The funny thing about many of the absolutely insane things happening in the world today is that from a certain perspective, they actually make perfect sense. Take the famous brands buying metaverse real estate, for example. At first glance, it makes no sense at all. At second glance, assuming the user base of the respective projects grows over time, it’s like buying an ad banner on a website, just at a higher markup. Considering how many headlines you get on the purchase, the purchase becomes quite sensible even if you do nothing with your plot of virtual land.
It’s quite possible to make the same case for nonfungible token (NFT) art, another major trend in the blockchain space, at least in how much buzz it has generated. Just a few months ago, Paris Hilton and Jimmy Fallon checked how deep the cringe abyss goes on live TV as they showcased their Bored Apes. And that’s just a few of the mainstream celebs who have joined the NFT art hype train recently, with quite a few of them managed by the same entity, United Talent Agency. And would you believe it, UTA also represents Yuga Labs Bored Ape Yacht Club’s makers.
— Bored Ape Yacht Club (@BoredApeYC) October 12, 2021
This may hint at an interesting nexus between the entertainment elites and the poster kids of the NFT scene. BAYC at least has more than pictures to offer, though, which is not always the case for NFTs we see popping up at leading auction houses Christie’s and Sotheby’s. As these two worlds move closer to each other, their similarities come into the spotlight — and reveal some pretty funky truths along the way in how we perceive both art and value.
Value is in the eye of the appraiser
Traditional art is quite effective as a store of value; it can generate some returns over time and is pretty convenient in the sense that a $100-million painting takes less space than the same amount in cash. But if the value of fiat comes from the financial strength of the issuing nation, with art, things are 100 times murkier.
What is art? Pretty much anything, one would think after a walk through a random modern art gallery. In fact, some of the most famous and modern artists, from Andy Warhol to Jeff Koons, work to deconstruct our understanding of what art is and what can be art. If anything, we live in an age when a banana taped to a wall can be on display in an art gallery, valued at $120,000. Someone ate it and called the deed an act of artistic expression, but fear not — the fruit was soon replaced, and business went back to as usual.
From this banana switcheroo, we can deduce the fruit was technically fungible in as much as this piece went. In other words, the value of the art piece did not come from one specific banana, but from any banana being held in place by, presumably, an equally fungible piece of duct tape. So, what exactly made for the $120,000 price tag? The artist’s brand, the prestige of the gallery, and a few other quite ethereal factors.
Things get even funnier when we try to apply the same logic to other valuable pieces of art. The Black Square, one of the most famous paintings by Kazimir Malevich, changed hands for $60 million in 2008. The painting displays exactly what you would think — a literal black square — and, as such, has a questionable value in terms of pure aesthetics. Furthermore, to check the painting for authenticity, we’d be forced to rely on little more than an in-depth analysis of its components, paint and canvas to establish if they are old enough and typical enough for Malevich’s era and locality. But if someone were to randomly munch on this artwork, there is no way in hell we’d be able to replace it with another black square, even though the aesthetic value would be more or less the same. The value of this piece comes from the hand that drew it, and anyone who’s not Malevich won’t do.
This is not to say that art valuation is entirely subjective (Malevich is Malevich, after all), and yet collective subjectivity manifesting itself in changing trends and fashions underpins it to the point of being pretty much inescapable. Couple this with the wild money some people are willing to dish out for these quasi-ephemeral goods, throw in some centralization and insiderism, and you get a brew that would probably be unimaginable in any other industry.
The shady underbelly
While many would probably want to believe in Cinderella-style tales of a starving artist whose star one day takes off, the reality is different. At the core of the art world, as a massive study revealed in 2018, is a network of about 400 venues, mostly located in the United States and Europe. If you happen to go on show in one of those, pat yourself on the back and give your muse a high-five. If not, though, things could be bleak-ish. Success, including as measured by the valuations of your works, is a matter of drawing the interest of the right dealers, critics, publicists and curators — a wide, but still relatively limited crowd.
On the flip side of this coin is the wild variety of financial trickery a wealthy individual can do through the art market, especially if they know the right people. Thanks to its openness to anonymity and intermediaries and affinity for big piles of cash, art is a great way to launder dirty money. While major auction houses do conduct due diligence checks, these are oftentimes voluntary, and the complex ownership structures add to the obscurity, enabling criminal money to flow into the market.
Art also works miracles for those in the business of bribery without raising too many red flags. Imagine a businessman on a hunt for a tender approaches an official in charge of the said tender with a request to put that very cool porcelain vase up for auction. At the auction, the vase would go for a hefty sum, way over its initial valuation. Who bought it, and who’d get the tender? You said it, not I.
Besides all that, art makes for a neat financial instrument for things that aren’t even illegal. Tax write-offs through art donations are very much a thing: Snatch a few works of a soon-to-be star for $1,000, invest $500,000 into the network to amp up their valuation to $10 million, generously donate them to a museum, and there you go — no taxes on that much of your income. This is still an oversimplification — things can get even more interesting.
High-value art represents a relatively small portion of the overall industry: Just below 20% of art sales in 2020 saw price tags over $50,000. A similar breakdown is now happening in the NFT art market, where top collections generate millions in resales on the secondary market, but most trades are actually pretty small. Indeed, such figures add credit to the view that the entire market is basically made by several thousand investors pouring millions into what is essentially irrational investing.
By creating artificial scarcity, NFT art seeks to replicate the mechanism behind the high-end traditional art. A better question is whether they can work as well as a store of value, and that’s a tough one to answer, given the intrinsic subjectivity of artistic value as such. Yes, an NFT is a token with a link to a picture in its metadata. But does that mean anything in a world where a fungible banana can cost $120,000?
One could argue it actually still does, looking at the fate of the NFT for Jack Dorsey’s first tweet, once auctioned off for $2.9 million and then received a bid for just $280. In just a year, the token’s value in the eyes of the market plummeted by 99% — a reflection of the changing trends and perceptions in the crypto community and the current state of the crypto market, which naturally affects NFTs’ capability to store value.
Still, the genesis tweet NFT could still have changed hands at $50 million had a single collector with enough Ether (ETH) to go around decided that the token is indeed worth such a price. Bored Apes are still trading with an average price counting in hundreds of thousands of U.S. dollars. There are signs that the market is in decline. But why shouldn’t it be, given the entire crypto market is down?
So, one of the key features making high-end art handy for shadowy business — the often arbitrary nature of its valuation — is more or less in play with NFTs as well. What may make or break NFTs’ future as a new rendition of high-end art is thus whether they can also offer the same legal and financial flexibility that commodified traditional art brings to the table.
A Chainalysis report points out that money laundering accounts for a small share of NFT trading activity, even despite a recent spike. In this case, though, money laundering specifically refers to using crypto associated with hacks and scams to buy NFTs, which is a bit too narrow if we recall the backstage stuff happening in the traditional art market. Instead, what matters is whether and how the NFT scene develops its engine that imbues art with value, the same way as museums, galleries and auction houses do. If anything, the traditional art institutions moving deeper into this space could be part of it, and so can the aforementioned star-spangled shenanigans.
On the other end of this equation are, well, the end-users, for lack of a better word, and all of the off-chain legal intricacies. Let’s take taxes again, for example. When selling an art piece from your collection, you have to pay the capital gains tax. The same goes for selling an NFT.
With traditional art, though, you can avoid paying this tax with a neat trick. You can keep your treasures in a high-security warehouse in one of the world’s many freeports, and it can sit there for decades, changing hands, but not its location. As long as the art sits there, there is no need to bother the esteemed taxman about the transactions.
NFTs live on-chain, and any transaction moving its ownership to a different wallet will be open for anyone to inspect — including the U.S. Internal Revenue Service. Hypothetically speaking, even when it comes to freeports, there could still be a few tricks to try. Say you have a cold wallet with a bunch of expensive NFTs, and you keep them in a freeport, albeit the tokens are still on-chain. And when you decide it’s time to sell them, you sell the device itself, with no on-chain transactions. Would it make sense? This depends on the exact return on investment everyone involved gets.
This leads us to an ironic conclusion: In a world where art is a speculative asset, the future of NFT art depends not on its artistic value but on its properties as a financial instrument. Can you get a tax cut by buying a cheapo NFT, amping up its value through a few wash trades (in other words, trading it between your own wallets) and donating it to a museum or a charity? How about staking, or temporarily locking your NFT into a digital protocol? Can you stake it into a museum’s wallet, perhaps, to get some tax relief? Can you fake an NFT theft, simply bouncing it to your other wallet, to write off some tax on capital loss? Would it make more sense to buy an NFT from the official in charge of that juicy, juicy tender, or perhaps that cool vase on their table works better?
These are all good questions, and if you earn enough to pay people specifically for figuring out how you can avoid taxation, your lawyers are probably already looking into that. For everyone else, the NFT art market is at best another venue for supporting their favorite creators, which is quite different motivation-wise from getting rich quickly. In this respect, it has little more to offer than a rat race for finding the next big thing, and judging by the cool-off and the dominance of the top collections, the next big thing may only come from — and for — the big boy club.
This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision.
The views, thoughts and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.
Denis Khoronenko is a publicist, fiction writer and content editor at ReBlode PR agency.
Record Investment Outflows of $423 Million Led to Crypto Bloodbath
Last week saw record outflows of $423 million from crypto assets, according to CoinShares.
The report found that the outflows last weekend were likely responsible for bitcoin’s decline to $17,760. Analyst James Butterfill said: “The outflows were solely focussed on bitcoin, which saw net outflows for the week totaling US$453m.”
BTC outflows bring down institutional investments
Therefore, if bitcoin is removed from the calculations, Ethereum contributed an inflow of around $11 million while other alts also added minor positive flows, aggregating inflows to the extent of $70 million.
This was Ethereum’s first inflow after 11 consecutive negative sessions according to CoinShares.
In the past week, the BTC market has slid under the $20,000 level twice. Short-bitcoin saw inflows of $15 million due to the launch of the first U.S.-based short investment product in the week in question, the report noted.
Benefits of a crypto bear market
Similar wide margins were last seen in the previous negative peak, in terms of outflows, in Jan at $198 million.
However, in relative terms, Butterfill remarked that the week did not witness the largest negative flows against total assets under management (AuM).
“This record occurred during the bear market in Feb 2018 where outflows representing 1.6% of AuM were witnessed, while the outflows last week were the third largest on record, representing 1.2% of AuM,” the report noted.
But despite the bearish sentiments, some crypto bosses are optimistic about the results of a market downturn. Charlie Silver, founder of Permission.io told Insider: ” There are hundreds of firms that are built on hype and not substance. It will be good for the industry to have them go away.”
“Bear markets are healthy because it resets valuations to reality and flushes out the bad actors. There are many cryptos that are true Ponzi schemes, that pay investors only with new investor money. When the new money dries up the project falls apart,” Silver added.
All the information contained on our website is published in good faith and for general information purposes only. Any action the reader takes upon the information found on our website is strictly at their own risk.
Uzbekistan warms up to Bitcoin mining, but there’s a catch
The executive order spares all the mined assets from taxation and bans mining anonymous currencies.
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6 Total shares
The National Agency of Prospective Projects (NAPP) in Uzbekistan announced its demands toward crypto mining operators. It would only allow the companies that use solar energy to mine Bitcoin (BTC) or other cryptocurrencies.
The normative act on the government page, dated June 24, describes the confirmation of “Guidelines on the registration of the crypto assets mining,” and sets the finalization date on July 9. The second article of the document offers an uncompromising wording:
“Mining is being carried out only by the legal entity with the use of electric energy, provided by a solar photovoltaic power plant.”
As a further complication, the miners should own the solar photovoltaic power plant that they will use for energy.
The executive order also obliges any mining operator to obtain a certificate and register in the national registry of crypto mining companies. This procedure demands a brief list of documents, and should take no more than 20 days from submitting to the final decision to the licensing body. The certificates would be valid for one year after the registration.
All the currency generated from mining activities would be spared taxation, though the mining farms would face the special tariffs on the consumed energy set by the Uzbekistan government. But, the trade operations with mined assets would have to be conducted only on the exchange platforms that are registered in Uzbekistan. The mining of anonymous cryptocurrencies would be prohibited.
In April 2022, the freshly-restructured NAPP became Uzbekistan’s exclusive crypto regulator with the mission to adopt a special crypto regulation regime in the country. This move came in a row of initiatives launched by the Uzbekistan President Shavkat Mirziyoyev to provide the regulatory framework for crypto. In September 2018, Mirziyoyev signed a law prohibiting local firms from launching their crypto exchanges in Uzbekistan. The law only offered legal status to crypto exchanges established by foreign legal entities.
Celsius denies allegations on Alex Mashinsky trying to flee US
Celsius CEO Alex Mashinsky wasn’t trying to leave the U.S. last week but has continued to work on recovering liquidity and operations, the company has claimed.
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18 Total shares
Troubled crypto lending firm Celsius is putting their best foot forward to recover operations alongside CEO Alex Mashinsky, who currently stays in the United States, the company has claimed.
A spokesperson for Celsius has denied rumors that the company’s CEO tried to flee the U.S. last week amid the ongoing liquidity crisis of the Celsius Network.
The representative told Cointelegraph on Monday that the firm continues working on restoring liquidity, stating:
“All Celsius employees — including our CEO — are focused and hard at work in an effort to stabilize liquidity and operations. To that end, any reports that the Celsius CEO has attempted to leave the U.S. are false.”
Celsius’ statement came shortly after Mike Alfred, co-founder of the crypto analytics firm Digital Assets Data, took to Twitter on Sunday to claim that Mashinsky attempted to leave the country last week via Morristown Airport in New Jersey.
Citing an anonymous source, Alfred alleged that Celsius’s CEO was trying to go to Israel. “Unclear at this moment whether he was arrested or simply barred from leaving,” he added.
Alfred’s claims followed a massive GameStop-like “short squeeze” of Celsius, with Celsius’ native token Celsius (CEL) jumping 300% in one week by June 21. CEL price also abruptly rallied more than 600% on June 14, with analysts attributing the event to an exchange glitch or liquidation of short traders.
At the time of writing, CEL is trading at $0.741, down around 5% over the past 24 hours, according to CoinGecko. Celsius’ native token is still up more than 160% over the past 14 days.
Some industry observers in the crypto community have expressed skepticism about Alfred’s tweets about Mashinsky, with many considering his allegations as FUD.
If @Mashinsky attempted to leave the country this week, why are you reporting it now exactly when the CEL price is going down? Seems very coincidental Mike Alfud. And why no mainstream media or crypto media is reporting this? #CelShortSqueeze https://t.co/ynJbzWib9o
— Otis — #CelShortSqueeze ©️ ⚡️ (@otisa502) June 27, 2022
As previously reported by Cointelegraph, Celsius officially announced that it would be “pausing all withdrawals, swaps and transfers between accounts” on June 13. United States regulators subsequently started an investigation into Celsius as multiple accounts on the network were frozen.
According to some analysts, Celsius’ liquidity issues should be attributed to shortcomings of the existing crypto lending model in general, as other lenders in the market have faced similar problems recently.
Celsius has been working hard to fix the consequences of the platform’s liquidity crisis, reportedly onboarding advisers and restructuring consultants to help the platform handle potential filing for bankruptcy. On June 18, Celsius’ lead investor BnkToTheFuture and its co-founder Simon Dixon offered to assist the network by deploying a recovery plan.
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