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The Back Room: Crypto's Star Map – artnet News

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This week: the NFT market’s old-school structure, Sotheby’s latest youth-marketing ploy, the Met’s landmark deaccession, and much more.
Tim Schneider, March 11, 2022
Every Friday, Artnet News Pro members get exclusive access to the Back Room, our lively recap funneling only the week’s must-know intel into a nimble read you’ll actually enjoy.
 
This week in the Back Room: the NFT market’s old-school structure, Sotheby’s latest youth-marketing ploy, the Met’s landmark deaccession, and much more.—all in an 8-minute read (2,233 words).
__________________________________________________________________________
A group of people look at digital NFT art at the FRIEZE Week NFT event for “Season 1 Starter Pack” at Superchief Gallery on February 19, 2022 in Los Angeles, California. (Photo by Michael Tullberg/Getty Images)
One of the central questions about NFTs has been whether their disruptive technology and ethos of democratization would lead to more equitable results than in the legacy art market. Well, a rigorous study of the major NFT platform Foundation mostly answers with a resounding, “Nope, not really.”
Published in the journal Scientific Reports, the research was conducted by Barabási Lab, a team of artists and data scientists studying complex networks. The co-authors used publicly accessible blockchain records to map every transaction that took place on Foundation during its first five months post-launch.
What emerged was an empirical recipe for market success as a crypto artist, which I parsed at length in this week’s Gray Market. Below is a summary of its five key ingredients. Most will taste very familiar to art-market veterans…
 
Barabási found a clear and lasting “first-mover advantage” for crypto artists on Foundation. Artists who joined earlier sold more NFTs on average, and at a higher average price per NFT, compared to their counterparts who arrived later—no matter what “earlier” and “later” meant specifically.
The “initial adopters”—the first 2.5 percent of artists to join Foundation, between January 21 and February 22—out-earned the “early majority” artists—the 13.5 percent who joined between February 23 and March 10. But the early majority, in turn, also out-earned the later “majority,” who in turn out-earned the “laggards,” the final 16 percent of artists to join during the sample period.
Sell-through rate and median selling price followed the same step-by-step descent. The former gradually dropped from 74 percent in the initial-adopter phase, all the way to 13 percent in the laggard phase. The latter declined from $1,046 per initial-adopter NFT, all the way to $688 per laggard NFT.
 
Like Twitter or Instagram, Foundation allows users to follow artists on its platform to get notifications about their activity, including new NFT drops. Yet Foundation is only a niche within a niche of the crypto space compared to Twitter itself, which has become the headquarters of crypto enthusiasts in general and crypto artists in particular.
But the data reinforces the adage that “niches get riches.” An artist’s online presence elsewhere is nice. But unless they can port it over to Foundation, their success on the platform will be limited.
Artists who increased from 100 Foundation followers to 1,000 Foundation followers were likely to experience a 10X increase in earnings—a windfall only achievable if they increased from 100 Twitter followers to 10,000 Twitter followers (i.e. an order of magnitude more.)
 
As an “open” platform, Foundation allows artists who have already joined to invite new artists on board. But while this democratization of opportunity gels with the crypto discourse, sales results indicate that success is largely predetermined by artists’ relationships.
Since every Foundation artist’s profile page includes an “invited by” tag, Barabási and his team were able to map each of the 640 “artist clusters” that sprouted on the platform in its first five months.
Data showed that some artist clusters dramatically outperformed others—and that new artists fared about as well (or as poorly) as whoever invited them. The “richest” and “poorest” clusters consistently did much better (or worse) than a randomized reference cluster in terms of sales value, sales volume, average selling price, and follower counts on Foundation and Twitter.
 
Artists are responsible for setting their own prices on Foundation. Even if a new work fails to attract bids at its initial asking price, the artist can re-list it at a lower price. (Foundation allows works to be offered for private sale or public auction; in the latter case, a 24-hour countdown clock begins when a bidder agrees to meet the listed reserve price.)
Data shows that this system hybridizes a truly free market and the price-controlled gallery sector: artist’s selling prices often varied significantly from NFT to NFT—but also tended to stay within a stable range defined by their starting reputation level. 
The study found that reputation has a similar impact on work-to-work selling price, mean selling price, sales volume, maximum earnings, and more—all of which mutually reinforce. Call it crypto predestination, with artists’ odds of success mostly locked in before they mint their first NFT.
 
Although data showed high-reputation artists attracting new bidders at twice the rate of medium- and low-reputation artists, the three groups attracted new buyers at an “indistinguishable” rate.
This means NFTs by high-reputation artists tend to be acquired over and over again by a few passionate collectors, often at outsize prices driven up by broader bidding. In other words…
The minority of works acquired by top collectors sold for vastly more than the majority of works acquired by everyone else—both market-wide, and among individual star artists. 
Of 2,743 NFTs sold by the 180 highest-earning artists, about one-third were purchased by collectors who had previously bought work by the same artist. The roughly $4.5 million spent by these repeat investors made up more than 76 percent of the cohort’s total sales value ($5.9 million).
The same relationship was visible at the single-artist level. Nearly 62 percent of the artist PaulSnijder’s earnings came from just six NFTs acquired by just three repeat collectors. Another 21 works, each purchased by a different buyer, made up the other 38.5 percent of their earnings.
__________________________________________________________________________
Although the study’s findings about the first-mover advantage and the power of follower count provide some hope for crypto artists hoping to bootstrap their way to success, most of its takeaways suggest that a high-quality social network is still the chief mechanism for advancement in crypto art.
By eliminating “gatekeepers” such as galleries, auction houses, and artist agents, then, NFT platforms shift the responsibility for constructing such a network wholly onto artists themselves. If self-promotion isn’t foremost in their skill set, Barabási’s research indicates, reputation might be even more confining in the crypto space than outside it.
____________________________________________________________________________
Sotheby’s Oliver Barker with Shara Hughes, Naked Lady (2019). Courtesy Sotheby’s
In the latest Wet Paint, we learned that Sotheby’s paid TikTok influencer Gstaad Guy to build hype around its “The Now” sale in London last week. How? By crafting content faking that he won George Condo’s Green Head Composition (2013) for a cool £2.3 million ($3 million). Sotheby’s, however, confirmed that the painting went to a buyer in Southeast Asia.
Also, an apparent mass exodus of artists from the roster of Jack Hanley turns out not to have been a direct response to his new Beeple show after all. While emerging talent Emily Mullin did leave in protest, per Hanley, five other artists’ names disappeared from the gallery’s website for unrelated reasons, including compliance with the Americans With Disabilities Act (whose vagaries are being weaponized against dealers in a spree of lawsuits—yes, again).
Here’s what else made a mark around the industry since last Friday morning…
 
Art Fairs
 
Auction Houses

 
Galleries

 
Institutions

 
NFTs and More

 
____________________________________________________________________________
© 2022 Artnet Worldwide Corporation.
Andy Warhol’s auction profile has taken some hits since the early 2010s. But while some insiders insist this perception is warped by his market’s yearslong shift toward private transactions, the fright-wigged one’s works may be regaining momentum under the gavel, too.
 
 
For a more nuanced analysis of these twists and turns, click through below for the latest Artnet News Pro Appraisal.
 
____________________________________________________________________________
“His mother asked me to.”
 
Thomas Krens on why he hired a 21-year-old Max Hollein as an intern while serving as director of the Guggenheim, sparking a decades-long mentorship that proved instrumental in Hollein’s eventual ascension to the director’s chair at the Met. (WSJ Magazine)
____________________________________________________________________________

Pablo Picasso, Tête de femme (Fernande) (1909). Courtesy of Christie’s Images, Ltd.
____________________________________________________________________________
Estimate:             $30 million
Selling at:            Christie’s New York
Sale Date:            May (date TBD)
The latest trophy announced for May’s spring auction cycle is also one of the pricier works to be deaccessioned by a museum of late. The Met has officially consigned a bronze cast of Picasso’s 1909 Head of a Woman (Fernande), widely considered the artist’s first Cubist sculpture, to Christie’s. The work carries a $30 million estimate and a house guarantee.
It is also the definition of expendable for the Met, since the museum owns not one but two of the work’s roughly 20 known casts. The sculpture earmarked for Christie’s was donated more than 35 years ago by Florene M. Schoenborn (who died only a few years later); its soon-to-be replacement is part of a Cubist trove promised to the Met by the still-kicking über-patron Leonard Lauder last year.
(The redundancy was a big part of the reason Katya reported six months ago that the Met was mulling a sale of the work, which the museum declined to confirm at the time.)
In a statement, the Met pledged that all sales proceeds will go toward new acquisitions. This seems kinda obvious, since the sale will take place a month after the closure of the ADAA’s pandemic-responsive window allowing member institutions to deaccession for the sake of collection care. But given how controversial deaccessioning can be, it probably doesn’t hurt to be clear!
The Met raises around $15 million from art sales in a typical year. If all goes as planned, its acquisition coffers will soon be about twice as full as usual. I guess flesh-and-blood plutocrats won’t be the only ones to come out of the pandemic richer and readier to spend.
____________________________________________________________________________
With contributions by Naomi Rea. 
 

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Tyler Hobbs' Fidenza NFT Project Gets $1M Pump Over 48 hours – CoinDesk

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DOJ Asks Congress for Tools to Limit NFT Money-Laundering Risk – PYMNTS.com

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Down at the very bottom of the crypto crime report the Justice Department issued last week was a request that could make it a lot harder to buy and sell NFTs.
Citing examples of criminals using the sale of the popular nonfungible tokens that hold art, video, music and collectibles to launder funds, the Justice Department asked Congress to define some of all NFTs as “value that substitutes for currency” under the Bank Secrecy Act (BSA).
Doing so, it said in “The Role of Law Enforcement in Detecting, Investigating, and Prosecuting Criminal Activity Related to Digital Assets,” would “make clear that its key [anti-money-laundering (AML) and countering the financing of terror (CFT)] provisions — including the obligations to have customer identification programs and report suspicious transactions to regulators — apply to NFT platforms, including online auction houses and digital art galleries.”
See also: DOJ Seeks to Double Jail Time for Money Transmission Crimes
The impetus, the department said, is the “explosive growth in the demand and corresponding markets for NFTs, perhaps most notably in the area of digital art.”
Substantial Risk
This “presents substantial money-laundering risks,” it said, citing a February Treasury Department study on money laundering in the broader art market.
“NFTs can be used to conduct self-laundering, a sequence in which criminals purchase an NFT with illicit funds and then resell to a purchaser who pays for it with clean funds unconnected to a prior crime,” that report noted.
It also found that in most cases, “digital assets that are unique, rather than interchangeable, and that are used in practice as collectibles rather than as payment or investment instruments … are generally not considered to be virtual assets under [international regulations].”
The “nonfungible” part of NFT means that each is unique and cannot substitute for any other, as opposed to cryptocurrencies like bitcoin which all have the same uses and value.
NFT marketplaces “may take the view that this definition [of a ‘value that substitutes for currency’] does not apply to their activities — and that they are thus not subject to the BSA’s anti money-laundering and anti-terrorism laws, the department said.
Justice is asking Congress to amend the BSA “to make clear that its key AML/CFT provisions — including the obligations to have customer identification programs and report suspicious transactions to regulators — apply to NFT platforms, including online auction houses and digital art galleries.”
Already There
Redefining NFTs as “value that substitutes for currency” would allow the Treasury Department’s Financial Crimes Enforcement Unit (FinCEN) to “potentially seek to regulate such activity under its money transmission regime,” a trio of lawyers at Skadden, Arps, Slate, Meagher & Flom wrote in an April blog post.
That, according to Jamie Boucher, Eytan Fisch and Javier Urbina, would require NFT marketplaces to register as money services businesses (MSB) with FinCEN.
Some types of NFTs — notably those used to fractionalize tangible assets like physical artworks and real estate, but also other valuable art or collectible tokens — are likely securities, the Securities and Exchange Commission (SEC) has said.
See more: How Did NFTs Become SEC’s Newest Crypto Target?
In FinCEN’s view, the trio noted, those can be repurposed to fit the definition of “value that substitutes for currency” and thus may already require MSB licenses.
 
For all PYMNTS crypto coverage, subscribe to the daily Crypto Newsletter.
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FTX Talking With Investors for $1B Fundraising at $32 Billion Valuation – NFTgators

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Quick take:
Although Binance maintains its number one spot in terms of crypto transaction volume, FTX is catching up quick after rising to third, behind Coinbase. This could change soon given the steps FTX is taking in web3.
According to reports, Sam Bankman-Fried’s company is seeking $1 billion in a new round of funding at a valuation of about $32 billion. That values FTX twice the value of Coinbase— whose market cap stands at just over $14 billion, and at least 7-fold Binance’s most recent valuation of $4.5 billion.
And there is a good reason for the disparity in market share (volume-wise) and overall valuation. FTX is more than just a crypto exchange platform. 
The company has expanded its ecosystem to include stock trading, NFTs, crypto lending services and more, all forming significant operational synergies for the rapidly growing web3 company.
It explains why investors are placing such value on FTX. According to sources close to the $1 billion fundraising talks, the figure could change by the time the round is closed, CNBC reported, citing people who did not want to be named.
FTX has been one of the most active investors in the web3 space during the crypto winter. The company is in the process of acquiring the crypto lending platform Blockfi for a reported amount of $240 million.
Last year, it acquired crypto derivatives platform LedgerX allowing it to offer derivatives trading alongside traditional crypto exchange services.
Earlier this year, the company purchased Good Luck Games, the developer of the card battle game Storybook Brawl for an undisclosed amount. The acquisition added another perspective to FTX’s business pouncing on the rapidly growing web3 gaming sector.
The company also recently announced a partnership with online game retailer Gamestop to onboard the gaming community to web3.
In July, Bankman-Fried refuted claims that FTX was planning to buy retail stock brokerage platform Robinhood after Bloomberg published a report suggesting discussions were underway.
News about the new fundraising come hot on the heels of the company’s $900 million raise announced in July. FTX also raised $420 million in October 2021.
Stay up to date:
The Embassy of Israel in Korea Opens Pavilion in the Metaverse
Bored Ape Yacht Club #2883 Was Today Sold For 105 ETH
Leading NFT Collections Are Seeing a Rise In Median Price
Uniswap Labs Acquires Genie, Announces Uniswap NFT
New NFT Marketplaces Bid to Dethrone OpenSea From Top Spot
Space Runners Ramps Up the Development of Its Metaverse-Only Fashion House with $10M Round

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