NFTs and the art world: Two years of observations

As part of research into the Chambers High Net Worth 2023 Guide, we noticed a change in how NFTs and the Crypto industry were viewed. Learn more about the growth of these two areas.

Published on 1 August 2023
Written by Chris Nicholson
Chris Nicholson

The rise of NFTs

Few areas of the international art market have attracted more attention in the last few years than non-fungible tokens (NFTs). Like that other defining cultural phenomenon of our age, the podcast, it may seem like just about everyone has one.

Footballers, sporting events and major museums, as well as artists, have entered the market to varying degrees of success and, in some cases, with controversial consequences. Plans to sell NFTs of Picasso works led to a family quarrel, and Damien Hirst’s The Currency project attracted positive and negative comment in the media. The British Museum was criticised for the environmental impact of its activity in the market. 

Meanwhile, the UK government warned in a crypto asset regulatory consultation paper of the “risks associated with the NFT market including fraud, market manipulation and money laundering.” As it happened, in May 2023 Nathaniel Chastain was indeed convicted in the US of fraud and money laundering in relation to NFT transactions made while he worked for trading platform OpenSea. 

How it started

UK-based sources interviewed during our research for Chambers High Net Worth 2022 were clear that this new medium had been a disrupting influence, but what might happen next and what the use of NFTs means for the art market was not obvious. NFTs may not be a short-term trend, but where the value might lie over the longer-term was open to question. “It's an entirely new market which is embryonic and extremely speculative,” said one UK-based lawyer. “It's a legal minefield. Nobody knows if NFTs are here to stay or in a bubble. I am persuaded that they are here to stay.

People are moving away from hanging paintings on their walls and looking for other ways to collect and share their collections.” Another UK lawyer, also speaking back in 2022, stated: “NFTs have flipped the art world on its head. It’s changed dramatically. I think in their current form, as a high-value art work, NFTs are a bubble and I don't think that will last. NFTs will evolve and be used by artists as authenticity for ownership. There will be lots of litigation as a consequence if this bubble bursts.” 

A notable point made by commentators at the time was that clients were showing an appetite to get involved in the NFT market, particularly “young millionaires” and those enthusiastic about all things digital and crypto.

“There's been a lot of noise and excitement about NFTs. Clients want to get in on NFTs. It's hard to say if it is a phase or not,” said an interviewee, adding: “For people who are into the digital world, it's not a phase and they think this will become an alternative way of looking at art.” Another source stated: “I think that NFTs are here to stay but won't be the great thing that people are saying. They won't disappear but prices are in a bubble situation. They may become a preserve of very wealthy who want to diversify assets.”  

Interviewees in the US also suggested that NFTs might be less bona fide art and more an exclusive asset class into which high net worth individuals could plough funds. “NFTs might wind up creating good art but we haven't set the standard for that yet. It's just a cool new technology and a way for people to reduce the whole concept to pure money.”  

How it’s going

By the time research began for Chambers High Net Worth 2023, there was a different feeling around NFTs and the crypto industry more generally. The collapse of TerraUSD, various hacks and the ruin of FTX curbed the enthusiasm for crypto assets, including NFTs. “It’s not to say the tech has gone away, but the buzz and speculation has calmed down,” observed a London-based commentator.

Sources in the US perceived much the same decline in activity. “In the NFT space we have seen a cooling off of that market due to the crypto exchange collapsing,” said an interviewee. Another stated that “the NFT space was really popular but has, of course, slowed down; but it hasn't stopped.” A New York lawyer observed that “after the crypto market crashed, NFT work reduced.” 

Interest in NFTs may have weakened, as has the value of the assets themselves, but there are still those who are attracted by the thrill, or potential status, associated with being involved with something so novel.  “Fluctuating value and the crypto crash recently are causing less activity in the NFT space,” said an interviewee; “but people are still buying these as assets, in part driven by this idea of showing off and people wanting to be in these things from the beginning, even when it has been called a big Ponzi scheme!”  

Likewise, as lawyers at DLx Law recently observed, corporates remain committed to exploring how they might use NFTs, despite the recent crypto chaos. “The market for NFTs in the USA has cooled down in the past 12 months.

However, new NFT marketplaces, which allow NFTs to be created, stored and traded, continued to emerge. Key areas of interest include visual art, profile picture projects, collectibles, gaming and real-world assets. Moreover, major consumer brands have started exploring the use of NFTs.  For example, Starbucks started its NFT-based loyalty programme, and Adidas created its NFT collection.” 

For those who happen to make a poor investment, there may still be a use for an apparently worthless NFT – as a tax write-off.


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