The fine art business may be disrupted in the coming years thanks to blockchain technology, concluded a panel of traders, fund managers, gallery owners, and academics.
The discussion, “The Fine Art Market In Bitcoin, Blockchain, Cryptocurrency & More,” was co-moderated by this very editor and hosted by GS2 Fine Art Co. and held at the Yale Club of New York this past Monday evening.
Much of the talk centered around the work of one of the five panelists, Amy Whitaker, assistant professor at NYU’s Steinhardt School. In January, Whitaker, with Roman Kräussl of the Luxembourg School of Finance, published an academic paper called, “Democratizing Art Markets: Fractional Ownership and the Securitization of Art” (.pdf).
Whitaker and Kräussl propose dividing ownership on fine art pieces using blockchain technology. That way, artists can see some upside in resales years as their works appreciate in value.
In much of the European Union (but especially not in the U.K.), artists may have a right called “droit de suite”, which gives them and their heirs some royalties every time their work is resold. That doesn’t happen in, say, the United States, which generally cuts off artists’ rights at the first sale.
American artists work with galleries who then take half the revenue and that’s the last time they see money from the piece. Whitaker and Kräussl studied two top-selling artists, Jasper Johns and Robert Rauschenberg, using their initial sales from Leo Castelli’s gallery in the late 1950s and early 1960s and then comparing where those pieces sold years later. For Rauschenberg, the annualized return for some of his works were as high as 37.41 percent while for Johns it was as much as 40.90 percent. Of course, those numbers well outpaced the S&P 500 index over the same period by multiples.
Naturally, for artists whose auction prices soar in subsequent years, it doesn’t just leave cash out of their pockets, it also heaps on them a giant dose of bitterness as well. As Whitaker and Kräussl noted:
“Rauschenberg’s piece Thaw (1958) sold for $85,000 in 1973 having been purchased in 1958 for $900. Rauschenberg only received his original fifty percent share, or $450 (Leo Castelli Papers, 1958). At the 1973 auction, Rauschenberg was in attendance and allegedly shoved and punched the collector, Robert Scull.”
A structure Whitaker and Kräussl propose would have galleries take 50 percent of the first sale, with the artist taking 40 percent. The remaining 10 percent would be held by the artist and tracked via blockchain technology. Essentially, it would be as if the artists issued tokens against the art (serving as the asset) and keeping a tenth as a long-term equity investment.
Far-fetched? Not so, said the other panelist Monday night.
Now all that is needed is an innovator to get it done.
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November 11, 2019 -
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