Screenshot/Christie’s
Detail from Beeple’s digital work ‘Everydays: the First 5000 Days’
I have just taken a picture of my chair. I am not going to go through the trouble of doing any of this, but I have it on good authority that I can now host an auction for that digital photo, and sell the unique “ownership” of it to the highest bidder. That winner can then display the photo online, and while anyone could simply download it and own a lossless copy of it themselves, a record on the blockchain will confer the true owner the knowledge that they have the original.
They get nothing else, really, except that knowledge. Anyone in the world can look at or even acquire the same JPEG file from the internet. This is ownership as a feeling. And it’s the biggest innovation in the art world. One of these JPEGs just sold for $69.3 million (not a typo). And it’s further confirmation that decades of inequality have left the idle rich with entirely so much money that they do entirely ridiculous things. And where money goes, scams are sure to follow.
There is a point to crypto art, though you have to squint to see it. Artists put out limited-edition prints all the time, which aren’t entirely discernible from a printed copy, aside from the artist’s signature and the knowledge that there aren’t many in the world. By auctioning a non-fungible token (NFT) that confers ownership, artists can also deliver a scarce object to fans, and get direct compensation for it. This could prove useful in businesses with a lot of direct intermediation between artists and fans, like music. Kings of Leon selling an NFT that can unlock concert tickets and digital art gives big Kings of Leon fans a way to support the band’s work, rather than funnel their funds to a record label or streaming company.
But this goal can quickly get muddled. Buying a screenshot of Jack Dorsey’s first tweet for $2.5 million, for example. Or Elon Musk (whose name always seems to pop up wherever crypto is involved) selling a song about NFT as an NFT. Or collectible enthusiasts making millions on buying and selling digital trading cards of NBA highlights. (NBA Top Shot, the highlight clips, have earned $345 million since being introduced.) Or the real epitome of the NFT craze, the artist known as Beeple selling a collage for $69.3 million at Christie’s auction house.
If someone wants to dump 50 percent more than the annual GDP of the island of Tuvalu into a JPEG, more power to them. I don’t much care for Jeff Koons’s giant stainless steel balloon animals, so I guess blowing money on Beeple leaves me feeling the same way.
But NFTs aren’t quite that harmless. They are thriving because of the giant amounts of money sloshing around with really no outlet. Inequality accelerated in the pandemic, off a 40-year trend where the rich have simply escaped the rest of society. How they live, how they work, how they educate their children—everything bears little resemblance to the rest of the country.
That’s now also true for art—really, for art speculation. The buyer of the Beeple NFT, who goes by “Metakovan,” is a crypto entrepreneur who is trying to make this kind of art viable so he can profit from the digital tokens needed to make it work. In order to get a blockchain certificate of ownership, as it were, the artist or creator must pay a “minting fee” that can range in the millions of dollars. Metakovan is involved in that market, and is also bundling a bunch of art assets together as a crypto investment. If that sounds like a pyramid scheme—NFT buyers creating value out of essentially nothing, and then making money finding other NFT buyers at higher prices—then you can figure out that we’re dealing with the digital equivalent of Amway.
At the heart of the NFT craze, in other words, is a netherworld of scam artists and grifters. These tend to pop up in an environment of too much money in too few hands. It expresses itself in decadence and financial bubbles. And if you think it’s merely a case of rich people hurting other rich people, think again.
Indeed, the “sanctioned” version of selling digital ownership of a tweet is the SPAC, which as I’ve explained before is a shell company with no revenue or product, created solely to merge with a private company and get them onto the stock market without any of the financial disclosures necessary in an initial public offering.
Decades of inequality have left the idle rich with entirely so much money that they do entirely ridiculous things.
Thanks to our celebrity-addled nation, SPACs frequently have someone of renown attached: Shaquille O’Neal, Alex Rodriguez, even former Van Halen front man Sammy Hagar, who’s not the first person that comes to mind for me when I think about responsible investment. Most people I guess aren’t like me: SPACs have attracted so many ordinary investors that the Securities and Exchange Commission had to put out guidance cautioning against joining a SPAC just because of a celebrity’s involvement. When you have to put out that kind of warning, I think the game’s already over.
There have already been more SPAC formations in the last two and a half months than in all of last year, and last year saw more SPACs than in the entire history of SPACs combined. There are only a finite number of companies willing to go public at any one time, so you can see the problem: too many SPACs chasing not enough companies, which means more companies that have no business going public doing just that. The deals are being rushed and don’t appear to follow any discernible logic: One SPAC that had said it was seeking cannabis firms just merged with a space company. SPACs have started to sag after deals are made, as the results prove underwhelming. Retail investors are either so uninterested in the deals or solely into the SPAC for the Sammy Hagar vibes that they aren’t showing up to vote on approvals of the mergers, which is stopping the deals in their tracks.
Now, short sellers have begun circling the SPACs, and if this was just warfare between some rich investors and other rich investors, I wouldn’t care. But there’s a nontrivial amount of money from working stiffs in there that’s sure to evaporate. The sponsors of the SPAC, who are entitled to a much higher share of the company than what they put in, will probably make out fine.
The SPAC bubble may have stock certificates and other official-sounding procedures that conceal its wildly speculative essence, but ultimately, it’s just selling a tweet or a JPEG at a higher level. I can report that there’s a White House working group looking at these crazed investments, and so far they haven’t found much cause for alarm. But this is really the ground floor of speculation, and it’s likely to spread virally. To modify a phrase, idle money is the devil’s workshop. And the shop should be closed before people who can’t afford it get hurt.
