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Global Art Market Disruptions

Pushing the Boundaries
The COVID-19 pandemic has been a catalyst for rapid change in the art market. With galleries forced to close their doors, international art fairs postponed, and major auctions delayed, the art world quickly needed to adapt. In our 2020 Citi GPS report The Global Art Market and COVID-19, we highlighted how the industry was adept in shifting to the digital world, with leading auction houses conducting virtual auctions, and art fairs going online and creating new kinds of experiences for attendees. Coming from behind the curve on digital, this belated shift increased transparency in pricing and attracted Millennials who were more comfortable buying art online.

Over one year later, the art industry is continuing to transform and adapt. The shift to digital has given a wider range of people access to the art world than ever before, and increased both the geographic and demographic diversity of buyers. This has led to a stronger focus on diverse artists and genres, and on artists who work outside mainstream platforms. We expect this to continue in 2022, along with new synergies between auction houses, galleries, artists, and collectors, as well as sustained growth in private sales.

The biggest change in 2021 has been the rise of a new art medium — non-fungible tokens, or NFTs. From being nearly non-existent in 2020, this new market generated sales of almost $25 billion in 2021 and posted an additional $7.4 billion in January 2022 alone. NFTs are not only a new way to consume art and collectibles, they are disrupting the traditional art ownership model through a kind of "democratization." This disruption holds the possibility for catalyzing change for both (1) artists, as it potential allows them to monetize their work and talent equitably; and (2) traditional distribution players, including auction houses and galleries, who have been quick to be involved in the transformation. Ultimately, the rise of NFTs has helped drive an increase in overall art sales, with $2.3 billion of art sold in just a two-week span at the November 2021 auctions.

The strength of the art market throughout the COVID-19 pandemic is also reflected in the performance of major art indices. From January 2020 through June 2021, the Masterworks.io All Art Index delivered a 28.2% return — comparable to broad, publicly-traded risk asset classes including developed market equities, emerging market equities, and commodities. Broad shifts in real interest rates from negative to deeply negative, helped by stimulus and central bank asset purchases, likely contributed to performance.

Regulation has been and will continue to be a feature of the art market for the foreseeable future. There are still challenges in the NFT market with issues surrounding trademark infringement, security regulations, and the potential for fraud and abuse. And it is not just the digital art market raising concerns among regulators. Lawmakers around the globe have started to implement new laws and regulations requiring certain art market participants to help prevent and detect money laundering in their operations.

With single NFTs regulatory selling above the million-dollar threshold, there is also a question about whether the NFT market can sustain current levels. That said, as noted by Anders Petterson, Founder and Managing Director at ArtTactic, "Bursting bubbles rarely signal the end, but rather the beginning of a new development phase."

Over an 19-month period during the COVID-19 pandemic — from the beginning of 2020 to the middle of 2021 — the global art market as an asset class returned 28.2%, with the Impressionist and Modern Art index gaining 41%. This overall performance is comparable to strong returns from developed market equities, emerging market equities, and commodities.
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NFTs, or non-fungible tokens, are rapidly gaining mainstream interest across the art market. Spurred by a younger, digitally-native audience, the emergence of a new ownership model for digital art has finally become a reality and is disrupting the traditional art market.
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The creation of an art NFT provides a direct relationship between the artist and fans and potential buyers. Raising awareness around an artist's work creates a community with a flywheel effect for all involved — fans get to interact directly with the artist and get access to new artwork, while artists generate royalties from the NFTs themselves.
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Challenges faced by the global art market in 2020 forced the industry to adapt quickly and embrace a more digital world. A wider range of people not have access to the art world than ever before, resulting in trends that became apparent during 2021, and are expected to continue into 2022.
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