Easy Money: Will the Art Market be Bitten by the Bitcoin Bug?

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In the past few years the crypto-currency Bitcoin (btc) has emerged as an appealing alternative payment system, particularly in the luxury arena. The open-source digital currency offers high liquidity, universality, and low- or no-fee transactions, attracting buyers and sellers who require speed and ease of transfer. Although Bitcoin transfers are semi-anonymous, pegged only to a numeric address, they are public and permanently stored in the Bitcoin network, known as the block chain. These attributes are now prompting speculation regarding Bitcoin’s potential impact on the art trade.

Jehan Chu, a Hong Kong–based art adviser, is one proponent. A Bitcoin investor and director of the Vermillion Art Collections, Chu views the currency as a fundamental breakthrough in transactions between people that has the power to disrupt not only business but even social and govern-mental power structures. “Beyond the frictionless international transfer of funds,” he says, “there is also great potential to use the block chain as a distributed, incorruptible central directory for identification and provenance of artworks, or even to develop infrastructure for low-cost copyright and intellectual property rights protection,” he says.

Within the mainstream art market, Bitcoin is still widely perceived as a novelty. This is in part due to its status as a technology still in its infancy, but observers are also cautious because of the volatile nature of a currency not backed by any government or banking system. It has fluctuated wildly in value since it was launched in 2009, from $0.05 per unit in July 2010 to a peak of $1,242 in November 2013. At the time of this writing, Bitcoin was trading at around $500, after dropping to $435.60 on August 18, its lowest value since May, according to the digital currency website CoinDesk.

The small number of publicized transactions involving the purchase of fine art with Bitcoin attests a prevailing skepticism. One of the most significant took place during the inaugural edition of the Silicon Valley Contemporary art fair in April, when KM Fine Arts, of Los Angeles and Chicago, sold Dana Louise Kirkpatrick’s large mixed-media work Off Limits but Blessed by the Fed, 2014, for41 Bitcoins ($18,500). In March, German artist Kuno Goda sold his 2013 work “200 Bitcoins” – a takeoff on Andy Warhol’s “200 One Dollar Bills” – to a businessman from Seattle. It was priced at 200 Bitcoins, or $125,000 at the time, but the work actually sold for much less, according to Goda, who made an agreement with the buyer not to disclose the exact price.

In May of this year an auction of Polish digital art held in Warsaw was heralded as the world’s first live art auction to offer the option of paying in Bitcoins. Produced by the Polish auction house Sopocki Dom Aukcyjny in conjunction with Polskie Stowarzyszenie Bitcoin, the Polish Bitcoin association, the sale was a modest success, with all lots selling for a total of pln56,000 ($18,000). More than half went to Bitcoin clients, according to Artur Paprocki, the event’s co-organizer, who says one client even bought Bitcoins specifically for the auction.

One transaction that could set a precedent for future Bitcoin transfers involving high-value goods concerns a multi-million-dollar, 18th-century Antonio Stradivari violin. The sale was brokered by New York–based Carpenter Fine Violins, which sold the instrument in March to the Leo Group, a wealth management firm that purchased the violin on behalf of a few of its U.S.– based clients. Sean A. Carpenter, ceo of Carpenter Fine Violins, says, “The buyer had a large position in Bitcoin, and instead of trading it for cash, they were more interested in selling some of their holdings to acquire a stable asset (while still owning an illiquid asset).” The sale was unusual not only for its value, but also for its structure, dubbed a “Bitcoin swap with a bilateral swaps agreement,” in which Leo Group and Carpenter essentially acted like clearing agents to stabilize the value of the Bitcoins over the course of the month-long transaction and facilitate a cash transfer.

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