed for months, exhibitions were postponed and trade fairs were canceled. Digital galleries, and NFT platforms experienced a real boom during this time, as can be seen from the data from Art Market Watch Report by art expert Dr. Ruth Polleit Riechert It becomes clear:

Although total estimated sales on the global art market in 2021 have risen compared to 2020 and are even more positive than in 2019, at least 30 percent of art events have ceased operations since 2019. Only high-end galleries were able to record growth of over five million dollars in the area of high-priced works of art. In Germany, an above-average number of retailers (19 percent) even expect a worsening in 2022.

In contrast, the number of online sales doubled to 12.4 billion dollars in 2020 compared to 2019. In 2021, online sales rose by a further seven percent to an estimated 13.3 billion dollars.

Young collectors in particular, some of whom made their first art purchases, spent large sums of money, such as UBS report The Art Market 2021 substantiated: In total, five percent of millennial collectors keep more than 30% of their wealth in art — that is ten percent more than the Generation X comparison group and more than double the number of baby boomers.

Loud Data from the Hiscox online art trade report 2021 Three out of ten (31 percent) young collectors said that they had bought their first work of art online. Almost half (47 percent of collectors who started buying art less than three years ago) said they bought their first works of art online.

More commerce than art?

It can be concluded that the online art market has become an entry into the art world for new art buyers, many of whom have never set foot in a gallery or auction. But is the motive of new customers enjoying art or the search for alternative tangible asset investments as a “safe haven” in turbulent financial market phases like this?

One thing is clear: art is an aesthetic experience. But it is also a status symbol and an object of speculation. Because art is an excellent way to earn money — if you have the right knack or good advisors.

The latest Hiscox online art trade report, for example, suggests that return on investment is the main reason for buying NFT: Around eight out of ten NFT buyers are more interested in returns than art. For just about everyone who spent at least 22,500 euros, speculation on an increase in value is paramount.

In addition, the results of the study point to an increasing convergence between the traditional and online art markets. 27 percent of all buyers plan to purchase a work of art online in the next twelve months.

NFT and digital art usher in a new era

In the 15th century, Johannes Gutenberg's printing technology changed the (art) world. From this point on, texts and images could be reproduced and distributed all over the world. This was followed by the establishment of commercial and cheaper (color) printing methods, digitization and the Internet, which created an ever closer network of all parties involved in art, artists, galleries and auction houses.

The now emerging digital art will probably not replace physical art, but complement it. Because paintings on the wall are and remain a status symbol that will not simply be replaced by NFT files. Rather, it can be assumed that the traditional art market and the relatively new NFT market will interlock.

This shows an example of renowned US artist Jeff Koons. As part of his NFT debut, one of the most expensive contemporary artists wants 125 sculptures launched into space later this year in order to place them permanently on the moon. Koons wants to market the sculptures as an NFT and donate part of the income to the aid organization “Doctors Without Borders.”

In a tweet Jeff Koons explained what is behind the “Moon Phases” project: Space exploration has given us perspective for our ability to overcome worldly restrictions. With a selection of his life's work on the moon, he left the globe, making his art universal and accessible to all people.

In a sense, Jeff Koon's works can already be purchased by a wide audience: Fans and investors can buy digitized shares of real — i.e. physically existing — sculptures such as “Red Diamond Trio” or”Balloon Animals” acquire and benefit from their promising performance.