The Night That Sotheby’s Was Crypto-Punked

The auction that was supposed to be an art world coming-out party for NFTs instead exposed the instability at the heart of the crypto world.

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.