Can NFTs Survive in Times of Economic Hardship?
NFTs first gained notoriety in two areas: collectibles and artwork. While the industry has grown significantly beyond these categories, they are still the market leaders, according to nonfungible.com.
These types of NFTs have had a turbulent history, with people flocking to them just several months ago. However, nowadays, people are more apprehensive about NFT investments, for fear of incurring a bubble. Essentially, these concerns can be chalked up to people worrying about where these virtual objects get their value from. In other words, they want to know what the underlying value of an NFT is.
There can be no specific answer to this, as each NFT is (by definition) unique, but when looking at art and collectible NFTs, we can argue that its commercial value derives from a community’s opinion of the work itself. A leading art dealer, Michael Findlay, spoke about this matter, noting that: “like currency, the commercial value of art is based on collective intentionality… Human stipulation and declaration create and sustain the commercial value.”
These NFTs are only as valuable as a community deems them to be. Unlike utility NFTs, which serve more explicit purposes, art and collectible NFTs are deeply dependant on whether society considers them to be worthy. With this in mind, collectibles may do a better job of retaining and appreciating in value, as historically there has always been a market for collecting. That is not to say humans haven’t always loved art, but more so that detecting the value of art can be tougher, as art can exist (almost) in a vacuum, whereas collectibles rely upon each other to gain value (both commercially and personally).
Will Art and Collectible NFTs Perform Well in a Recession?
If the value of art and collectibles fluctuates depending on wider public opinion, then will an economic recession affect their price? With the US economy firmly in a state of recession, crypto fans are starting to question whether these make for good investments during such turbulent times.
The art historian, Donovan Gauvreau, has noted the art market certainly takes a tumble during economic hardships, but usually bounces back relatively easily. This is because art has two values: a personal or intrinsic value, and a commercial value. During hardship, many investors will sell their art at lower prices– not because it has been devalued, but because they simply need the money. The emotive, aesthetic, or otherwise intrinsic value does not change. This makes these types of goods (including collectibles) great long-term investments. But it doesn’t speak much to their short-term value.
Unfortunately, the art market is not as well documented as other fields, and the collectibles market is even less so. This means to truly examine how art and collectibles will do in the short term, we need to turn to economic theory.
A 2002 study by economists Louis Lévy-Garboua and Claude Montmarquette, argues art is a luxury good, and like all luxury goods, its demand is heavily tied to its price (this is known as price elasticity). This means that in a recession, art would only be considered when a person has bought all other necessary goods first, such as food, water, shelter, etc. By this evaluation, art and collectibles should perform badly in a recession.
However, there are some caveats in this study. The authors explain that aesthetic and emotional responses to works of art could not be fully explored by them, but that they noticed these are extremely important these types of purchases, and they could even buck the “luxury goods” trend.
In layman’s terms, while art is considered a luxury, and most luxuries only perform well in a recession when they are lower in price, people’s personal and emotive responses to art can mean they will sometimes buy them even when money is running low.
The problem for an economist is they cannot truly capture these statistics in a graph.
Is there Room for Emotion in a Recession?
The difference between art and collectibles, and other luxury goods is how people respond emotionally. For instance, more people have a strong emotive or aesthetic response to the famous “Saturn Devouring His Son” painting than they will to a diamond ring. And a CryptoPunk collector will definitely have an emotive response to the famous CryptoPunk 7523, auctioned at Sotheby’s, selling for $11.7 million.
As a society, we are moving away from viewing only those with the most direct and basic utilities as being the most precious things. Food, water, shelter, and clothing will always be important, and people will usually turn to these first when money is hard to come by, but satiating the human need for positive emotion is almost as important. People need to feel positive about themselves, otherwise, their quality of life will diminish.
This is where art and collectible NFTs fit. For many, these are important to them, and bring about a strong positive response. That type of response cannot be quantified or ignored or compared to other utilities.
So yes, there is room for emotion in a recession, and this room for emotion is the one thing that keeps the art market afloat during recessions. Will these types of NFTs fair well in a recession? It will depend on each individual NFT, but when considering the need for powerful emotive responses, it is clear ]they at least can perform well, depending on the merits of each NFT themselves.
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