Art draws family offices – and me – into the crypto world

After a decade of watching the cryptocurrency craze from the sidelines, even die-hard skeptics are swooping in and buying their first digital assets.

Is this a moment of vindication for the pioneers who promoted digital currencies as an asset class and heralded a technological and financial revolution? Or is it a sign that the hype cycle is reaching its final, frenzied moments before the fever breaks? I wish I knew - because I'm one of those skeptics. And now I own a non-fungible token, or NFT.

Citi Private Bank's annual survey of family offices conducted in September found that 23 percent now have crypto assets in their portfolio, with another 25 percent considering them. Of family office executives who attended a Citi forum related to the report, half said they expected to increase allocations to crypto next year. These are big numbers from often conservative managers of other people's money. Interest in digital assets, which initially spread from the over-thinkers (crypto-utopians excited by a complex solution to an unasked question) to the under-thinkers (herd followers who see quick money in a poorly understood trade), appears to have finally reached consensus thinkers.

I have a theory why. If there's one thing wealthy individuals and their advisors know, it's art – and this year the worlds of cryptocurrency and art have collided in the form of NFTs.

These NFTs are pieces of code that represent a work of art – or a clip from a basketball game, a tweet, or a photo from William Shatner. They can be purchased with cryptocurrency or conventional funds converted into crypto. Ownership is recorded on a digital ledger called a blockchain and transferred using that blockchain's cryptocurrency. It was easy to dismiss the benefits of blockchain technology. We already have ways to record and transfer ownership of digital assets (like money in a bank account) and an established legal infrastructure to ensure trust in this system that blockchain does not have. I still don't know that we need another way. But it is no longer justifiable to say that the use cases for blockchain are purely theoretical.

The reason I own an NFT is because an artist/developer friend minted it. Not only are they a way for him to make money from his work, they are also a unique opportunity. The code embedded in the token guarantees him a royalty upon resale, which no artist in the physical world can insist on. This is a use case.

Now I am the proud owner of a token on the Tezos blockchain that represents a piece of generative art, a gif of a hexagon unraveling and spinning and reforming in an infinite loop. You can download the gif if you want. But I'm the only one with the token.

I have no illusions about what I have here. I want to see what happens. Quite apart from whether an artist's work will be considered valuable in the future, what happens to an NFT will determine whether we agree that owning a unique token is different and better than copying the gif or viewing it on a website. The blockchain in which the token exists and the cryptocurrency in which it is valued are other variables. Blockchains can and will expire. Tezos has powerful backers, but it ranks well below Ethereum in popularity, which lays claim to being the blockchain of choice for higher-value NFTs, new financial services, gaming and many other developer experiments.

Whatever is created and traded next using blockchain technology may have greater value. I also have no idea how to value the currencies that allow each blockchain to function. The biggest investment opportunities may lie not in crypto assets, but in the companies that operate and use the technology. But I understand more about the possibilities now than before I immersed myself.

The point is, we're in the middle of a major experiment, and investors who may have once rejected it should now consider participating. I agree with the 25 percent in this Citi Family Office survey who said they are “still in research mode and seeking advice.” Whatever research and advice a family office spends, it can also gain valuable insight by diving into cryptocurrencies a little to see what happens.

This article is part ofFT net worth, a section with in-depth coverage of philanthropy, entrepreneurs, family offices, and alternative and impact investing