The most valuable email you will ever receive, #1/50
Jasper Johns, the $1.2m CryptoPunks flip, & buying yourself some status
In 1980, Jasper Johns set the record for the most expensive painting sold by a living artist ever: $1 million dollars.
The sum, $3.4m in today’s dollars, was an astounding figure for the time. This sale occurred when selling art was a closed-door, private affair; the Whitney Museum, a pre-eminent, non-profit institution in the heart of New York City, was the winning bidder.
The Whitney had raised funds for its 50th anniversary and bought the painting thanks to six families. While the donors reflected the diverse industries of their day - textiles, cosmetics, real estate, oil, securities, and media - they were united by funding the arts in New York City. They were socialites, in the purest sense of the word: people deeply involved in high society.
Johns himself didn’t take home the million dollars. The sellers of the painting were a husband and wife who ran a commercial lighting company out of Connecticut and who had amassed a considerable collection of modern and contemporary art.
While $1m was a scandalous figure, if the Whitney deemed this work credible, if it was able to convince reputable funders of its the need to add this piece to the Whitney, displayed for all to see, who could complain about the price?
Jaspers Johns’ painting was entitled, Three Flags.
I want you to see that painting:
Jasper Johns, Three Flags
On September 5th, 2021, a very different auction occurred. It was of a single picture from a recent pair of artists. It was a very public auction, which anyone could attend. The buyer was a private collector who owned pieces from these artists and other like them.
The artwork was a from limited series, recently famous and trendy, and it sold for $3.8m
I want to you show you that one too:
CryptoPunk 6275
Later that same day, the buyer* of Punk 6275 turned around and sold the piece for over $5m, marking a 30% profit.
In twenty-six minutes.
(* Here is where I am tempted to talk about the implications of this transaction, but we’re going talk to this buyer in our next edition.)
I’d like to explain to you the difference between Three Flags and CryptoPunk 6275 and exactly why Three Flags deserved to be worth millions and the Punk does not.
But really, can I?
From Art to Asset Class
What I can tell you is that from 1980 until now, the role of visual arts has changed, from one of institutional patronage to an asset class, something that can be invested in and divested of just as quickly.
Money follows the path of least resistance. And money has always been a complicating factor in art.
Think about the common stereotype of an artist: struggling financially, but happy nonetheless since they are able to pursue their muse.
It’s a huge leap from a starving artist to a living sensation who can create millions by picking up a brush. An influx of private investing money changed the market for art; NFTs may changing the art market itself.
Enter Non-Fungible Tokens
Art was once limited to a physical object, in a physical place, in a physical time. So was music until recordings allowed musicians to play to a larger audience, on-demand. As music digitized, art is perhaps now at that inflection point, via Non-Fungible Tokens.
The easiest way to understand NFTs is that they are digitally fingerprinted assets; the closest real-world concept is the idea of “limited editions” in traditional artwork.
Printmakers commonly create runs of their works, numbered 1 of 100, and signing each print to preserve their authenticity. When the print run is done, the plates are usually destroyed to ensure that other unauthorized assets are not created.
Here’s one you’ve likely seen before, by M.C. Escher:
Relativity By M.C. Escher
Now the value of any print is somewhat based on this known rarity, especially if the work is popular and multiple editions were created. Earlier editions are worth more, later editions are worth less. But the average person would be unable to tell the difference. One would need an art dealer’s services.
As production techniques become more mechanical, forgery becomes easier. The very tools that allowed Escher to create multiple versions of his work, permit the opportunity to forge them more easily. A single painting is quantifiable as 1/1. But with 10,000 items in a series, it is much easier to fake a print.
NFTs are limited editions that are impossible to fake.
This idea that transactions don’t need to rely on a third-party is a central tenet of the cryptocurrency. Bitcoin “Founder” Satoshi Nakamoto’s original paper says as much:
What is needed is an electronic payment system based on cryptographic proof instead of trust, allowing any two willing parties to transact directly with each other without the need for a trusted third party
A third-party verification is avoided if the parties can deal directly with each other through a trusted process.
When we’re dealing with physical art, where forgery might occur, we need a third-party system to assess value and verify the authenticity of a work.
What happens when you no longer need the art world’s infrastructure?
The Death of the Artist
NFTs have several attributes like limited print runs, though NFT collections often are individually distinct. Because they have a digital signature, they can be tracked and verified in the open, without the need for an art dealer.
Jaspers Johns only created four to five new paintings a year at his peak. His production was knowable, quantifiable, and reliable. Too much new art poses a problem for collectors who could see the value of their investments decrease as supply increases. The art world places a premium on dead artists because, suddenly, the supply is finite.
Like most NFTs, CryptoPunks has a limited, finite number of items in its collection - in this case, 10,000 item. This fixed value constrains supply the way that any cryptocurrency constrains its supply: the total is known, public, verifiable, and trackable.
Johns is an artist who spent years devoting himself to his work. His paintings were judged, argued over, and sought by an establishment meant to winnow the work of many to the few that matter. There was a process, however flawed, to determine value.
Today, the value of NFTs are decided by the crowd. As with r/WallStBets, NFT prices are created through collective action instead of an external arbiter. The same pricing dynamics to HODL crypto currency or GameStop are playing out in NFTs and with similar bubbly effects.
Since NFTs can be tracked, however, a quirk has emerged: artists get royalties. The “founders” of the NFTs collections receive a 0-10% royalty on each sale.
Since sales are public, anyone can see them, like so:
OpenSea Transaction Volume, 9/7
The CryptoPunks project owners are (in theory) getting ~5% of 16,000 ETH, or 800 ETH a week, or $3m USD.
For doing nothing.
I call that passive AF income.
The royalty provides an incentive for creators to both stay engaged in the project, but to not do too many things to devalue the collection (like release CryptoPunks 2: Electric Bugaloo).
The result is that many people hyping their NFTs have a direct financial interest in doing so: they’re shills for their projects.
My intent in this newsletter is to better understand how these new financial incentives mix with the power of Internet PR to create unexpected outcomes.
NFTs are a gold rush right now. If history is any guide, those panning for gold went broke while the people selling the picks and shovels amassed the real wealth - like OpenSea.io which takes 2.5% per transaction.
Speaking of Real Wealth, Let’s Talk Class
I mentioned that the Whitney museum bought Three Flags.
The Whitney Museum was founded by Gertrude Vanderbilt Whitney, heiress to the railroad Vanderbilt fortune and husband to Harry Whitney, a prominent business man who attended Yale, became a champion polo player, and oversaw his family’s prize winning thoroughbreds. We would call this, “old money.”
None of the benefactors from the 1980 acquisition of Three Flags were polo-playing bluebloods like the Whitneys. It was money from oil, from Ladies Home Journal, and from inventing the modern shopping mall.
Gertrude Vanderbilt Whitney was dynastically wealthy and married a man equally as wealthy. She discovered her passion for sculpture while on holiday in France. The museum was her private collection; she opened it as a way to signal the status not just of her wealth, but her refinement and commitment to the arts. She distinguished herself from fellow heiress Ada Rockefeller who started the “fur-lined” Museum of Modern Art (MoMA) with her husband’s money as “a lunch-time distraction.” Gertrude was a serious collector of art.
Of course, if you know anything about class in America, Gertrude Vanderbilt Whitney probably would not have let the six benefactors who helped purchase Three Flags into her social club.
The Three Flags benefactors were new money and they represented the changing face of wealth and philanthropy.
We know status is not only about the money you possess. From the days of the Renaissance, patronage of the arts was a pathway for people who had achieved monetary success to prove themselves as worthy to the ruling elite and earn their way into the high class, social life otherwise denied to them.
A similar dynamic is happening with NFTs.
Despite the claims that the community is running the movement, status is animating a large portion of the NFT market bubble. I believe it’s human nature. Think about it:
If not to communicate status, why else would people change their social media profile pictures to be pixelated, cartoon animals?
This market is so new, so decentralized, and so without traditions, it is not clear what the informal rules are to progress, other than to buy a lot of assets or pay top dollar to ape into a new community.
Unless — and I have a theory —there is something else also at work here.
I’ll take you through it next week and it involves a scandal from one of the six Three Flags benefactors, A. Alfred Taubman, and the auction house selling Bored Apes this week.
NEXT TIME
Bored Apes at Sotheby’s: what happened
Inside a Sotheby's-Christie's Auction House Scandal
Meet the CryptoPunk trader who made $1.23m in 26 minutes
TWEET OF THE MOMENT
I have so much more to tell you,
Paul
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