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It's not every day the remaining assets of a defunct hedge fund come to auction at Sotheby's. It's also pretty uncommon for the assets of the fund itself, not the management company, to be works of art. Yet, if we told you those works of art were digital works - NFTs - suddenly the story wouldn't sound so farfetched at all.
In fact, it would sound about as 2023 as it gets. NFTs from the collection of bankrupt crypto hedge fund auctioned off at Sotheby's Metaverse. Print those headlines out and put them in a time capsule. Whoever unearths it will know exactly when the contents came from.
Here's where you might find yourself surprised, though: the auction results were incredibly strong. Every single work sold, and on average, they hammered at a price 3.6 times higher than their low estimate.
Okay, let's take a step back.
Three Arrows Capital was a prominent cryptocurrency hedge fund that claimed a net asset value of $18 billion at its peak (later debunked - that figure apparently included uncollateralized borrowings). Ultimately, it went bust due to the collapses of cryptocurrencies Luna and TerraUSD in May of 2022, filing for bankruptcy in June with $3.5 billion in creditor claims.
As the liquidator seeks to recover what it can, the fund's collection of NFT art was consigned to Sotheby's for a two part sale. These works come from well-regarded artists like Tyler Hobbs (Fidenza) and Dmitri Cherniak, and from popular NFT projects like CryptoPunks and Chromie Squiggles. So, while their route to the auction block was fraught with crypto peril, they remain key pieces of the NFT zeitgeist.
That standing was proven last week, as sales for 37 works totaled $10.9 million. The total estimates heading into the event ranged from $3.2 million at the low end to $4.8 million at the high end. The event was highlighted by the $6.2 million sale of Cherniak's The Goose, achieved against an estimate of $2-3 million. The Goose is part of Cherniak's Ringers series of 1000 generative works, and it's the only work in that series to have taken the shape of a recognizable subject. That outcome of sheer chance informs its value.
And yet, the blue duck that Billy Madison drew in Ms. Lippy's class is worth so much less. There is no justice...
While the results were impressive on paper, it's unclear if they represent any meaningful victory for the beaten-down NFT space. Performance versus estimates - just as in physical art - is limited as a metric by the accuracy of the estimates themselves. It's worth noting that estimates for a Chromie Squiggle and for three Cryptopunks were all well below the floor price for each project.
For example, Chromie Squiggle #9071 had a high estimate of $12,000, but the floor price of Squiggles during last week's sale ranged from $16-18k, having not tested the $12,000 level since the fall. The high estimate for each of the CryptoPunks was $60,000, but the floor price today is comfortably above $80,000, having not seen the low $60,000s since this time last year. Estimates are typically based on the hammer price, not the sale price with fees though, so it's possible they were made conservative to ensure that layering fees onto the estimates wouldn't begin to stretch sale prices past the floor.
The audience also seems limited to the remaining crypto diehards and believers, though given the youth of this audience, it remains highly valuable to the house. The audience in attendance was said to be among the youngest in memory, with many first-time bidders. It would be more bullish for the space in the short-to-intermediate term if there was a multitude of seasoned bidders crossing over from the traditional, physical art bidding scene.
The winner of The Goose was prominent NFT collector "6529" (referring to CryptoPunk #6529), who had designs on acquiring the work since the summer of 2021, but was outbid at that time by Three Arrows. It wouldn't have been a particularly bold wager to guess that a winning bidder in this event would have a hoodied and spectacled CryptoPunk as their Twitter avatar. According to 6529, the likely underbidder last week was also a significant existing collector of NFTs. In an ideal world, 6529 plans for The Goose to live in a collectively-owned on-chain museum, though they admit the structure of such an entity has not yet been fleshed out.
For the moment, the results of the Grails Part II sale seem a cry of defiance from the crypto and NFT world's remaining, dutiful evangelists. And given the enthusiasm of those cries, voiced through money's striking ability to talk, that base remains vastly more engaged than some would have guessed. The NFT skeptic, though, would voice that it'll take vastly more than one event to grow that audience, convert doubters, and begin turning the gears towards significant future appreciation.
Until that happens, these works and their collectors remain isolated to their own quirky corner of the auction and art worlds, free to congregate and confer amongst themselves on the artistic merit of geese and squiggles.
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