Cyclicality, Hierarchies, and NFTs: Takeaways from the Art Basel & UBS Report – MutualArt.com

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While 2021 was expectedly strong, it might not be as enduring as is hoped, and further changes can be anticipated to impact the current art market
MutualArt
Mar 29, 2022
Pak, The Switch, NFT. Courtesy of Sotheby's
Art Basel and UBS released their yearly art market report this week, and as usual it is packed with data and information surrounding all aspects of the art market – with no small section dedicated to the NFT sector as well. We dug through the 279-page report to concentrate the most important findings in one article here for you.
To start with, the global art and antiques market in 2021 equaled $65.1 billion. This is of course a strong increase from the crisis year of 2020, but also tops 2019. Naturally, the United States remains by far the biggest art hub, making up 43%, or $28 billion, of the total pie, whereas China represents 20%, or $13.4 billion, the UK 17%, or $11.3 billion, and France 7.2%, or 4.7$ – the latter showing the biggest yoy increase, 50%. This statistic remains fairly stable, with slight movements between countries within the percentages averaging themselves out over the last decade.  
Auction houses, especially top-tier ones, continued to show the most resilience, as they already did during the height of the pandemic, and they registered overall growth of 47% from auction sales in 2021, while their private sale sector – which is also concentrated within the few biggest institutions as smaller auction houses ventured less into private sales – also leaped by 33%. In comparison, private dealers, who suffered significantly from the lockdowns and breakdown of tourism, could only increase their revenue by 18%.
Contemporary art remains the unchallenged segment within the art market, representing 55%, or $6.7 billion, of all art sold at auction, whereas modern art accounted for 22%, or $2.7 billion. Here, too, there has not been a groundbreaking shift during the last years, this segmentation having taken its current shape over five years ago. However, one major development is the market share taken up by art created during the last 20 years, which reached $2.5 billion in 2021, more than doubling its figure from 2020.
Beyond these major figures, we identified three major takeaways that we view as key to understanding the current art market and which will have the biggest impact on it in the near future:
 
Economic Impact and Cyclicality
The art market is deeply entwined with the wider economy, albeit not necessarily correlated, and, at least during the last decade plus, subject to cyclicality. This cyclicality is evident when looking the market’s trajectory since the 2008 financial crisis. The following year, in 2009, the art market registered a low of $39.5 billion, but rebounded strongly in 2010, to $57 billion, before reaching a high of 64.6 billion in 2011, which is just $0.5 billion less than last year. Since then, the market’s ups and downs coursed almost uniformly in four-year patterns, registering its still all-time high of $68.2 billion in 2014, and another peak of $67.7 million in 2018, with lows in 2012, 2016 and 2020. Should this cycle continue, we could see more strength this year, before the market would turn down in 2023.  
Furthermore, high-net-worth collectors reported an incredible increase of median expenditure on art, decorative art, and antiques – standing at $274,000 in 2021, compared to just $72,000 in 2019 – which is certainly also a result of art’s increasingly diverse offering and appeal as an alternative investment.  
 
Hierarchies and Imbalances
The pandemic was not the great equalizer. Nor was rise of NFTs. On the contrary. According to the report, “as demand and sales gained momentum again, it became clear that the digital shift had done little to reduce the market’s hierarchies, and the high end began once again to pull away from the rest of the market.” While all segments of the market saw a rebound last year, it was art valued at $10+ million sales that rose to unprecedented levels. Even among dealers, those with revenues between $5 million – $10 million saw the biggest increases, 35%, while those with less than $250,000 could only achieve 6% more. The big auction houses – Sotheby’s, Christie’s, Phillips, Poly – established record or near-record years, making up for a huge share of the auction market. They are also the ones who could expand their private sales, as opposed to second-tier auction houses, and were best equipped to enter the budding NFT market.  
 
NFTs and Digital
Two separate developments, the online market and the NFT market are of the mot-pressing issues concerning the art market. Sales of NFTs expanded from $4.6m in 2019 to $11.1 billion in 2021, while online sales of traditional art continued to rise as well (7%), to reach $13.3 billion, though its share of the whole market dropped by 5% – an expected decrease as in-person sales and fairs returned – to 20%. While auction houses have long discovered the advantages of online offerings, the primary market was overrun by the pandemic and scrambled to bring their services online. Catching up somewhat, dealers managed to adjust over the last year and implemented online tools to return to gains, but compared to auction houses they are still lagging. When it comes to NFTs, dealers are even more at a loss, as only 6% of them had managed to make transactions, and, as mentioned above, only the top-tier auction houses found an entry into the hype of the moment (Sotheby’s and Christie’s sold NFTs for $150 million). Of HNW collectors, a whopping 74% had bought art-related NFTs in 2021, although the median expenditure stood at a relatively low $9000.
The report highlighted many shortcomings in the NFT space: it remains a highly speculative market, best exhibited by the short holding period, which stands at just around one month, compared to 35 – 30 years in traditional art. The profit to loss ratio further substantiates its nature as a bubble, as resales amounted $1 billion in gains versus $65.8 million in losses. Copyright issues and other loose regulatory practices also complicate this trading space, undermining trust and confidence in the NFT market. However, “the transparency of blockchain data makes it easy to discover these activities and identify their sources, meaning self-regulation, including banning users or applying penalties, could potentially moderate risks to some degree.”
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