On a frigid New York eveninglate this past February, NFT fans gathered at Sotheby’s. Young collectors in hypebeast fits mingled as they plucked champagne flutes from silver platters, while others listened attentively to rapper Ja Rule as Seedphrase, a noted NFT collector, deejayed. Everyone took the opportunity to network before the main event, that is, the auction house’s first-ever evening sale devoted toNFTs: a bundle of 104 CryptoPunks estimated to sell for $20 million to $30 million. Just a year earlier, Christie’shad sold a Beeple NFTfor $69 million, starting a frenzy that hadn’t yet let up. Now another historic sale was around the corner, and those at Sotheby’s that night were hoping to witness it. But the start time passed, and then, moments later, a rep announced to a collective gasp that the sale had been canceled: the seller had pulled out. It was like a Rolling Stones concert where Mick and Keith never got on stage.

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The sale was expected to inject some much-needed energy into a market that had become unexpectedly limp. Only months before, in November, Bitcoin had soared to almost $70,000, a new high for the currency that provided a proxy for the entire crypto market; but by late January, it had dipped to $35,000. Those in the NFT scene were hoping the dip was just another hiccup in a market that had rallied back from worse over the course of 2021’s golden year for crypto. So when the anonymous seller of the Punks, who on Twitter goes by the handle 0x650d, pulled out, people waved off the mounting anxiety. 0x650d himself framed his decision as a recommitment to his collection, tweeting, “nvm, decided to hodl”—crypto vernacular for “hold”—accompanied by some memes about rugging (i.e., pulling out the rug from under) Sotheby’s. (As it turned out, he needed his Punks asbacking for an $8.3 million loan, which apparently more than made up for the fees associated with the rug pull.) By the time of the afterparty—afterparties being de rigueur for pretty much anything in the crypto world—everyone figured another sale would come along soon to reinvigorate the market. The crypto market had been fluctuating for a year—what went down would come back up.

This time, however, was different. The next morning, an ominous chorus of news alerts rose up from iPhones: Russia had invaded Ukraine. The world was suddenly a different place, and the major cryptocurrencies didn’t bounce back; they kept sliding. By mid-June, when the art NFT community hit Art Basel in Switzerland, the global crypto market had lost more than 60 percent of its value, with Bitcoin dropping below $20,000 for the first time since late 2020. In mid-July, OpenSea, the largest NFT marketplace,laid off20 percent of its staff, its CEO affirming to anyone who hadn’t yet gotten the memo—or didn’t want to believe it—that we’d entered “crypto winter.”

None of this would have rattled anyone in the traditional art world if NFTs hadn’t, over the previous year, made a steady incursion into its hallowed halls. Galleries were launching NFT platforms and taking on NFT artists. Established artists were preparing for drops. Museums had projects on their calendars. But those in both the art world and NFT scene put on a brave face: if one’s involvement with NFTs was about art and not a cash grab, then the market should be of no concern. In fact, the entire NFT ecosystem thrummed with the same message: this is the moment to separate the speculators from the true believers.

“I’m glad that it crashed. It happens in every period that the market shrinks, and a handful of artists succeed and move forward. The serious artists stick around and become bigger and better,” New York dealer and collector Alberto Mugrabi, whose collection includes Warhol, Basquiat, and nowBeeple, toldARTnews.

But for many collectors, the question remains: Are the heavy hitters in the NFT space even artists? And are NFTs art?

Kevin McCoy’s “monetized graphic”Quantum(2014), a proto-NFT, was included in Sotheby’s Natively Digital sale in June 2021.Tristan Fewings/Getty Images for Sotheby'snone

Unbeknownst to many,the traditional art world is woven into the history of NFTs. The technology was coinvented by an artist—digital artist Kevin McCoy—as a way of monetizing digital artworks, and unveiled in 2014, at the New Museum in New York, as part of Rhizome’s Seven on Seven conference. With the invention, McCoy was trying to solve a problem he and other digital artists kept coming up against.

“We would organize happenings and make work for biennales, but the thing we weren’t doing was interacting with collectors or making sales,” McCoy toldARTnews. McCoy came to understand that digital art collecting needed a technical solution; and thus the NFT was born. Using blockchain, digital assets were attached to a smart contract—an interactive, unfalsifiable receipt continuously updated with important information, such as who sold the NFT to whom, and for how much. McCoy was surprised when digitally native artists, who didn’t usually have an art school background or interest in the traditional art market, jumped on NFTs.

“I didn’t come up in the reblog, repost, like, and share environment,” he said. “But I understand how people would see NFTs through this lens.”

In the intervening years, different categories of NFTs have emerged: collectibles like NBA Top Shot, PFP (profile pic) collections like CryptoPunks and Bored Ape Yacht Club, and a third, more nebulous category—the art NFT. Included in the art NFT category tend to be digital artists like Beeple, who create single-edition artworks, and generative art, which comes in large sets and is the result of an artist’s complex, creative algorithm. Thrown into this last category are the many attempts that professional artists like David Salle, Takashi Murakami, and others have made to enter this weird new world.

Michael Bouhanna, a specialist in contemporary art and cohead of digital art sales at Sotheby’s, has identified two kinds of collectors in the digital art world: those who are interested in the art, and those who are interested in the money. “I see many similarities between our typical [fine art] collectors and collectors who buy digital art, such as generative art,” Bouhanna toldARTnews. “They are passionate about the movement, the techniques, the background.” But when it comes to the collectors who buy the major PFP projects, like CryptoPunks, there’s a different focus. “It’s more speculative—they’re looking closely at the floor value. It’s a lot about the financial decision.”

Yet, the latter kind of collector has come to define what is and is not valuable on the NFT market. Even the success of established artists’ collections has so far depended less on their art world cred than their ability to appeal to native NFT collectors, mostly young men with tech and finance backgrounds who didn’t collect art until NFTs came around. But there are forces in the art world trying to change the balance of power.

Christie’s auctioneer Gemma Sudlow at the November 2021 evening sale, when Beeple’sHUMAN ONEcame up for auction; NFT collector Ryan Zurrer would end up purchasing it for $29 million.Courtesy Christie'snone

Auction houses were the firstart world institutions to ride the NFT wave—and, thus far, have been the best at it. When the price of cryptocurrencies skyrocketed 300 percent in 2020 and kept climbing, Christie’s began arranging NFT sales. And why not? They had already started selling skateboards and sneakers, and that same crowd seemed to be interested in this new category of collectible. In March 2021, Christie’s made history—and perhaps single-handedly launched the year of the NFT—when Beeple’s one-of-one NFTEverydays: The First 5,000 Dayssold for $69.3 million to Vignesh Sundaresan, also known as MetaKovan. The sale made Beeple the third-most-expensive living artist in the world. Many in the space credited that sale with giving them the confidence they needed to enter the risky crypto and NFT market. PFPs, too, started setting records. In June 2021, Sotheby’s sold the rareCryptoPunk 7523for $17 million. In November, Christie’s sold Beeple’sHUMAN ONENFT to Swiss collector and venture capitalist Ryan Zurrer for $29 million.

While the sales represent the pinnacle of the market, much of the excitement and value was built on Twitter, where artists and the technorati advertised projects, hyped each other up, and talked nonstop, digitally replicating the mania of an ’80s stock trading floor. In comparison, the art world’s reluctance to jump on the trend came off as proof of its antiquation—a typically snooty reaction from the gatekeepers. And while many in the art world did reject NFTs on an aesthetic basis, part of the issue with adoption was that the space moved too fast for people to catch up without the help of NFT natives.

Takashi Murakami, unlike most artists, was willing to lend his brand to NFT natives who knew how to leverage it. He had initially tried to launch an NFT collection in early 2021 calledMurakami.Flowers, but ended up backtracking. In the end, he partnered with RTFKT, a Web3 production company acquired by Nike this past December. The result was CloneX, an über-popular NFT collection that hit all the criteria necessary for a successful PFP project: the design of each “Clone” was sleek—a plastic-doll-on-Murakami-steroids. The timing was prime, debuting in November, when the market was hitting its peak. And most important, the collection offered what all NFT natives expect from their PFPs: utility. NFT creators quickly figured out that, in order to build value and encouragehodlers, they needed to offer perks. For starters, owning any PFP usually comes with access to an exclusive group chat with other owners, as well as exclusive parties and networking events. Like the wildly popular Bored Ape Yacht Club, CloneX offered owners the right to commercialize their NFTs, meaning they could make merch and content using the face of their avatar. In February,CloneX #4594sold for a whopping 450 ETH, or approximately $1.5 million at the time.

Weaving in reward tiers, benefits, events, and long-term business plans is not usually within an artist’s purview—which is why the collections of most established and even blue-chip artists have failed to rally the excitement of the NFT crowd. Even Murakami, who saw major success with CloneX, found himself in the cold when he relaunchedMurakami.Flowersthis past spring. Though he had gotten offers in the hundreds of thousands when he floatedMurakami.Flowersthe previous year, the relaunch saw the NFTs selling for a measly $2,000 a pop. Subtract utility—perks, a road map—and add a weak market, and the collection was dead in the water. On June 8, Murakami did something you just don’t expect a self-respecting artist to do: he apologized for how little his work was worth.

“Dear holders ofMurakami.Flowers,” he wrote on Twitter this past June, “I appreciate your continuing patronage, although the project’s floor price and transaction prices remain stagnant. I am very sorry.”

Yet, most in the art world, and even many in the NFT space, don’t want artworks’ value to be based on perks or parties. Andrew Wang, who became a major NFT thought leader after spending his life savings on a Cool Cat NFT in 2021, has been disturbed by the constant demand for utility. “I want people to ask themselves, when they’re building these projects: Do you have a responsibility to incorporate the artist and their story as a central part of your narrative? I think you do.” That being said, “I don’t think it’s accurate or fair to draw a line between PFPs and what people call art NFTs,” he added, though conceding that that line will remain until the wider NFT community decides what its priorities are.

CryptoPunk 2401, an NFT that was supposed to be included in Sotheby’s live evening auction in February 2022.Courtesy Sotheby’snone

The traditional art world andthe NFT scene may be merging sooner than later, as movers and shakers try to bring together art’s legitimacy and stewardship with the NFT space’s new collectors and benefits. In June, as crypto winter set in, Christie’s NFT specialist Noah Davis, who was behind the Beeple sale, joined Yuga Labs, the $4 billion company responsible for Bored Apes and CryptoPunks, which the company bought in March. Meanwhile, Fairchain, an NFT startup creating digital authenticity certificates and promising artists’ royalties on all future sales, spent this past spring and early summer on a splashy press tour, with features in theNew York TimesandAxiostouting major artist connects like Laurie Simmons, Eric Fischl, Marilyn Minter, and Duke Riley.

But perhaps chief among the new figures merging art and NFTs is Erick Calderon, the founder of NFT platform Art Blocks.

“What we need in the NFT space is not to live in this crypto echo chamber that the PFP space generally represents,” Erick Calderon, aka Snowfro, inventor of the generative art NFT the Chromie Squiggle, toldARTnews. An early collector of CryptoPunks, Calderon started Art Blocks in November 2020 and quickly found success. Speculation was rife in spring and summer 2021, with many of Art Blocks’ buyers immediately flipping pieces buyers hadn’t even seen—works being minted so fast the visuals hadn’t even loaded by the time they’d sold, according to Calderon. That didn’t sit well with Calderon, even though the platform was raking in money. At its peak in August 2021, Art Blocks saw $587 million in total sales conducted over the span of a single month. Still, Calderon quickly changed his pricing system to a Dutch auction model to discourage flipping. In fall 2021, Art Blocks, which is 50 percent curated and 50 percent open to all creators, launched the series Fidenza, by generative artist Tyler Hobbs, which took off like none had before. A particularly valuable one sold for $3.3 million.

From left,#989and#993, from Tyler Hobbs’s “Fidenza” series, launched on the platform Art Blocks in fall 2021.Courtesy Art Blocks (2)none

Other figures taming the space include Zurrer, financier Pablo Rodriguez-Fraile, and art dealer (and venture capitalist, with his firm Straightaway Ventures) Adam Lindemann.

For Rodriguez-Fraile, a noted arts patron, collectors are part of the support system that will help NFT artists navigate the art world—and there is something particularly fulfilling about that. “The leading artists from this movement will be significantly more important than the most nontraditional of the contemporary traditional artists today,” Rodriguez-Fraile toldARTnews. “I collect [traditional artists] as well, I love them. But there is no comparison in terms of the impact this movement is going to have on art history.”

In Rodriguez-Fraile’s opinion, 2021’s overheated NFT market was an obstacle to creating a more sustainable environment for NFT artists and any others entering the space.

“The balance of speculation versus true collecting was heavily weighted on speculation that created all these incentive systems in the space that really didn’t help,” he said. A correction in the market, he added, was “absolutely needed for maturity. We are seeing that emerging creatives and projects are being very thoughtful about the way they are bringing out new works and the body of work that they have in the past.”

“I’m not happy that people are losing money,” said Calderon of the bear market that started this past spring, “but last year, a significant amount of the value that was placed into an NFT was placed into the technology. I think people are beginning to understand, perhaps due to the crash, that the value of an NFT should be attributed to its contents.”

This past June, Calderon formalized a collaboration with mega-gallery Pace, which had already launched its own Web3 platform, Pace Verso. Calderon, Pace president and CEO Marc Glimcher, and the gallery have now worked together on releasing generative NFTs from Pace’s roster of artists, like John Gerrard and Leo Villareal. While those drops represent less than 1 percent of Art Blocks’ collections to date, the collaboration has served as a form of endorsement: “We are legitimizing a little bit of what we’re doing by getting to work with an establishment that has legitimized art and artists for years,” said Calderon.

Chromie Squiggles by Erick Calderon, aka Snowfro, on view at the gallery Venus Over Manhattan in February 2021.Courtesy Venus Over Manhattan, New Yorknone

Calderon thinks little of this would be possible without Lindemann, also a prodigious collector who founded the New York gallery Venus Over Manhattan. Lindemann saw an elegance in the Chromie Squiggle; he likes to compare it to a Roy Lichtenstein brushstroke. Lindemann, and also Glimcher, have served as informal advisers, talking Calderon through the twists and turns of the art world, explaining bits of history, the who’s who—everything an outsider would never know about the way the art market operates behind closed doors. One sage piece of advice: in 2021, frustrated by the flipping gold rush, Calderon stopped minting his Squiggles at 9,500. Lindemann convinced him to mint the final 500. “Until the edition has finished,” Lindemann told Calderon, “the market will never really find its level.”

Calderon gave Lindemann 300 Squiggles, and the dealer—inspired by a comprehensive chart of all the Squiggles created by Derek Schloss, a VC in the NFT space—collaborated with the company Infinite Objects to create an animated, 100-Squiggle cube. He exhibited the first 100 at his gallery this past February, and the second 100 at Design Miami Basel, which runs parallel to Art Basel’s Swiss fair, in June. The final 100 will go on view in Florida this coming December, during Art Basel Miami Beach. Ledger, maker of hardware crypto wallets, is sponsoring the “traveling show,” as Lindemann calls it. Along the way, seeing how well things were going, Calderon gave him more. “I have sold about 365 Squiggles,” Lindeman said. “That’s millions of dollars of Squiggles.”

Late this past June, just after the NFT.NYC festival closed its fourth edition, with Ethereum skating around $1,000 (a price not seen since January 2021), Christie’s put on the last sale Noah Davis organized before leaving for Yuga Labs, hosted by Zurrer to benefit the Multidisciplinary Association for Psychedelic Studies. Despite the bad timing, most of the lots met or exceeded estimates. Sam Spratt’sVII. Wormfood(2022), which had an estimate of $80,000–$120,000, went for $252,000, and an artist who goes by Elfjtrul of Forgotten Runes soldQuantum Ouroboros(2022) for $139,000, well above its $25,000–$35,000 estimate.

If the sale did not exactly launch a new era, it at least pointed in a new direction. Zurrer has seen many NFT artists, among them Beeple, Refik Anadol, Mad Dog Jones, and IX Shells, find success with both the NFT native collector base and traditional collectors by changing their strategy. “They’ve become very thoughtful about how much supply they’re putting out into the world, and in what forms they’re putting [it] up,” Zurrer toldARTnewsa month after the sale. “I think the traditional art world has taken note of that.”

Zurrer believes that institutional welcome will become more common as artists learn their way around the art world—something most NFT artists didn’t even want to do. At the genesis of the NFT movement, said Zurrer, “there was a lot of rejection of what people saw as power structures in the traditional art world.” Now, artists and collectors in the space are learning that “this traditional art world is actually filled with really brilliant people who are very thoughtful and considerate. And some of the rules of thumb apply for a reason … so you get a course correction.”

Kyt Janae, head of community relations at the NFT platform Foundation, has been doing similar work, but from the collector side. Janae is working to guide native NFT collectors to consider art history, the artist’s context, and conceptual frameworks when collecting. “Never before has there been an artistic movement where the collectors were learning about art as they were purchasing,” Janae said.

Despite the increasing willingness of traditional collectors to open their arms, and wallets, to NFT artists, the art world gatekeepers are still not in agreement, even among themselves. Veteran gallerist Marianne Boesky started representing crypto art pioneerSarah Meyohasin June, but took on only her analog works. At Art Basel, Boesky soldInterference #8(2022), one of the hologram-based sculptural works in Meyohas’s “Interferences” series, for $295,000 to Howard Rachofsky, who has ranked on theARTnewsTop 200 Collectors list since 2002. Rachofsky is not an NFT collector; he said he liked the way the piece plays with perception and is “a classic way of putting a 21st-century look on something that is as old as a de Chirico.” For Boesky, art and NFTs are still two different worlds. “Any collector I work with who has $60 million is not spending it on Beeple,” she said. “They are spending it on Lichtenstein and de Kooning. The NFT industry and the art world are parallel universes.” Still, Boesky is dabbling: she has set up a separate company with partners deep in the NFT space.

In April 2021, blue-chip gallery Pace partnered with several NFT platforms to sellCHAOS, Urs Fischer’s series of 501 digital sculptures.Courtesy Pacenone

Meanwhile, Mugrabi, the New York dealer, went so far as to place Beeple in the same lineage as Warhol. “His platform is social media, his canvas is the screen. It’s exciting,” Mugrabi said. He also owns NFT pieces by Urs Fischer and Tom Sachs.

It doesn’t hurt that a couple major NFT artists have gotten the endorsement of major museums. Beeple’sHUMAN ONEwent on view at the Castello di Rivoli in Turin, and in the next year will make a stop at M+ in Hong Kong. New York’s Museum of Modern Art, the premier arbiter of contemporary art value, recently did a project with digital pioneer Anadol. And this past summer, a version of Anadol’s “Machine Hallucinations,” which sold as a set of eight NFTs at Sotheby’s Hong Kong last year for just over $5 million (making it, at the time, the priciest NFT collection sold by a single artist in Asia), went on view at the Centre Pompidou-Metz in France.

All this, and yet none of the NFT artists who emerged successfully from 2021 with new riches and expanded opportunities has picked up gallery representation. Skepticism remains, on both sides. Michah Dowbak, aka Mad Dog Jones, whom Zurrer credited as an artist who got his work profitably in the hands of good collectors, is more than happy being independent, and thinks most of his peers in the NFT scene feel the same. “We come from a different stream of artists; we didn’t go to art school. For those guys, the end goal is finding good gallery representation,” said Dowbak. “And that works for them. But I’m trying to do more than draw and paint.” Dowbak went on to mention collaborations with brands and less art-focused work.

If crypto winter is the time to build bridges between the art and NFT worlds, well, folks have their work cut out for them.

A version of this article appears in the 2022 edition ofARTnews’s Top 200 Collectors issue, under the title “NFTs: To Have and To Hodl.”