Hirst's The Currency, an update

One year ago, Damien Hirst released his first NFT project, The Currency, to the world. This note is an analysis of the project as it stands today.

You don't have to say it today (tender 1821), image courtesy of Sotheby's

The Currency consists of 10,000 NFTs that are redeemable for a corresponding 'original' work by Hirst, being a 21x30cm enamel painting on paper (a type of 'spot' painting). The NFTs were available by way of lottery from the publisher Heni in July 2021 – each costing $2,000 USD – over 67,000 applications were made for the NFTs (a 7x over-subscription).

The window to trade in the NFT for the physical work opened in October 2021 and it closes at the end of July 2022, and, at the time of writing this, only 1,426 of the 10,000 NFTs had been redeemed for the physical artworks.

The NFT market

Had you been lucky in the lottery and purchased an NFT, you'd be pretty happy right now. The floor price of the NFT on the platform OpenSea is currently 8Ξ (8 etherium), which, at the time of writing, is worth about $9,000 USD. The price has fluctuated recently with the swings in crypto, reaching a low of 3Ξ in early May (or about $6,000 USD at that time). However, it has generally hovered in the $8,000-10,000 USD mark over the last 6 months.

Historical price of The Currency in etherium (Ξ)

As crypto has lost value, the floor price has increased (and vice versa), leveling out the price of the NFT. This has created numerous buying opportunities if you saw value in the project, as the floor price of the NFT has generally lagged the change in price of Ξ. It also demonstrates that there seems to be a consensus view in the crypto marketplace as to the value of an NFT from The Currency.

Only 2,200 of the 10,000 NFTs are currently listed on OpenSea. This is because the NFTs were initially minted on a different blockchain network (Palm) and have to be 'transferred' via a bridge to etherium, which isn't straightforward and requires the payment of fees (called 'gas' – which, like real gas, can be relatively expensive). Only 134 are listed on Heni's marketplace, and so the floor price on OpenSea is a more reliable proxy for NFT price. Today, this floor price values The Currency at $90 million USD. I mean, this doesn't seem outrageous for what is effectively a 630m² Damien Hirst spot painting (merging all of the 10,000 unique paper works together would give one ginormous work that would be 25m long by 25m wide).

Fine art auctions

There have been a number of physical works come to auction since the window to redeem the works opened. Lots from The Currency tend to be auctioned with an estimate range of around £10,000 to 15,000 ($12,000-18,000 USD), which is fairly consistent across the auction houses. The different works do have 'rarity' attributes that are published by Heni (some have more spots, more drips, etc) and there is some subjectivity in the names of the works (as they were chosen by AI, some are clearly more interesting than others). But I think most people would agree that all the works from The Currency are, effectively, identical.

Taking a look at Sotheby's auctions results, there has been a general downward trend from an eye-watering €47,880 in December 2021 to £12,600 most recently in May, with numerous lots being passed in and not selling during this time (even at a low estimate of €10,000). At Phillips, they have been selling between £10,080 and £18,900. Even eBay is seeing its share of works from The Currency, although eBay has introduced price caps on casual sellers (well below the current value of a lot from The Currency), so not everyone can try to sell their works on eBay even if they wanted to.

One question jumps out. If you can buy an NFT for $8,000-$10,000 USD, which can be 'instantly' (albeit with some paperwork) redeemed for the physical work, why are they selling for 40%+ more than this at auction? First, auction sales results include buyer's premium, which can be up to 15% depending on the auction (so all hammer prices are actually overstated by that amount), and sellers also have to pay commission to the auction house (yep, they collect at both ends). Second, auction houses service a different clientele to those who might be comfortable buying an NFT and redeeming it for the physical work. A purchaser at auction may not necessarily be aware about the NFT prices, or necessarily care, especially if they are externally advised.

The future

The art world has not seen a project of this scale. (Although the potential influx of 10,000 unique works from Damien Hirst is only 1/10th of Picasso's suspected lifetime output of prints). Even if all of the major and minor auction houses in the world consigned a work from The Currency at every one of their contemporary art auctions going forward, it would take 200+ years to auction off all of the works.

This is why Hirst has incentivised the holding of the NFT. In November 2021, Hirst 'airdropped' (sent) the holders of The Currency NFTs another NFT from a series called Great Expectations. This NFT series was loosely based on the design he developed for the cover of Drake's album in 2021, Certified Lover Boy (a grid of 12 pregnant woman emojis). The NFTs from this Great Expectations series currently have a floor price of 0.5Ξ ($600 USD).

Hirst also sent the NFT holders free merchandise in December 2021, including spot umbrellas, shark key rings, phone cases, baseball hats, and beanies. And, in June 2022, holders of the NFTs were invited to a studio visit in the UK to meet Hirst and make their own spin paintings, which he then signed. Spin paintings hand signed by Hirst previously sold for up to $15,000-$25,000 at auction. Rumours are that Hirst's next print release will be exclusively available to holders of The Currency NFTs.

To put it in short, had you won the auction in July 2021, you would be sitting on a potential upside of $30,000+ (or 15x your initial outlay) and it seems that Hirst, always the troublemaker, will reward people who decide not to redeem the NFT for the physical work. I wouldn't be surprised if he releases a perk to the NFT holders just after the expiration of the trading window to reward them for 'hodling'.

I conservatively predict that the decision to hold/redeem will be split 50-50. A lot of people who have been buying up the NFTs have done so on the basis of hedging, with the idea of keeping one NFT and redeeming their other. Also, I imagine the 22% of holders who bridged their NFT to etherium will keep it as an NFT, given the prevailing mentality of this crypto community.

There is also an understanding that, over time, the perks associated with the NFT may outlast the diminishing value of the physical work, which, while it will never decrease to 0 (Hirst's market is amazingly resilient, despite its large volume), will definitely converge to a lower value than we are currently seeing. There surely has to be difficulty in trying to sell the physical work in the future, as the reputable auction houses will be at capacity (and probably are already), eBay has seller limits that would exclude listing The Currency work to new or nascent users, and private channels would be unreliable with the oversupply.

To conclude, should you buy, and, if you do, should you redeem the physical work? Who knows. If there is another flash crash in the NFT price, it might be worth looking at scooping one up and holding it to be part of the Hirst club. Regardless, it's a fascinating experiment that challenges the very fundamentals of supply/demand and the emergence of a new art economy. I'll follow this up with another article in a few months to look at what has happened since the redemption window closed. George

20 June 2022