Bitcoin Is a Lot Like the Art Market

Both cryptocurrencies and contemporary art rely on scarcity and hype because they have no other real value — though crypto has less price control.


Many people knew this was coming. Cryptocurrencies had one of the worst days in their short history on Wednesday. Bitcoin’s price careened, plunging 31% before recovering to a loss of about 10%. Ethereum, Dogecoin and Binance Coin all fell about 20%. The reasons why are still being sorted; crypto is a relatively new market and we don’t have much data to make sense of it all. But the crypto curious might find some guidance in another corner of the elite investment world: the contemporary art market. Cryptocurrencies and contemporary art are actually very similar commodities.

This week’s market meltdown and ensuing rebound wasn’t that surprising to crypto’s doubters. Its value never made sense to us. Gold, stocks, bonds and the dollar (which is backed by the goods and services of the U.S. economy) all have some intrinsic worth. They’re subject to price fluctuations, too, but ultimately their price settles around something resembling the value of the company or government they represent.

Fans of cryptocurrency argue its value derives from the fact that it’s scarce — there’s a limited supply of them (though maybe not that scarce, since it’s relatively easy to start a new digital coin). But any asset that has no intrinsic value can always collapse in price, scarce or not, and even become worthless  — remember Beanie Babies?

This also explains the dynamics of the contemporary art market, where scarcity and hype play a similar role.

The contemporary art market is the domain of new art works by living semi-famous or famous artists. Most of it is sold out of galleries. The dealers in the galleries take great pains to control prices, keep them secret and even manipulate them. New contemporary art will almost never be sold at auction, because then prices will be known and set in an open market. If a work does make it to auction (perhaps as a resale) dealers will sometimes participate in the auction to impact the price (and often blacklist the collector who sold a work so publicly). If you ask dealers why they do this, they’ll often tell you it’s to protect the artist. They must prevent the market for an artist’s work from getting too hot. Their aim is to keep values rising, but stable, and that means dealers will sometimes step in to keep prices from rising too fast. 

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