Original title: Investing in crypto art like investing in Bitcoin?
Translation: Zuo Yi
Review/Typesetting: Tang Han/Baiyu
In the field of crypto art, if collectors are familiar with crypto knowledge, they may have a greater advantage in the field of art. The encryption art of the 21st century is like the cubist art of the last century. New trends such as “digital futurism” will definitely become very popular in the end. But in terms of investment psychology and investment strategy, the digital art industry is actually not much different from traditional industries. The best investment strategy is still to buy digital art from different artists of different styles.
In other words, if you buy multiple encrypted works of art from different types of NFTs and different artists, and then save them for decades like investing in Bitcoin, you will eventually surprise you!
Recently, I read Morgan Housel’s new book “The Psychology of Money”. This book introduces many fascinating little stories about finance, one of which is about the German immigrant Heinz Berggreun. He escaped from Nazi Germany and came to the United States, and later served as the assistant curator of the San Francisco Museum of Modern Art, and eventually became a well-known art dealer in the industry.
Heinz Berggren owns the works of many well-known artists, such as Picasso, French painter/sculptor George Braque, Swiss painter Paul Kerry, Swiss hyperexistentialist sculptor/painter Alberto Giacomé Di, Henry Matisse, founder of Fauvism, etc. Before the death of Heinz Berggren, he sold part of his collection to the Rijksmuseum in Berlin at a “discounted” price of 129 million euros, and the actual value of these collections was at least ten times more than 129 million euros. Many collectors have similar stories. They have collected many works and gradually accumulated considerable value over time.
In fact, it is difficult for us to predict which artists will become rich in the historical process, let alone predict which works of art will add value in the historical process. But recently Horizon Research released a research report that analyzed the success of various art collectors and distributors, and also proposed two key elements for success in the art collection industry:
- Indexation
- Static asset management
After determining these two themes, we will discuss how to apply these two key elements to the field of non-fungible tokens (NFT) and encrypted art investment.
Art index investment
Horizon Research analyzed the careers of various types of art collectors and distributors, and finally found a theme that can be called the “key to victory”: indexation.
Compared with active management strategies, indexation is an investment strategy that creates a broad portfolio of assets. This strategy can ensure a more diversified investment portfolio while making investment costs and expenses lower.
Daniel-Henry Kahnweiler, one of the most famous art collectors of the 20th century, signed a contract with Picasso. According to this contract, Picasso agreed that he could purchase his paintings, sculptures, drawings and prints at a fixed price within three years. Similar to Daniel Henry Kahnweiler, when Heinz Berggren collaborates with artists, he will not only select one or two of the most brilliant works, but collect dozens of works each time, and finally This approach has accumulated considerable value.
“Interestingly” is that Picasso has the right to keep some of his works. But the problem is that although Picasso’s artistic life record is relatively complete, there is no evidence that he kept his most valuable paintings.
In other words, sometimes even the artist himself is not sure which works will get the most value. Art is subjective in nature. Unlike cash flow, there is no clear valuation standard. Therefore, indexed investment is one of the most valuable portfolio strategies for art.
Static asset management and the power of time
“Good investors usually buy a lot of art, but in fact only a part of the collection can prove to be a great investment. And these art are often held long enough, and the final return of the portfolio eventually converges to the best. Of several investment products.”——Horizon Research.
The second metric that Horizon Research found in those successful portfolios is actually something we all have to experience: time.
Art is static and will not change. Stocks, bonds, and other liquid assets change every day and are traded at different prices. Some assets will go bankrupt and die within a period of time. Relatively speaking, as long as an artwork is not lost, it will always exist.
A static investment portfolio is a long-term investment portfolio that will not change, and the time span may reach 10-30 years. This type of investment portfolio is very different from traditional investment portfolios, which may change due to changes in many factors, such as:
- Real-time stock price update
- Weight rebalancing
- Other related liquidity events
In contrast, the price of art only changes when it is traded, or when it has appreciated or depreciated based on the recent purchase price. You will find that most of the artworks that are eventually sold with huge wealth have been preserved by dealers or collectors for decades, perhaps because the artworks need time to appreciate.
Crypto art investment tips
In fact, encrypted art and traditional art have similarities in some places. For example, we don’t know which artist’s works can be displayed in art museums, and we don’t know which works of collectors will eventually appreciate.
It should be noted that in 1907, there were only a handful of art museums capable of self-sufficiency, and most artists were unable to make ends meet, and many people even starved for a long time. However, many wealthy people insisted on funding artists during this period, such as Kahnweiler. As a well-known venture capitalist who specializes in the field of art, he buys a large number of artworks from artists every time, and in this way provides artists with sufficient financial freedom so that they can focus on their creative activities.
In hindsight, it may be Kahnweiler’s support for artists that promoted the popularization of Cubist art in an earlier period, which is considered to be one of the most influential art movements in the 20th century. It has proved to be a valuable skill in the art field.
In the field of encryption art, if collectors are familiar with encryption knowledge, they may have a greater advantage in the field of art. The cubist art of the last century is like the encryption art of this century. Some new trends such as “digital futurism” will eventually become very popular. But in terms of investment psychology and investment strategy, the digital art industry is actually not much different from traditional industries. The best investment strategy is still to buy digital art from different artists of different styles.
Similar investment strategies are also applicable to a wide range of NFT encryption vertical industries, such as buying irreplaceable land in virtual space. In the “irreplaceable land” investment field, your investment strategy can actually cover multiple “irreplaceable land” assets such as Decentraland, Somnium Space, Cryptovoxels, and Sandbox. Compared to betting on a virtual space, this long-term portfolio strategy is obviously better. If in the future, virtual reality succeeds as a dominant social network or game, then you can have your own “turf” in these games. This “asymmetric” investment opportunity is actually very suitable for the field of crypto art.
To a certain extent, crypto art investment is similar to a Bitcoin Store of Value (SoV) investment strategy: accumulate and hold Bitcoin for decades in anticipation of obtaining higher future value.
In general, we still recommend a pragmatic investment method in the field of encrypted art (if you plan to purchase independent encrypted art), namely: a multi-index investment strategy and the implementation of static portfolio management. In other words, if you buy multiple encrypted works of art from different types of NFTs and different artists, and then save them for decades, you may end up with surprises.
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