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The New Masters: How auction houses are chasing crypto millions

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November 8, 2021

By Elizabeth Howcroft

LONDON (Reuters) – Little could James Christie have known some 240 years ago, as he sold masterpieces by Rembrandt and Rubens to Catherine the Great, that his auction house would one day offer virtual apes to a crypto company for over $1 million.

Nor would Sotheby’s founder Samuel Baker, auctioning hundreds of rare books for about $1,000 in 1744, have envisioned selling a copy of the original source code for the web, as a non-fungible token (NFT), for north of $5 million.

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Times change.

“Everybody wants to sell an NFT,” said Cassandra Hatton, Sotheby’s global head of science and popular culture. “My inbox is just absolutely clogged.”

Sotheby’s has sold $65 million of NFTs in 2021, while arch-rival Christie’s has sold more than $100 million of the new type of crypto asset, which uses blockchain to record who owns digital items such as images and videos, even though they can be freely viewed, copied and shared like any other online file.

Those sales figures for the world’s leading auction houses account for about 5.5% of their contemporary art sales, according to Art Market Research data. It’s a leap, given NFTs have only taken off in the last year.

Many buyers are from a new category of wealthy clientele: people who made their fortunes through cryptocurrencies, art specialists involved in NFT sales at major auction houses told Reuters. In a Sotheby’s online NFT sale in June which brought in $17.1 million, nearly 70% of the buyers were newcomers.

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Indeed the three NFTs of crude cartoon apes which were snapped up for 982,500 pounds ($1.3 million) at Christie’s in London last month were bought by Kosta Kantchev, who runs a cryptocurrency lending platform called Nexo.

The cartoons, from a set called Bored Ape Yacht Club, were Christie’s first NFT sale in Europe and were offered up at its biggest in-person auction since the start of the pandemic.

In a sign of the changing times, Kantchev was rubbing shoulders with art collectors bidding on works by David Hockney, Jean-Michel Basquiat and Bridget Riley.

Antoni Trenchev, who runs Nexo with Kantchev, said their purchase of the apes was less for their aesthetic value than a bet that the market for NFTs would continue to grow, fuelled by the rise of the “metaverse” of online worlds where virtually anything can be bought or sold, from avatars and clothes to land and buildings.

Indeed digital art is just one part of the explosive sales growth for NFTs, which topped $10 billion in the third quarter of this year alone, up eightfold from the previous three months.

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“We’re working on exciting new financial tools for NFTs that will stimulate adoption of the asset class,” Trenchev said, referring to the possibility of Nexo selling financial products based on NFTs as the underlying asset.

They’re not the only ones betting on the metaverse. Facebook – a company worth almost $1 trillion that has rebranded as Meta on the calculation that increasingly-immersive virtual environments and experiences are the future.

TRADITION UPENDED

Whether Mark Zuckerberg is prescient or not remains to be seen. The NFTs boom is nonetheless dragging auction houses hundreds of years older than Silicon Valley into a new world.

To hunt their new breed of buyers, big auction houses are taking to social media.

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Noah Davis, head of digital art sales at Christie’s, said his potential NFT buyers were happy for him to ditch the formalities normally involved in attracting art collectors, adding that he recently negotiated a contract over the messaging platform Discord and registered buyers for an auction via Twitter.

“That’s where it happens, that’s where client services are done,” he told Reuters, adding that it was remarkable how much quicker this process compared with traditional methods.

In another big digital shift, auction houses are often sourcing NFTs directly from the crypto artists – in many cases, little-known, pseudonymous figures.

In the physical art market, by contrast, artists’ primary sales are normally run by galleries, while auction houses traditionally focus on secondary market sales.

“For me the biggest surprise is that the artists want to work with the auction houses directly. We’ve always been in the secondary market,” said Rebekah Bowling, senior specialist of 20th century and contemporary art at Phillips, another global auction house.

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“The traditional structure has been upended,” said Bowling, who uses Twitter and Clubhouse to reach artists.

WHY CRYPTO’S RISKY

Yet these newcomers to an untamed metaverse also confront a new sphere of risk, particularly around cryptocurrencies, which crypto-rich buyers often prefer to use to pay for NFTs.

Auction houses can face legal risks in terms of know your customer (KYC) and anti-money-laundering (AML) requirements, said Max Dilendorf, a cryptocurrency lawyer and partner at Dilendorf Law Firm in New York.

“These products could be securities and when a gallery is picking up an artist or product they better do their own due diligence,” he said, adding that money laundering via cryptocurrencies was a “known fact.”

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Sotheby’s did not comment on its KYC or AML procedures. Christie’s said its KYC and AML standards in NFT sales were the same as those for physical artworks, though declined to go into detail. Phillips said it checked that buyers had sufficient funds in their crypto wallet.

Another issue is that while NFTs are marketed as a way of indisputably recording ownership of a digital asset, problems can still arise.

A Sotheby’s NFT sale in June – in which a buyer spent $1.5 million on what was marketed as the first-ever NFT, a simple geometric animation called “Quantum” by Kevin McCoy – was complicated by a claimant emerging saying they owned an earlier, original version of the same NFT, the buyer and claimant told Reuters. They said the dispute over which could truly could be called the first NFT meant the transaction was delayed, and blockchain records show the purchase was not transferred until several weeks after the sale.

Separately, after a Sotheby’s auction of an NFT representing the World Wide Web source code, which fetched $5.4 million, observers noticed errors in the included video version of the code.

Sotheby’s did not respond to a request for comment on either sale.

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Pablo Rodriguez-Fraile, a Miami-based collector who buys both NFT and physical art, said the steps that auction houses had taken into the digital sphere had been very positive.

“I think they’re normalising the ecosystem, and I think that very soon they’ll find the right path,” he said.

“But the curation challenge and the technology challenge are major ones,” he added, referring to auction houses acting as galleries by handling primary sales.

On Tuesday, Christie’s will sell a new NFT by Beeple, the artist whose NFT fetched $69 million at Christie’s in March. That was the first time a major auction house had sold a piece of art that does not physically exist.

However this time round his work will be sold in physical, as well as NFT, form. At Christie’s at least, the real world still holds some appeal.

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(Reporting by Elizabeth Howcroft; Editing by Pravin Char)

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Buying the Omicron dip

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November 29, 2021

A look at the day ahead from Danilo Masoni.

Sell first, get answers later. With stocks near lifetime peaks, the Black Friday reaction to the new fast-spreading virus strain Omicron was hardly surprising.

But a weekend later, investors look heavily engaged in buying the dip, as markets take a more balanced view of risks attached to what the WHO called a “variant of concern”.

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After their ninth biggest drop ever on Friday, gains in crude prices topped 5% earlier in Asia and stock futures point to a solid bounce across Europe and America.

A South African doctor said patients with Omicron have “very mild” symptoms and investment houses don’t look to have budged that much. Credit Suisse, for example, made no portfolio changes, staying slight overweight on equities.

Perhaps more telling is that retail traders poured north of $2 billion into U.S. stocks on Friday, setting the second biggest daily inflow on record, per Vanda Research data.

Of course there are uncertainties and that will likely make for volatile days heading into the Christmas shopping season.

Understanding the level of severity of the variant “will take days to several weeks”, said WHO. And vaccine maker BioNTech needs up to two weeks to figure out whether the shot it makes with Pfizer needs to be reworked.

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So while Omicron has spread from Australia to the Netherlands and governments ban travel and mull lockdowns, markets may also gamble on central bankers turning more patient in their path towards rates normalisation.

Lots of speakers from the Federal Reserve and the European Central Bank are lined up for today. On Sunday, speaking about risks to the recovery, ECB’s Lagarde said: “We now know our enemy and what measures to take.”

Key developments that should provide more direction to markets on Monday:

* ECB speakers: Governor Lagarde, ECB board members AndreaEnria, Isabel Schnabel, Pentti Hakkarainen; ECB Vice PresidentLuis de Guindos * Euro zone consumer sentiment/inflation expectations * German preliminary CPI/HICP * Fed speakers: Chairman Jerome Powell, New York PresidentJohn Williams, Governor Bowman * Emerging markets: Kenya central bank meets; Turkey tradebalance and bank NPL ratios (This story refiles to fix chart)

(Reporting by Danilo Masoni; Editing by Saikat Chatterjee)

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UK regulator set to block Meta’s Giphy deal – FT

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November 29, 2021

(Reuters) -The UK competition regulator is expected to block Meta Platforms’ acquisition of online GIF platform Giphy in the coming days, the Financial Times reported https://www.ft.com/content/662c8e3f-4909-4bec-9131-c0237bb4897d on Monday.

The Competition and Markets Authority is set to reverse the deal in what would be the first time the watchdog has reversed a Big Tech acquisition, the report said, citing individuals close to the matter.

Meta Platforms and the regulator did not respond to requests for comment from Reuters sent outside working hours.

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The regulator had in October fined the U.S. social media giant Facebook, now Meta, 50.5 million pound ($67.35 million) for breaching an order that was imposed during an investigation into its purchase of the GIF platform, Giphy.

Facebook bought Giphy, a website for making and sharing animated images, or GIFs, in May last year to integrate it with its photo-sharing app, Instagram. The deal was then pegged at $400 million by Axios.

($1 = 0.7499 pounds)

(Reporting by Sneha Bhowmik in Bengaluru; Editing by Uttaresh.V)

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Evergrande shares fall after chairman cuts stake; Fantasia suspends trading

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November 29, 2021

HONG KONG (Reuters) – Shares in China Evergrande Group fell as much as 4.8% on Monday morning, after its chairman trimmed his stake in the cash-strapped property developer to raise about $344 million.

The group’s electric vehicle unit, China Evergrande New Energy Vehicle Group Ltd, also dropped more than 5% after it said the company was still exploring ways to pump capital into the unit with different investors.

Evergrande has been scrambling to raise capital as it grapples with more than $300 billion in liabilities and Chinese authorities have told its chairman, Hui Ka Yan, to use some of his personal wealth to help pay bondholders, sources have said.

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Evergrande failed to pay coupons totalling $82.5 million due on Nov. 6 and investors are on tenterhooks to see if it can meet its obligations before a 30-day grace period ends on Dec 6.

The developer disclosed late on Friday that Hui had sold 1.2 billion shares in the company at an average price of HK$2.23 each, lowering his stake in the Shenzhen-based real estate developer to 67.9% from 77%.

Once China’s top-selling developer, Evergrand’e troubles have hit the broader Chinese property sector with a string of debt defaults and credit rating downgrades of its peers in the last couple of months.

Fantasia Holdings suspended trading in company shares on Monday pending release of information. On Thursday, the developer said a winding-up petition was filed against a unit related to an outstanding loan.

(Reporting by Sumeet Chatterjee; Editing by Stephen Coates)

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