While the pace of NFT sales on the OpenSea platform shows signs of cooling off after record sales in August and an insider trading scandal in September, OpenSea is on track to record over $10 billion in sales for 2021. To put this into perspective, Christie’s, the renowned British auction house, is likely to have an outstanding year with over $6 billion in sales. So has OpenSea blown other art auction houses, platforms, and marketplaces out of the water? In short, “yes,” though the answer is as nuanced as the definition of art itself and requires an examination of what the data tells us regarding the market structure of OpenSea versus the traditional art markets.
OpenSea Daily Historic and Forecast Sales
The following chart shows OpenSea’s daily historic and forecast US Dollar sales for 2021:
The clear outliers in historic sales are the $766M in transactions done over 3 days between August 28th and 30th, 2021, with strong shoulders averaging $150M in daily sales in the week leading up to the peak and the week following. A subsequent loss of momentum as of the end of September 2021 is evident with previous 7-day sales averaging $68.9 million compared to the previous 30-day sales average of $113.6 million. Nevertheless, there is little sign of collapse – rather, the 7 – day average and 14-day average ($69.0 million) have converged, confirming stabilization in the market and that the brief August spike was an anomaly. Indeed, the sales on OpenSea appear to be reverting to an underlying trend, which is one of impressive growth across the year, albeit not at the breakneck pace of August.
Forecasting sales for the year under a base case scenario assumes linear growth equating to approx. $60M of daily sales in the early part of October growing to approx. $80M of daily sales by the end of the year. If OpenSea achieves this level of underlying growth (or adding $216,000 per day in additional revenue), OpenSea will double its sales for the year in Q4 alone and achieve over $12 billion in annual sales.
A bear scenario projects sales declining from the current level to the annual average daily sales volume over the last 3 quarters of $22.5 million by the end of the year. Even under this bear case scenario, OpenSea should be able to achieve over $3.5 billion in sales over Q4 and end the year with a whopping $10 billion in sales.
OpenSea vs. Traditional Art Markets
So how do the projected annual sales of $10 to $12 billion for OpenSea compare to annual sales within traditional art markets? The chart below presents the last three years of traditional art market sales as reported by the Art Basel and UBS Global Art Market Report:
Art market sales declined 22.2% between 2019 and 2020, from $63.8 billion to $50 billion, with dealer sales declining 20.0% from $29.3 billion to $24.4 billion, and auction sales declining 30.2% from $25.2 billion to $17.6 billion. It is no surprise that during COVID-19 times, the one sales bright spot in sales comes from online channels that more than doubled from $6 billion to $12.4 billion.
Additionally, the success of NFTs and platforms such as OpenSea have led to incumbents such as Christie’s focusing on NFTs as an area to achieve customer base diversification to drive future growth. Bonnie Brennan President of Christie’s Americas confirmed that Christie’s had done over $93 million in NFTs sales since the Beeple NFT sold for $69 million in March, a pace which should lead to Christie’s achieving around $230 million in sales for the year. Ms. Brennan also indicated that Christie’s online sales for the first half of 2021 were $0.22 billion, a 178% increase over the first half of 2020, and a pace which should lead to online sales of over $0.6 billion for the year. NFT auctions have also brought in 400 new buyers to Chrisitie’s, with an average age of 38, which is 13 years younger than their traditional clients.
NFT vs Traditional Art Markets – Market Structure Observations:
- In the traditional art market, the average transaction size is $1,578; on OpenSea it is $1,217
- There were 31.4 million transactions in traditional art markets in 2020 (the most recent available reporting by Art Basel suggests 2021 has been a better year on average with slightly more than half of dealers reporting increased sales); OpenSea has 3.6 million transactions in 2021 (to-date) and is forecast to achieve around 8 million transactions for 2021
- The top 10 art sales in 2020, averaged $47.2 million per sale and totalled $455.6 million; The top 10 NFT art sales in 2020, averaged $13.0 million and totalled $129.91 million
- Both markets show highly skewed distributions in US-dollar-value per transactions, with the top 10 traditional art sales averaging a price 28,500 times the overall average and with the top 10 NFT sales averaging a price 10,500 times the overall average
- The large number of sellers (over 1.5 million sellers to date, when unique sellers are tracked daily) and skewed distribution of sale prices are indicative of a highly fragmented market
- The four-times lower average sales price for NFTs on OpenSea compared to traditional art, reflects the red chip vs blue chip art divide where blue-chip art on traditional platforms is the art of long dead artists and red chip art (e.g. on OpenSea) is the work of living artists. In the traditional art world, the works of contemporary and living artists typically are sold for orders of magnitude lower than long dead artists whose works are prized (because no more can be produced)
- For OpenSea, we see that daily sellers outnumber buyers by 35% on average; over the last 30 days, on average there were 24,720 unique daily sellers to 17,988 unique daily buyers
- While it is challenging to estimate the number of art buyers in the traditional art market, a study conducted by Larry’s List, a leading art collector database, suggests that there are around 10,000 active art collectors. Additionally, according to Christie’s, about 150 collectors are in the market for art worth $20 million or more
- The fact that the number of daily unique buyers on OpenSea is almost double the number of (serious) traditional art collectors suggests that: 1) OpenSea is attracting a larger and different buyer base than traditional art collectors 2) OpenSea is likely attracting large numbers of speculators
- On OpenSea, over the last 30 days, there has been an 18% overlap in the number of buyers and sellers; 6,531 users per day on average over the last 30 days were both a buyer and seller on the same day. Again, this is indicative of a speculative market or certainly of a different dynamic in the market than the traditional art market where a quarter of the sellers of art are also buyers (on the same day).
- OpenSea users spend on average 3.8% of the transaction value in gas and sellers pay a 2.5% fee on a successful sale. In the traditional art world, a seller pays 10 percent commission and the buyer 25 percent, though seller commissions are typically waived for works priced $1 million and up.
Conclusion: Art and Veblen Goods / Luxury Goods
The use of NFTs as profile pictures and for status signalling suggests that certain NFT collections (e.g. CryptoPunks, BAYC) should be considered luxury goods or Veblen goods – goods where the demand increases with higher price. For context, according to the 19th edition of the Bain & Company Luxury Study, the online luxury goods sales achieved $57 billion in sales in 2020 which is approx. 5 times on the online art market and the volume of OpenSea sales and the total sales of luxury goods titan LVMH for 2020 was $51 billion.
OpenSea may not yet have the name recognition as Christie’s (founded in 1766) or LVMH (Louis Vuitton founded in 1854) but achieving $10 billion in sales in its 4th year of operation is remarkable and clearly NFTs have rocked the art world in 2021 and increasingly is making inroads into luxury goods.