Traditional art is an asset class that has been dominated by rich people. The long-term prospects of the NFT industry may depend on whether they offer more.
When famous brands buy Metaverse real estate at first glance, this does not make sense at all. But while assuming the number of users of the respective project increases over time, it is like buying an advertising banner on a website, with only a higher markup. Considering how many headlines you will get in the purchase; the purchase becomes quite intelligent even if you do nothing with your virtual land plot.
Another major trend in the blockchain space is the non-fungible token (NFT) art, at least in terms of how much buzz it has created. Just a few months ago, Paris Hilton and Jimmy Fallon experimented with how deep Cringes Abyss goes on live TV while showing off their Bored Apes. And it’s just a handful of mainstream celebrities who have recently joined the NFT Art hype train, several of the same entities run by the United Talent Agency. And believe it or not, UTA also represents the makers of Yuga Labs Bored Ape Yacht Club.
This could indicate an interesting connection between the entertainment elite and the NFT scene poster kids. BAYC has at least one more picture to offer, though, which is not always the case with NFT; we see Christis and Sotheby’s leading auction houses popping up. Their similarities come to the fore as these two worlds move closer to each other – and reveal some pretty interesting facts along the way about how we perceive both art and value.
Quite effective as a repository of traditional art value; it can generate some returns over time and is quite convenient because the $ 100-million painting takes up less space than the same amount of cash. But if the value of fiat comes from the financial power of the issuing nation, with art, things are 100 times more obscure.
To know what is art anyone would think after walking through a random modern art gallery. In fact, from Andy Warhol to Jeff Kuns, some famous and modern artists work to build our understanding of what art is and what art can be. If anything, we live in an age when a banana taped to the wall can be displayed in an art gallery, valued at $ 120,000. Someone ate it and called the work a work of artistic expression, but fear not – the fruit was soon replaced and business returned to normal.
From this collar switchcheru, we can infer that the fruit was technically fungus as far as this piece went. In other words, the value of the art piece did not come from a specific banana, but from any banana, presumably, by a piece of equally fungicidal duct tape. So, what exactly is created for the 120,000-price tag? The artist’s brand, the prestige of the gallery and a few more are quite ethereal reasons.
Things get more fun when we try to apply the same logic to other valuable parts of the industry. The Black Square, one of Kazimir Malevich’s most famous paintings, changed hands in 2008 for 60 million. The painting depicts exactly what you think – a literal black square – and as such, has a dubious value in terms of pure aesthetics. Moreover, in order to verify the authenticity of the painting, we will be forced to rely on a little more than an in-depth analysis of its material, paint, and canvas to ensure that it is old enough and ideal for Malevich’s era and region. But if someone randomly shakes this work of art, there is no hell that we can replace it with another black square, although the aesthetic value will be more or less the same. The value of this piece comes from the hand that draws it, and anyone who is not Malevich will not do so.
It goes without saying that art evaluation is purely subjective (Malevich is Malevich, above all), and yet the collective content manifests itself in changing trends and fashions, making it much more inevitable. Some people with wild money are willing to dish out for these semi-transient products, throw in some concentration and internalization, and you get a drink that might be unimaginable in any other industry.
While many will probably want to believe in a Cinderella-style story of a hungry artist whose star will one day pass away, the reality is different. At the heart of the industry, according to a huge survey published in 2018, is a network of about 400 venues, mostly located in the United States and Europe. If you go to one of these shows, push yourself back and give your music a high-five. If not, though, things can go awry. Success, including being measured by the evaluation of your work, is a matter of drawing the interest of the right dealers, critics, promoters and curators – a wide but still relatively limited crowd.
On the flip side of this currency are the wild types of financial fraud that a rich person can do through the art market, especially if they know the right people. Thanks to its openness to anonymity and intermediaries and its alliance with large piles of cash, art is a great way to smuggle dirty money. Although large auction houses conduct tests with due diligence, these are often voluntary and complex ownership structures add ambiguity, enabling criminal money to flow into the market.
The art also works wonders for those who do not raise too many red flags in the bribery business. Imagine that a businessman is looking for a tender that asks an official in charge of that tender to put that extremely cool porcelain for auction. At the auction, Dani will go for a hefty sum more than his initial valuation. Who bought it, and who will get the tender? You said I didn’t.
In addition to these, the art creates a clean financial instrument for things that are not even illegal. The tax return-off through art grants is one thing: snatch some work from a star soon for $1,000, invest $ 500,000 in the network to raise their value to $ 10 million, donate generously to a museum, and there you go – no matter your income. No tax. It’s still a simple simplification – things can get more interesting.
The high-value industry represents a relatively small fraction of the overall industry: in 2020 the industry saw a price tag of over $ 50,000, below 20% of sales. Similar breakdowns are now happening in the NFT art market, where top collections generate millions upon millions of resells in the secondary market, but most businesses are actually quite small. Indeed, such statistics add credit to the view that the entire market was originally created by a few thousand investors who poured millions upon millions for essentially unreasonable investments.
By creating artificial deficits, the NFT industry seeks to replicate the process behind high-end traditional art. A good question is whether they can act as a repository of value and is difficult to answer because of the underlying content of artistic value. Yes, an NFT is a token that contains an image link in the metadata. But does that mean in a world where a mushroom collar can cost 120,000?
One could argue that it actually still exists, seeing NFT’s fortunes for Jack Dorsey’s first tweet, which once received a bid for $ 2.9 million at auction and then only $ 280. In just one year, the value of tokens in the eyes of the market has dropped by 99% – reflecting the changing trends and perceptions of the crypto community and the current state of the crypto market, which naturally affects the ability of NFTs to store value.
Even so, Genesis tweeted NFT could still change hands for $ 50 million with enough Ether (ETH) to go around and decided that the token is indeed worth such a price. Board apps are still trading at an average price of several thousand US dollars. There are signs of a market downturn. But since the whole crypto market is down, why not?
Thus, one of the key features of facilitating the high-end industry for shady business – the often-arbitrary nature of its valuation – is more or less played with NFTs. What the future of NFTs can create or break as a new representation of the high-resource industry is that in this way they can offer the same legal and financial flexibility that the manufactured traditional industry brings to the table.
A Chainalysis report indicates that money laundering is a small part of NFT trading activity, even in spite of recent spikes. In this case, though, money laundering refers specifically to the use of crypto associated with hacks and scams to buy NFT, which is a bit narrower if we recall the backstage things happening in the traditional industrial market. Instead, just like museums, galleries and auction houses, what matters is how the NFT scene develops its engine, which blends art with value. If anything, traditional art establishments may be part of it, and the aforementioned star-spangled Shenanigans may be part of it.
On the other end of this equation, end-users, for lack of a good word, and all the off-chain legal complexities. Let’s take the tax again, for example. When selling an art piece from your collection, you have to pay capital gains tax. The same goes for an NFT sale.
With traditional art though, you can dodge paying this tax with a neat hoax. 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 deal moving its possession to a diverse wallet will be open for anyone to inspect — including the U.S. Internal Revenue Service. Theoretically speaking, even when it comes to freeports, there could still be a few guiles 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 agree 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 assumption: In a world where art is a hypothetical 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 price through a few wash trades (in other words, trading it between your own wallets), and giving it to a museum or a charity? How about staking, or provisionally 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 to figure out if you can avoid taxes, your lawyers are probably already looking into it. For everyone else, the NFT industry market is another great place to support their favorite manufacturers, which is completely different in terms of inspiration from getting rich quickly. In this case, it can offer nothing more than a rat race to find the next big thing, and judging by the dominance of the cool-off and top collection, the next big thing can only come from – and for that – the big boy club.
Leave a Reply