It would have been the greatest insult to rock the Upper East Side on any normal night, but instead the private equity heir Holly Peterson could only laugh. Why had a Sotheby’s official denied her access to a bidding paddle?
In February 2022, Ms. Peterson, an author and art collector, was surrounded by a new clientele: the crypto nouveau riche, who made a temporary home of the art market. Their purchases occurred through the trendy innovation of NFTs, or nonfungible tokens, which registered the ownership of often digital artworks on the blockchain. Collectors then used the NFTs as rapidly appreciating investments to build their crypto fortunes.
The young collectors arrived in sweatpants and greeted one another by their Twitter handles. It was supposed to be another banner evening for the booming art market, where NFTs had come to represent almost half of the industry’s $65 billion valuation in only a couple of years. The marquee lot included 104 CryptoPunks, a selection of algorithmically generated portraits of pixelated people that epitomized the rise of blockchain-based collectibles. They were estimated to sell for $20 million to $30 million, and, for the first time, Sotheby’s had devoted a major sale to just a single lot of NFTs. It was a rare honor — one that hadn’t even occurred when the auction houses had a $450 million Leonardo da Vinci on their hands.
The night received all the marketing gusto that a company serving billionaires and their baubles could muster. Sotheby’s had described the event, called “Punk It!”, as “on par with the most significant and high-profile sales for contemporary and modern art.”
But there were early signs that the NFT market was crashing — a spectacular implosion that would shine a spotlight on the government’s failure to regulate the art market.
Ms. Peterson was one of many traditional collectors who attended the auction to purchase their first NFT. Her father was Peter G. Peterson, the private equity billionaire who founded Blackstone and served as a Museum of Modern Art trustee. And she was a trustee at the Studio Museum in Harlem and on several acquisition committees for organizations like the Whitney Museum of American Art, the Brooklyn Museum and Centre Pompidou.
But none of that pedigree could prepare her for the bizarre scene at Sotheby’s.
Ms. Peterson looked around and saw these new collectors who reminded her of little toddlers with paddles, she recalled in an interview. “What’s going on?” she said. “I’m a Park Avenue woman with a fancy art collection and I couldn’t even get a paddle.”
Buyers could pay in cryptocurrencies or regular dollars. A panel that preceded the sale included Kenny Schachter, a rabble-rousing collector and columnist at Artnet News, who, from his brownstone on the Upper East Side, had situated himself as a communicator between the crypto and traditional art worlds. (He had his own NFT project to promote.) A bulldog for the digital art movement, he managed to corner Max Hollein, the Met Museum director, one evening in Central Park, recalling that the museum executive said that his curators were too scared of the new technology to partake.
Speaking to the V.I.P. attendees at the Sotheby’s auction, Mr. Schachter waxed poetic about the promises of NFTs, saying they had “changed the history of art without even intending to be an art piece in the first place.”
An audience that included celebrity influencers like the rapper Ja Rule and Snoop Dogg’s son Cordell Broadus clapped. Behind the scenes, employees were scrambling to salvage what was supposed to be a historic sale.
According to three people close to the sale, there had been signs of trouble from the beginning of the auction house’s relationship with the seller, who operated from behind the username 0x650d. There was virtually no public information about him; his digital identity was created to promote his CryptoPunk collection, which he purchased in 2021 for around $7 million, saying that he acquired the NFTs “because I choose wealth.”
But he also said that he would never sell them, which should have been Sotheby’s’ first warning sign.
Sotheby’s had been the collector’s second choice to sell his CryptoPunks after he initially failed to secure a deal at Christie’s. And unlike the traditional collectors who attended the auction ready to buy the newfangled art, there was a lack of enthusiasm from crypto collectors. These NFTs were known as “floor punks,” meaning that they lacked certain attributes that gave other CryptoPunks their higher market prices. The algorithm that generated the entire collection of 10,000 images had statistical rarities baked into the code; for example, there were only nine punks dressed as aliens and 24 who looked like…
Read More: The Night That Sotheby’s Was Crypto-Punked