Investors turn ‘completely worthless’ NFTs into tax write-offs

Just over a year ago, Washington DC’s Hirshhorn Art Museum – the capital’s premier contemporary art museum – was asking whether non-fungible tokens (NFTs) were a “fad or the future of art”. Twelve months later, it looks like “tax write-off” may be the right answer.

This was not only the year that cryptocurrency values ​​were burned by investor fear, rising interest rates, inflation and scandals, it was the year that crypto’s cartoonish art cousin the NFT – an electronic identifier verifying a digital collectible Is real – collided with reality.

In March 2021, Christie’s sold a digital collage NFT by artist Beeple for around $70m (£58m). In January, pop star Justin Bieber paid $1.29m (£1m) for a “Bored Ape” NFT, a graphic of a bored monkey. Everyone from Michael Jordan to former First Lady Melania Trump was in on the game.

Now – along with the wider crypto market – appetite for NFTs has waned so much that a niche market has sprung up for collectors who want to sell their once-valuable “digital collectibles” as tax losses to offset their income tax bills. I want to sell

A recently launched service, Unsellable, aims to help collectors do exactly that. Think of it as a fire sale of distressed assets.

“While every investment class has losses, many of the NFTs we invested in were not only large; They were now completely worthless… illiquid… unsalable,” the service says on its website.

Unsellable – which says it is “building the world’s largest collection of worthless NFTs” – buys the underlying tokens for a fraction of their original value and provides an official receipt for tax purposes.

The company then assembles the NFTs into “The Unsellable Collection” – which currently consists of 1,600 digital collections – with the aim of creating “the ultimate artwork from the early days of Web 3”.

It’s easy to see why buyers might be willing to sell for a fraction of their original investment. The demand for digital certificates of ownership, which fall under NFTs, has come to an end. More than $19bn (£16bn) was spent on NFTs between January and March 2022. Since then, monthly spending has dropped by 87%, according to blockchain analysis firm Chainalysis.

Only $442m (£368m) was spent in November, and the number of active NFT traders is down almost two-thirds from their peak a year ago. According to market tracker, 144,000 NFTs were sold for $142m (£118m) on 16 January 2022. This Wednesday, 17,000 were sold for $28,000 (£23,294).

The most traded collection of NFTs are images of the Bored Ape Yacht Club (BAYC), like the one Bieber bought. Each Bored Monkey image has a unique combination of 170 possible traits, including expression, headwear, clothing, and more. “All apes are dope, but some are rarer than others,” the company says.

Yug Labs, the company behind the Bored app, was recently hit with a class-action lawsuit claiming it unfairly promoted the value of its intangible goods. The lawsuit names celebrities — and former NFT campaigners — as co-respondents, including Bieber, Paris Hilton, Madonna, Jimmy Fallon and Kevin Hart.

“Defendants’ promotional campaign was wildly successful, generating billions of dollars in sales and resales,” the lawsuit, filed on December 8 in a California district court, said.

“Manufactured celebrity endorsements and misleading hype in connection with the launch of the entire BAYC ecosystem (the so-called Otherside Metaverse) were able to artificially inflate interest and value in BAYC NFTs during the relevant period, allowing investors to buy these lost investments At exorbitantly inflated prices.

The NFT market is a far cry from where it was in October 2021, when Mike Winkelman – the digital artist known as Beeple – sold his work at Christie’s, making him “one of the top three most valuable living artists” .

Last week, Winkelmann remained upbeat about the Internet’s place in art-making, but acknowledged: “The market is a little crap right now,” he told Bloomberg. “Do I think it’s going to go back to where it was? I don’t know … I definitely think it’s going to go up from here.”

And a former celebrity and US President agrees. Earlier this month Donald Trump launched a collection of digital collectibles depicting, among other things, an astronaut, a cowboy and a superhero. It sold out in less than a day.

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