The 7 Ultimate Fine Art And Bitcoin Asset Class Comparison:
So far this year one of the top questions Vengerick art collectors, and art investors are asking. “What is the better asset class investment? Fine art, bitcoin or NFT’s”? Most of us know that interest in cryptocurrency and Bitcoin have skyrocketed in the last 3 years. The last 18 months NFT has been all the rage as well.
Likewise art as an investment has grown in popularity as well, thanks to masterworks from Rothko and Picasso selling for blockbuster amounts.
We would like to point out we are very big supporters of the cryptocurrency and NFT markets. We even offer clients to buy art with cryptocurrency’s for example. However, there is a lot hype and FOMO (Fear of Missing Out) in the crypto and NFT markets. This hype can lead to a lot of bad decisions by good investors.
So Vengerick art thought it would be helpful to offer our take on the questions. We are speaking from a calm neutral place, in order to help inform anyone interested in these asset classes.
NFT’s will not be a big focus. After the NFT market dropped almost 90% since May this asset class is still a little too volatile and untested for most of our collectors.
Comparison #1: Diversify Asset Class (Inflation)
The name of the game with higher risk ,fine art, and crypto asset classes is diversify. Traditionally an investor should not place more than 5-10% of their investments within this asset class.
Bitcoin for now has proven to be an excellent asset class to diversify into. Bitcoin exhibits three main attributes that prove for now, high returns, high volatility and low correlations with traditional assets.
One of Bitcoins biggest attractions for investors, Bitcoin is the best hedge against inflation. Goldman Sachs even screamed from the rooftops, calling bitcoin digital gold. Goldman at the time convinced a lot of investors Bitcoin is the ultimate inflation hedge.
Lets look at a chart to get a better look:
This is not the most current chart, but most of you know that Bitcoin is trading at less than $20,000, after inflation failed to slow down in August. Based on the current market it seems Bitcoin is not the holly grail to inflation protection we have all be promised.
Lets see if Fine art performs any better compared with inflation:
Buying up a Picasso or Rothko is not the first thing average investors thinks of when inflation strikes. The goto inflation hedge is gold, fine art flies under the radar of most investors. Yet when it comes to the economic value of fine artworks, it pays to see the bigger picture.
The chart above paints a different picture of fine art correlation and inflation. Further research shows fine art outperforms gold during peak inflation. When you compare data from 1973 to 1981 when inflation in the US was very hot at around 9% each year. Gold averaged an annualized growth of 31.1% during that period, while the art market had an average appreciation of 33.2%.
More recently, from 2000 to 2018, the “Artprice 100” (the leading index for top 100 artists in the market) delivered annual growth of 8.9%, while the S&P 500 averaged 3.4%.
So safe to say no matter how much Bitcoin tries to convince us that it is the best hedge against inflation. The clear winner for least inflation correlation is fine art. The art market continues flying calming under the inflation hype radar.
Comparison #2: Dramatic Returns
There is no better thrill ride than Bitcoin for investors. When you hit it right you really get huge returns. However for most of us if you miss the train or time it wrong you left in the cold.
If you were lucky enough to buy crypto early and HODL, (Like we have done.), then you are use to market ups and downs, and can see the big picture. But for most investors arrived to the party a little late, and must navigate the drastic price swings up and down.
Over the past 10 years Bitcoin underwent six different peak-to-trough drawdowns of more than 70%. So if you love roller coaster and danger fill thrill rides Bitcoin has everything for you!
Art… Not an Exciting Asset Class?
You might be wonder how in the world can some piece of art even compete with the pure adrenaline of crypto as an asset class. Well as seen above with big returns also has come with very big risks. Art has been around a long time and continues to outperform markets especially in times of extreme uncertainty, like wars, financial collapse. Art might even survive a zombie apocalypse based on its track record.
As you can see in the chart, art constantly out performs traditional markets. Contemporary art has offered an annual return of 14% over the last 25 years, as of December 2020, versus a 9.5% annual return from the S&P 500, according to the Citi Global Art Market chart.
When comparing Bitcoin bull market with art it looks like no contest Bitcoin is the winner. However over the long term fine art proves its dominance for consistent returns against all markets. This picture gets even more exciting when we talk about taxes below.
Comparison #3: Control and No Central Authority
By now most of has heard that Bitcoin frees you from banks and puts you in control of you money. Bitcoin in the beginning was basically anonymous but tech, governments and banks have become much more involved. Bitcoin continues to have huge advantages for controlling your assets and lack of regulations.
One of the best things about Bitcoin is there are no third party bankers involved with your money You can send and receive transactions in real time and pay for almost anything now with out approval from a banker.
Fine art has the same excellent advantages of Bitcoin. While some will argue a crypto wallet is much more secure than taking a piece of art across a conflict border zone for example.
Government’s around the world continue to try regulate and control cryptocurrencies. Will see the impact this has on control of your assets in the future.
Comparison #4: Anonymity
“Loose lips sink ships. Those who don’t know talk and those who talk don’t know.”
— Anonymous art advisor
One of the biggest questions at the moment. “Is Bitcoin really anonymous?” The short answer is NO!
The creator of Bitcoin, Satoshi Nakamoto presented the currency as anonymous: For bitcoin transactions (buying, selling, sending, receiving), users employ pseudonyms, or addresses — alphanumeric cloaks that hide their real identities.
However these days the anonymity of Bitcoin is no longer a selling point for the coin. If you want a chance at anonymity now a person must use a tumbler to hide their transactions. Such as Wasabi wallet and now sanctioned, and illegal to use, Tornado Cash for Ethereum network.
In the NFT space, some buyers have been spending huge sums at auctions anonymously, only to later reveal their identities. It maybe a generational thing but the buyers in the NFT markets seem less concerned about Anonymity.
However in traditional art markets, protecting buyer identity is a rule that’s universally followed across the art market, from auction houses to galleries. One of the biggest benefits to art collecting is 100% anonymity. So if you like to keep a low profile then art is the best asset class on the planet.
Comparison #5: Low Entry Threshold Asset Class
“I bought this painting 10 years ago for $60,000, today I can sell it for $600,000. The Illusion has become real. The more real it becomes the more desperate they want it.” – Gordon Gekko
Even if you have Gordon Gekko money, you care about cost of entry to an asset class. For the rest of us we are blocked from doing business like the rich. Most of us do not have the cash to access fancy hedge fund asset classes. Hedge Funds start at initial investment of $100,000 and go up to over $1,000,000 to have the privilege of investing.
Enter Bitcoin and art opportunities where the low entry threshold allows everyone to take advantage of the asset class. With as little as $100 people have been able to make a great deal of money. In crypto we hear a lot of stories “I Turned $1000 into $10,000”.
In art it is no different. You dont have to have Picasso money to take advantage of the art market. Its not uncommon to buy a painting for $500 and 10 years later sell it for $150,000 or more.
Considering the total capital size of the markets. The low entry threshold is an even bigger selling point for these asset classes.
The global art market is valued at 65.1 billion U.S. dollars in 2021.
Comparison #6: Hide Your Money
“Bank robbery is an initiative of amateurs. True professionals establish a bank.” (Bertolt Brecht)
Bitcoin and the art market enjoy, price flexibility, purchase anonymity, along with high liquidity, making them the best asset classes to hide money.
Not just drug cartels, terrorist, or money laundering groups need to hide money these days. We have all witnessed what happens to whistle blowers like Snowden. If you have a different view than your government, or want to speak out, you better have your money in a safe place.
If you are about to make a stand against your government, or report wrong doings by a large corporation you better hide some money in crypto or art.
Comparison #7: Avoid Taxes Asset Class
Taxes are heating up on Bitcoin and cryptocurrencies as regulators slowly take control. For crypto it is even worse. Governments are soft regulating them so the rules are still so confusing to establish the taxes consequences. We fear the tax questions and reporting for crypto will get much more frustrating and difficult before they get better.
For the most part you can still offset taxes with crypto for now its a good option.
However art is the number one asset class to avoid taxes. The art world has a great deal of benefits built in for the would be tax avoider. From zero tax secrete freeport warehouses and the ability to sell one piece of art and roll the profit into more art, or funds, for zero tax benefits. For Vengerick Art, when it comes to avoiding taxes fine art is the champion asset class.
FAQ
What is the best for diversification?
Both art and crypto are very good but we would say crypto at the moment. There is more options in DiFi for generating returns by staking coins for example.
What has more privacy?
Just a few yeas ago you could make the argument for Bitcoin is the most private. However today art is the most private protective asset class.
Better asset to hide your money?
Again this use to be Bitcoin but now with all the reporting and tracking. Art is far better and proven time and time agin to hide your money safely.
What is the safest asset class?
Both Bitcoin and Fine Art are very safe if you do your homework. Be clear the real reasons why you need the asset class. Buyback programs are a good option and a lot of crypto offers them. At Vengerick Art we are even starting a guaranteed buyback program for fine art.
If you have any questions or interest in, buying, selling art, or taking advantage of these opportunities contact us.