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Leonardo da Vinci's masterpiece "Salvator Mundi" was sold for $450 million by auction house Christie's, topping a world record for any work of art sold at an auction. Meanwhile, bitcoin continues breaking new all-time highs, having shot past the $8,000 mark. So, what do artworks and cryptocurrencies have in common as investment assets?
1. Media create asset's value
Real assets are also influenced by media. When world's largest news outlets talk about the rise of political tensions in oil producing regions, it often affects oil price. As for the artwork market and cryptocurrency exchange rates, mass media have an even more significant impact. Traffic analysts have already noticed that the increase in search volume for the "bitcoin" query leads to a surge in bitcoin price. Originally, search volume is directly related to the cryptocurrency mentions in leading mass media.
One can observe the similar situation in the art market. One of Leonardo da Vinci's most famous paintings, "Mona Lisa," attracted public attention after being kidnapped at the beginning of the 20th century. In a few years, the picture had been successfully returned to the Louvre Museum, where it was then put in the separate room. Numerous vandal attacks continued to buttress painting's media popularity. Attempts were made to pour acid and paint on it, and even throw stones at it. All of these acts created a mysterious atmosphere around the work and caused its price to soar.
2. Art auctions and cryptocurrency exchanges as "hype" markets
Media's impact on the asset's price is evident for both investors and creators of art objects and digital currencies. This fact led to the "pursuit of hype," a situation when lots of creators and project founders try to attract media's attention with extraordinary products. In the art world, the hype was first monetized by modernists. It's no secret that eccentric behavior of Salvador Dali and Arthur Rimbaud helped them gain fame. The true leaders in this field were the pop art representatives. For instance, Andy Warhol didn't hide the fact that he was interested in seizing any journalists' attention. "Don't pay any attention to what they write about you. Just measure it in inches," he said.
There's a great number of coins that gained their fame and worth due to the hype alone. One could recall Sexcoin, PotCoin, or PepeCoin which increased their market capitalization, not because of the technological advancement or unique business model but being "scandalous."
3. To evaluate an asset, one needs expertise
An average investor might opt to put money in those art objects or cryptocurrencies that generate the most buzz in media. It does not, however, always mean making a profit. Speaking of which, Russian billionaire Dmitry Rybolovlev lost over $120 million after he had resold the works of Pablo Picasso, Paul Gauguin, and René Magritte. Later, the collector made a statement indicating that a Swiss art dealer misled him about the value of the pieces produced by famous artists.
The situation best demonstrates that investing in art requires some level of expertise or at least assistance from an honest advisor. The same rule applies to crypto. For instance, hard forks bring in a lot of media attention, but only blockchain specialists and experienced investors should assign a value to a new asset. The popularity of the currency itself doesn't grant you high returns on its derivatives.
4. Investor's incentives aren't necessarily based on gains
Prominent collectors often say they purchase masterpieces of famous artists not to make profits. Art objects carry aesthetic value, as well as define the status of the owner, reflecting their sophisticated taste. Sometimes, collections serve an edifying purpose. For instance, Russian billionaire Alexei Semin established an International Antiquities Institute, which is focused on research and popularization of the artworks he has obtained.
The same rule applies to crypto investors. In September, LendEDU asked 1,000 Americans a series of questions about bitcoin as both an investment opportunity and as a currency. 40.78% of respondents answered that the reason they had invested in bitcoin was that they believed bitcoin was a world-changing technology. It means that their primary objective was not to make money due to taking advantage of the price speculation. A host of initial coin offerings (ICO) succeed at raising funds since founders and investors share common values. For instance, some crypto enthusiasts invest in eco-technologies, such as EcoBit, WePower, and HydroMiner.
5. It's essential for an investor to be part of the community
The art community is not only a business community, but also a society comprising artists, critics, and gallerists. It's rather challenging for an outsider to understand how money is made, or why certain artworks cost more than others. The newcomers could, however, hire an art consultant and become part of this society over time. If an investor doesn't have any connections, they could be vulnerable to fraud. There are things such as art forgery or selling early and poor-quality works of artists, claiming those are previously unknown masterpieces.
The cryptocurrency market does also have its own community. Crypto enthusiasts attend conferences and meetups, where investors can get acquainted with thought leaders and learn about new promising projects. Such events result in the occurrence of the pool of experts and platforms that assess start-ups and ICOs. If a crypto investor stays outside of the community, they incur the risk of losing money and being victim to scams aimed at investors with little to no experience.