Introduction to Art as an Investment Vehicle

Artfi
14 min readDec 31, 2023

Preamble

Welcome to the Artfi Art Market Report, crafted especially for our Artfi community. Our goal is to deepen your understanding of the art market, whether you’re already familiar with it or just starting.

At Artfi, we’re passionate about combining art with technology. We’re particularly focused on how blockchain technology is reshaping the way we experience, buy, and own art. This report is part of our dedication to providing you with the knowledge and insights you need to feel confident and enthusiastic about your journey in the art world.

In this report, we cover everything important about art investment — its history, the current state of the market, and what the future might hold. We aim to make you feel well-informed about the art world’s latest happenings.

Thank you for being a valued member of our Artfi community. Warm regards,

The Artfi Team

Executive Summary: Art as an Investment

Embarking on the journey of art investment opens up a world where art is not just for viewing pleasure, but also an investment opportunity. This introduction to art investment aims to shed light on how art extends beyond mere visual appeal, but also a way to potentially grow your wealth.

Traditionally, investing in art was exclusive to the wealthy or experts, blending the appreciation of culturally significant pieces with strategic financial decisions. However, a slow shift is underway, with more people entering the art investment sphere. This change reflects a growing awareness that art can offer emotional enrichment while also presenting potential financial rewards.

One of the great things about art is its ability to maintain its value, even when the economy is struggling. Often, it does better than investments like stocks and bonds. This is because art is a real, tangible asset that exists in limited quantities, making it potentially more valuable as time goes on. The value of art comes from a combination of factors, such as its place in history, who created it, and the current trends in the art market.

The appeal of art investing lies in its dual nature. On one hand, it’s a creation that expresses human creativity and culture. On the other hand, it’s an asset that can appreciate in value. This makes art a unique choice for diversifying investment portfolios and can act as a safeguard against inflation and market shifts.

Artfi is one of the major enablers of this shift towards opening up the art investment market for the broader public and thereby democratizing art investment. Join us on this journey!

The Art Landscape

The evolution of art as an investment vehicle evolved significantly over the years, leading up to the rise of contemporary art. Initially, art investment was largely the domain of wealthy individuals and collectors who were driven by personal taste and passion for art. However, over time, the perception of art shifted, recognizing it not only as an aesthetic pleasure but also as a viable financial asset.

In the early years of art investment in the 17th century, art served as a symbol of wealth and prestige, and its sale was predominantly governed by renowned art academies. The establishment of the first auction house, The Stockholm Auction House in 1674, marked a significant turn in the art world, followed by the founding of Sotheby’s in 1744 and Christie’s in 1766. These institutions not only facilitated the commercialization of art but also symbolized the growing recognition of its monetary value. This period set the stage for art to be viewed not just as a cultural asset but as a viable investment, a perception that has continued to influence the art market to this day.

As the 20th century progressed, especially post-World War II, there was a noticeable shift in interest in contemporary art. This shift was driven by various factors, including the emergence of new art movements, the growing influence of art galleries and dealers, and the rising prominence of contemporary artists. The rise of contemporary art was also fueled by an increasing number of high-profile art fairs and exhibitions, which brought contemporary artworks to a wider audience.

Contemporary art’s rise reflects not just a trend but a paradigm shift in art valuation. Artists like Jean-Michel Basquiat, Damien Hirst, and Jeff Koons have seen their works appreciate in value, resonating with the cultural, political, and social dynamics of the times. Contemporary art is the art of today, produced in the second half of the 20th century or the 21st century, and is the best-performing type of art. Ultra-Contemporary Art specifies this segment even more which only includes artists up to 45 years of age. This surge in contemporary art has been accompanied by increased accessibility and relatability to a broader, younger audience, facilitated by art fairs and online platforms.

Digital art, however, faced a downturn in 2023. High-net-worth collectors’ spending on digital art accounted for just 3% of their total expenditure, a significant decline from 15% in 2022. This paralleled the decreasing sales of art-related NFTs, which by mid-2023 had fallen to their lowest level since January 2021.

In-person buying has seen a resurgence in 2023, with a majority of collectors preferring to purchase directly from dealers and at art fairs. This preference for in-person transactions points to a continued appreciation for the traditional art-buying experience, even as digital platforms evolve.

The consistent preference for established galleries among high-net-worth collectors indicates a trend of sticking with known dealers. This tendency, driven by risk aversion and loyalty, suggests the importance of established relationships in the art market.

Basics of investing in art and understanding art valuation.

Investing in art requires a deep understanding of the art market’s intricacies and the factors influencing art valuation. This segment aims to demystify these elements, offering a foundation for those interested in exploring the world of art investment.

Art investments are an engagement with the art market’s unique characteristics, distinct from traditional financial markets in their liquidity and entry barriers. To navigate this space effectively, one must develop an acute sense of quality and potential, underpinned by thorough research on artists, art movements, and prevailing market trends.

Understanding an artist’s historical and market significance is critical. This involves delving into their career trajectory, the periods of their most impactful work, and their reception both critically and in the market. Equally vital is the artwork’s provenance, or ownership history, which can significantly impact its value. Artworks with a rich and well-documented history, especially those previously owned by notable collectors or exhibited in reputable institutions, often command higher prices.

The condition of the artwork is another pivotal factor, with well-preserved or expertly restored pieces being more desirable. Conversely, overly restored or damaged works may see a reduction in value. The rarity of the artwork also influences its valuation; unique pieces or those from limited series are typically more valuable.

Understanding the dynamics of the art market involves recognizing the impact of economic trends, cultural changes, and shifts in collector preferences. To keep informed about these fluctuations, you can follow art market news, subscribe to art investment newsletters, attend art fairs and exhibitions, and engage with online platforms and forums dedicated to art market analysis. These resources provide valuable insights, helping investors make well-informed decisions in the ever-changing world of art.

Like currency, the commercial value of art is based on collective intentionality. There is no intrinsic, objective value… Human stipulation and declaration create and sustain the commercial value.” — Michael Findlay

Finally, considering the artwork’s liquidity is important. While artworks by established, ‘blue-chip’ artists are more likely to retain their value and be more sellable, emerging artists’ works might offer higher growth potential but come with greater risks and lower liquidity.
In sum, art investment requires a blend of aesthetic appreciation, strategic thinking, and a comprehensive understanding of the multifaceted factors that drive art valuation. It’s a journey that combines the love of art with the acumen of investment, offering both cultural enrichment and potential financial returns.

Selected artists whose works have shown significant financial appreciation.

The art world of 2023 is a testament to the dynamic interplay between cultural expression and financial acumen. This section highlights a selection of artists and artworks that have not only captivated collectors and enthusiasts but have also shown significant financial appreciation in the market.

Art World Icons

Vincent van Gogh (1853–1890): Van Gogh’s The Starry Night remains an enduring favorite, its timeless beauty and emotional resonance continuing to captivate and fetch high prices in the market. Wooden Cabins among the Olive Trees and Cypresses has been sold for $71 million in 2021 This masterpiece is a testament to the lasting appeal of classic works in the art world. In 2022, Christie’s New York auctioned off Orchard with Cypresses, his most expensive masterpiece, fetching a staggering $117.2 million.

David Hockney (1937): Hockney’s Portrait of an Artist (Pool with Two Figures) is another masterpiece, showcasing his exploration of love and the relationship between art and life. It was sold for $90.3 million in November 2018, which was the highest price ever paid at an auction for a painting by a living artist. His unique vision and portrayal have cemented his status as a beloved and financially rewarding artist.

Jean-Michel Basquiat (1960–1988): Basquiat’s works continue to resonate in the art market. In 2017, his 1982 painting “Untitled” achieved an astonishing price of $110.5 million at Sotheby’s, showcasing a patchwork skull on top of a map-like background. Basquiat remains a pillar in the contemporary art market, with his works like El Gran Espectaculo (The Nile) and Sugar Ray Robinson showing phenomenal value increases and consistently high demand. El Gran Espectaculo was sold at Christie’s for $67.1 million in May 2023 and Sugar Ray Robinson was sold in 2022 for more than $30 million. Last year, Basquiat became the highest-grossing American artist at auction, generating $171.5 million from 80 works, according to Artprice, and his auction high has increased at least tenfold in the last 15 years.

Contemporary Market Movers

Banksy: Known for his elusive identity and politically charged artworks, Banksy is a significant figure in the contemporary art scene. One of his most famous pieces Love Is In The Bin was sold for 18.6 million pounds in October 2021. Despite a general downturn in auction turnover for his pieces in 2023, Banksy’s art continues to be sought after, reflecting both his enduring popularity and the resilience of his works in the art market. His ability to engage with current social and political issues through art keeps his work relevant and in demand.

Yoshitomo Nara: Nara’s distinct style, often featuring childlike figures with a rebellious streak, has garnered him a cult following. His works have received bids above $10 million, indicating a robust market presence. Nara’s consistently high performance at auctions underscores his standing in the contemporary art market. His appeal lies in the unique blend of innocence and defiance in his art, resonating with a wide range of collectors.

Christopher Wool: Wool’s work, known for its bold text and abstract patterns, has seen some market fluctuations but continues to be a notable name in contemporary art. His pieces have achieved high auction prices, reflecting their significance in the current art narrative ranging up to almost $30 million. While specific price data over time is not available, Wool’s persistent visibility in major auctions and exhibitions indicates his art’s steady demand and significance in the contemporary art dialogue.

The Market’s Response to Global Trends

The art market has been marked by notable changes in recent years. After the Covid-19 crisis, there was a significant surge in the art market, particularly in the contemporary art segment. This surge was evidenced by a record auction turnover, reaching $2.7 billion in the 2021/2022 period for contemporary art alone.

This period was characterized by the sale of museum-quality pieces from prestigious collections, fueling a series of exceptional auction sales. However, following this period of extraordinary growth, the market saw a shift towards a more controlled correction. Despite appearing modest compared to the previous year’s exuberance, the overall turnover for the contemporary art segment remained impressive at $2.29 billion in the last two years. This figure, though lower than the peak of the post-Covid era, was still twice the turnover generated during the height of the health crisis and 25 times higher than the turnover recorded 20 years ago, which was only $90 million in 2002.

The volume of transactions in the contemporary art market reached an absolute record in 2022 and 2023, with more than 123,000 artworks exchanged. This figure is a stark contrast to the numbers seen at the beginning of the millennium and reflects the increasing vitality of the art market. Notably, the segment of artworks sold for under $5,000 saw historic levels of activity, with nearly 99,000 contemporary artworks exchanged. This segment’s growth. highlights the expanding accessibility and democratization of the art market.

In contrast to the bustling activity in the lower-priced segments, the million-dollar transactions, often involving ‘blue chip’ artists, represented a smaller, more exclusive part of the market. Following the Covid crisis, auction results for artworks in the seven-figure range reached a historic high of 372 lots in 2021. In the subsequent year, this number remained high but less frenetic, with 290 contemporary artworks fetching prices above the million-dollar threshold.

These figures illustrate a dynamic and evolving art market, characterized by significant fluctuations in sales and a clear shift towards more accessible art, alongside continued interest in high-end, prestigious artworks.

Introduction to blockchain and its potential in the art market.

The art world is currently undergoing a significant transformation with the integration of blockchain technology, marking a new era in how art is authenticated, owned, and traded. This section delves into the profound impact blockchain is having on the art market, revolutionizing traditional practices and opening up new possibilities.

The Blockchain Revolution in the Art Market

At the heart of this transformation is blockchain, a decentralized digital ledger technology known for its security, transparency, and immutability. Blockchain operates by recording transactions across a network of computers, ensuring that records are permanent and unalterable. This feature of blockchain is particularly revolutionary in the art world, especially in the realms of authentication and provenance. By providing a tamper-proof record of an artwork’s history, blockchain technology confronts and resolves long-standing issues around authenticity and ownership disputes in the art market.

Redefining Art Ownership with NFTs

A pivotal development in blockchain’s application in art is the rise of Non-Fungible Tokens (NFTs). NFTs are unique digital assets that represent ownership of a specific item or piece of content, drastically changing the landscape of art ownership and trading. NFTs have given digital art a new platform for recognition and valuation, allowing it to stand alongside traditional art forms. This has led to a surge in interest and investment in digital art and collectibles, broadening what is considered art. NFTs have not only created a market for digital artworks but have also enabled digital artists to gain recognition and financial success, akin to their counterparts in traditional mediums.

Blockchain and Democratization of Art Investment

Another significant impact of blockchain in the art world is the facilitation of fractional ownership of artworks. This approach allows multiple individuals to own shares in a single artwork, making investment in high-value art more accessible to a broader audience. Fractional ownership is democratizing the art investment landscape, breaking down the barriers that have traditionally limited access to art investment to a small, wealthy elite.
Navigating the Challenges Ahead

As the art market continues to evolve with blockchain technology, it opens up new avenues for artists, collectors, and investors. This technology is not just reshaping existing practices but is also paving the way for new forms of artistic expression and ownership. The future of blockchain in the art world is promising, offering a more secure, transparent, and inclusive art market.

How Artfi is Changing the Art World

What is Artfi?

Artfi is an art technology company that allows everyone to invest in the fine art market. Art has been one of the best-performing asset classes over the last hundred years, outperforming stocks and commodities. But it has not been accessible. This changes with Artfi.

Artfi uses blockchain technology to tokenize real-world fine art (called fractionalization) and it lets everyone buy these fractions as NFTs. The NFT serves as proof of ownership from the fraction you own in the physical artwork.

Our team of specialists carefully selects the most promising contemporary artists and masterpieces. Therefore, Artfi ensures that your investment will result in the highest possible Return on Investment (ROI).

But how do you get a return on your investment?

Every 6 months, Artfi will publish a new valuation of the artwork. Once an artwork has gained a higher valuation, both external parties as well as the Artfi team will give their recommendations to the community of fraction-holders. Based on the recommendations, the community may agree to sell or hold the piece. If the artwork is sold the total revenue will be shared with the total amount of fraction-holders. Moreover, all Artfi fractions (NFTs) are liquid and can be traded at any time on our marketplace.

How to invest with Artfi?

Artfi offers a Genesis NFT Pass providing an exclusive entry to the world of fine arts for $100. The NFT will be accessible to everyone on our exclusive whitelist on a first-come, first-served basis for a limited time. After this, the mint will be open to the public.

Sacha Jafri’s The Six Elements

With the NFT Pass, you will receive a special airdrop of 1 fraction from Sacha Jafri’s The Six Elements. This artwork collection consists of 6 paintings which will be fractionalized into 10,000 pieces each. These artworks are priced at $1,000,000 each by the artist, valuing each fraction at $100. The Artfi NFT pass will allow you to choose which of the 6 elements you prefer and receive an airdrop from that specific artwork. By owning this NFT, you own a fraction of the real physical artwork.

The Artfi Token Airdrop

With the Genesis NFT Pass, you will get access to the token airdrop of the Artfi Token. In total, Artfi will utilize 1% of its token supply for this airdrop. This airdrop will take place after the Token Generation Event (TGE), which is yet to be announced but is expected later this year.
The IEO of the $ARTFI token

With the Genesis NFT Pass, you will be able to participate in the IEO (Initial Exchange Offering) of the $Artfi Token, allowing you to purchase Artfi tokens at a highly favorable price before the market gets access. More information soon.

Embracing Art’s Digital Evolution.

The art market, as we’ve seen, is a complex ecosystem where history, culture, and economics meet. Each artwork tells a story, not just through its visual narrative but also through its journey in the market — a journey shaped by factors as varied as provenance, condition, rarity, and the ever-evolving trends in collector preferences.

Looking ahead, we stand on the brink of a new chapter in the art world, one that promises to be as revolutionary as any major artistic movement of the past. The next report of our series will delve deeper into the burgeoning intersection of art and technology.

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