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On March 11, 2021, Mike Winkelmann, the digital artist known as Beeple, sold Everydays: The First 5000 Days for $69 million.
That works out to a living wage of about $14,000 a day.
Everydays was the first purely digital nonfungible token (NFT) sold for such an amount – and the third-most expensive ever sold by a living artist.
As this video confirms, no one was more surprised than Beeple himself.
Vignesh Sundaresan, a young computer programmer and crypto millionaire based in Singapore.
When I first heard this story, it sounded very familiar.
That’s because, as a student of financial history, I know that whenever investors start shelling out tens of millions of dollars for art, it never ends well.
That was a story of too much money chasing too few goods and a game of social one-upmanship that ended in a bust.
So it’s no surprise that the same has happened with 2021’s newfangled craze, NFTs.
The Japanese Bubble Economy: Flashy Funny Money
Throughout the 1980s, Japan’s bubble economy made it a global superpower.
At the time, Japan boasted the most valuable companies in the world.
At one point, the land under the Imperial Palace in Tokyo was worth more than all the real estate in California.
Flush with newfound wealth, Japanese businesspeople in the 1980s began to speculate in art.
Now here’s an important point…
Art is not an investment in the conventional sense. Unlike stocks, bonds or real estate, art produces no cash flows, no dividend yields and no price-to-earnings ratios.
That means there is no way to value it objectively. Art is the purest of speculations.
As the art critic Robert Hughes put it…
Art prices are determined by the meeting of real or induced scarcity with pure, irrational desire, and nothing is more manipulable than desire.
Still, art can make you a lot of money.
As Henry Clay Frick, art collector and hard-nosed partner of Andrew Carnegie, observed with wide-eyed wonder…
Even during possession, some paintings were seen to increase sometimes a hundred, a thousandfold more rapidly than the certificates of the best-managed joint-stock companies.
My Picasso Trumps Your Van Gogh
Leading auction houses Sotheby’s and Christie’s encouraged Japan’s newfound interest in art.
They brought artwork to Japan. They published memorable catalogs in Japanese. They threw lavish parties before major sales.
Sotheby’s even published its own art market index, which tracked prices across various types of art.
By 1986, Japan had become the most extravagant art market in history.
The Japanese bid previously unheard-of sums for Western art.
Yasuda Fire and Marine Insurance paid a record $39.85 million for Vincent van Gogh’s Sunflowers at a London auction in 1987. (That’s over $100 million in today’s money.)
That was triple the most that had ever been paid for a painting.
The art market became ever hotter. Pablo Picasso’s Les Noces de Pierrette – an unfinished painting from the artist’s Blue Period – was purchased for $51.3 million by a flamboyant Japanese property dealer.
In 1990, Ryoei “Wild Fellow” Saito, chairman of the Daishowa Paper Manufacturing empire, paid over $160 million for the world’s two most expensive paintings: Van Gogh’s Portrait of Dr. Gachet and Pierre-Auguste Renoir’s Au Moulin de la Galette.
By the decade’s end, the prices of French impressionist paintings had risen more than twentyfold over those of the previous 15 years.
Art, one saying went, was “real estate that could be hung on the wall.”
One problem was Japanese art collectors were embarrassingly unsophisticated.
When asked why he had spent more than $300 million on late 19th-century French paintings, money lender Yasumichi Morishita replied, “Impressionist paintings go better with modern decor.”
As Naoki Wakabayashi, author of the book Those Bubble Days, put it, “Japanese buyers bought the junk nobody else wanted. They also often overpaid. Renoir was prolific. A lot of the second-class Renoirs ended up in Japan.”
Few speculators bothered to have the paintings authenticated. As a result, large numbers of forgeries circulated in Japan.
From Boom to Bust
The Japanese art boom peaked in 1990. That year, Japan imported over $4 billion in art, gobbling up half of all impressionist art on the market.
Sure enough, the art market plunged along with Japan’s bubble economy in the early 1990s.
By 1993, impressionist art prices tumbled by more than 50%. As a result, the value of Japan’s art imports fell to $570 million, one-seventh of its peak level.
The most prominent art collectors went bankrupt. Galleries in Tokyo closed in 1994. Paintings were carted off by creditors.
Some Japanese art dealers were convicted of crimes ranging from tax evasion to racketeering. Many had purchased thousands of paintings with forged valuation papers. The paintings were then used as collateral for new loans to buy more paintings.
Finance companies did not want to realize losses by selling paintings at lower prices. So instead they crated the masterworks and stored them away from the public eye. As a result, many famous works simply disappeared.
The Lesson for NFTs
Meme stocks like GameStop (NYSE: GME) and AMC Entertainment (NYSE: AMC) got on the NFT hype train by opening up NFT marketplaces and issuing their own NFTs.
Both efforts are nothing short of silly.
A mere 16 months after Everydays’ $69 million sale, the NFT boom may have come and gone.
Trading volumes have hit 12-month lows.
The NFT “tourists” have left, and crypto diehards now prop the market up.
My efforts to pinpoint the current value of Everydays came up short.
But to be sure, NFTs have a long way to go before they reclaim the dizzying heights they hit last year.
As sure as night follows day, every boom is followed by a bust.
Sure, there is always a chance that NFTs could rebound.
But I wouldn’t bet on it.