Art is drawing family offices — and me — into the crypto world
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After watching the cryptocurrency craze from the sidelines for a decade, even hardened sceptics are plunging in and buying their first digital assets.
Is this a moment of vindication for the pioneers who promoted digital currencies as an asset class and heralded a technological and financial revolution? Or is it a sign that the hype cycle is reaching its final, frenzied moments before the fever breaks? I wish I knew — because I am one of those sceptics. And now I own a non-fungible token, or NFT.
The annual survey of family offices by Citi Private Bank, which landed in September, found 23 per cent now have crypto assets in their portfolio, and another 25 per cent are considering them. Of family office executives who attended a Citi forum connected to the report, half said they expected to increase allocations to crypto in the next year. These are big numbers from often conservative managers of other people’s money. Interest in digital assets, which spread first from the over-thinkers (crypto-utopians thrilled by a complex solution to an unasked question) to the under-thinkers (herd-followers seeing a quick buck in a barely comprehended trade), appears to have finally reached the consensus-thinkers.
I have a theory as to why. If there is one thing wealthy individuals and their advisers know about, it is art — and, this year, the worlds of cryptocurrency and art have collided, in the form of NFTs.
These NFTs are pieces of code that represent an artwork — or a clip from a basketball game, or a tweet, or a photo of William Shatner. They can be bought with cryptocurrency or conventional funds converted into crypto. Ownership is recorded on a digital ledger called a blockchain and transferred using that blockchain’s cryptocurrency. It has been easy to dismiss the utility of blockchain technology. We already have ways to record and transfer ownership of digital assets (like money in a bank account) and an established legal infrastructure to ensure trust in that system, which blockchain does not have. I still don’t know that we need a different way. But it is no longer defensible to say that the use cases for blockchain are entirely theoretical.
The reason I own an NFT is that an artist/developer friend of mine has been minting them. Not only are they a way for him to make money from his work, they are a unique way. Code embedded in the token guarantees him a royalty when a piece is sold on, something no artist is able to insist upon in the physical world. That is a use case.
So now I am the proud owner of a token on the Tezos blockchain that represents a piece of generative art, a gif of a hexagon that dissolves and spins and reforms on an endless loop. You can download the gif if you want. But I am the only one with the token.
I am under no illusions as to what I have here. I want to see what happens. Quite apart from whether an artist’s work is deemed to have merit in the future, what happens to an NFT will depend on whether we agree that owning a unique token is different and superior to copying the gif or watching it on a webpage. The blockchain where the token exists, and the cryptocurrency in which it is valued, are other variables. Blockchains can and do fall into disrepair. Tezos has powerful backers but it ranks in popularity well below ethereum, which is staking a claim to be the blockchain of choice for higher-value NFTs, new financial services, games and many other developer experiments.
There may be more value in whatever is created and traded next using blockchain technology. I also have no idea how to value the currencies that allow each blockchain to function. The biggest investment opportunities may not be in crypto assets at all but in the companies operating and exploiting the technology. But I understand more about the possibilities now than I did before I plunged in.
The point is, we are in the midst of a great experiment and investors that may have once dismissed it, ought now to consider taking part in it. I’m with the 25 per cent in that Citi family office survey that said they are “still in research mode seeking advice”. Whatever a family office is spending on research and advice, they may glean equally valuable insight by diverting a little into crypto, to see what happens.
This article is part of FT Wealth, a section providing in-depth coverage of philanthropy, entrepreneurs, family offices, as well as alternative and impact investment
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