The funny thing about many of the totally insane things happening in the world today is that from a certain point of view, they are actually perfectly sensible. Take, for example, the famous brands that buy metaverse real estate. At first glance, it does not make sense at all. On the other hand, assuming the user base of the projects in question grows over time, it’s like buying a banner ad on a website, only with a higher markup. Based on how many headlines you get on the purchase, the purchase will make some sense even if you do nothing with your virtual country.
It is quite possible to make the same argument for nonfungible token (NFT) art, another big trend in the blockchain space, at least in how much buzz it has generated. Just a few months ago, Paris Hilton and Jimmy Fallon noticed how deep the abyss is in a live broadcast when they showed their boredom monkeys. And these are just a few of the mainstream stars who have joined the NFT art hype train recently, with several of them being run by the same person, the United Talent Agency. And would you believe it, UTA is also representing the manufacturers of Yuga Labs Bored Ape Yacht Club.
Welcome to the club, @guyoseary ! ☠️⛵️ https://t.co/PcUtD67zIF
– Bored Ape Yacht Club (@BoredApeYC) October 12, 2021
This could suggest an interesting connection between the entertainment elite and the poster kids of the NFT scene. BAYC has at least more than pictures to offer, though, which is not always the case for the NFT we see popping up at Christie’s and Sotheby’s leading auction houses. As these two worlds move closer to each other, their similarities come to the fore – and reveal some funky truths along the way in how we perceive both art and value.
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Value is in the eye of the assessor
Traditional art is quite effective as a storehouse of value; it can yield some returns over time and is rather convenient in the sense that a $ 100 million painting takes up less space than the same amount of cash. But if the value of fiat comes from the financial strength of the publishing nation, with art, things are 100 times darker.
What is art? Almost anything, one would think after a walk through a random contemporary art museum. In fact, some of the most famous and modern artists, from Andy Warhol to Jeff Koons, are working to deconstruct our understanding of what art is and what art can be. If anything, we live in an age when a banana taped to a wall can be displayed in an art gallery, valued at $ 120,000. Someone ate it and called the work an artistic expression, but fear not – soon the fruit was changed and business went back to normal.
From this banana exchange bed we can conclude that the fruit was technically variable in as much quantity as this piece went. In other words, the value of the artwork did not stem from one particular banana, but from any banana held in place with, presumably, equally variable adhesive tape. So, what exactly did the $ 120,000 price tag do? The artist’s brand, the gallery’s opinion, and some other rather natural elements.
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Things get even funnier when we try to apply the same logic to other valuable works of art. The Black Square, one of Kazimir Malevich’s most famous paintings, changed owners for $ 60 million in 2008. The painting shows exactly what you would think – literally a black square – and as such has a dubious value in terms of pure aesthetics. Furthermore, in order to examine the authenticity of the painting, we are forced to rely on little more than a thorough analysis of its components, paints and canvases to determine whether they are old enough and typical enough for Malevich’s time and place. But if someone were to randomly grind this work of art, then there is no way in hell that we could replace it with another black square, even if the aesthetic value was more or less the same. The value of this work comes from the hand that drew it, and the one who is not Malevich will not do it.
This is not to say that art assessment is entirely subjective (Malevich is Malevich, after all), and yet a common subjectivity that manifests itself in changing trends and fashion is the basis for it to be almost inevitable. Link this to the wild money that some are willing to spend on these half-time products, throw in some centralization and insider trading, and you get a brew that would probably be unthinkable in other industries.
The shadow underpinned
While many would probably like to believe in Cinderella-style stories about a starving artist who one day gets a star in the air, the reality is different. At the heart of the art world, as an extensive study revealed in 2018, is a network of about 400 venues, mainly located in the United States and Europe. If you happen to go to a show like this, pat yourself on the back and give your mouse a high-five. If not, however, things could be dark. Success, including measuring the value of your work, is a matter of arousing the interest of the right retailers, critics, journalists and curators – a broad, yet relatively limited group.
On the back of this coin is a variety of financial tricks that a wealthy individual can do through the art market, especially if he knows the right people. Thanks to its openness to anonymity and intermediaries and its affiliation with large piles of money, art is a great way to launder dirty money. Although large auction houses conduct due diligence, they are often optional and complex ownership adds to the ambiguity and allows criminal capital to flow into the market.
The art also works wonders for those who take bribes without raising too many red flags. Imagine that a businessman looking for an auction is looking for an official in charge of the auction in question with a request to put this very nice porcelain pocket up for auction. At the auction, the pocket would go for a high amount, far above its original valuation. Who bought it and who would get the offer? You said that, not me.
On top of all that, art makes a neat financial tool for things that are not even illegal. Tax write-offs with art donations are a big deal: Turn a few star-studded works for $ 1,000, invest $ 500,000 online to raise their valuation to $ 10 million, donate them generously to a collection and wherever you go – no taxes on such a large portion of your income. This is still a simplification – things can get even more interesting.
Connected: Washing with digital photos? A new twist in the regulatory debate on NFTs
To monkey around
Valuable art is a relatively small part of the total industry: Just under 20% of art sales in 2020 saw price tags over $ 50,000. A similar breakdown is now taking place in the NFT art market, where top museums return millions in resale in the secondary market, but most transactions are actually rather small. Indeed, such figures add to the view that the entire market is basically made up of several thousand investors who pour millions into what is in fact an irrational investment.
By creating artificial maps, NFT art seeks to replicate the hardware behind the high quality traditional art. A better question is whether they can work as well as value, and that is difficult to answer, given the inner subjectivity of artistic value as such. Yes, NFT is an icon with a link to an image in its metadata. But does that mean anything in a world where a variable banana can cost $ 120,000?
It could be argued that it still does, when looking at the fate of the NFT for Jack Dorsey’s first tweet, it was once offered $ 2.9 million and then received an offer for only $ 280. In just one year, the value of the symbol fell in the eyes of the market by 99% – reflecting changing trends and perceptions in the cryptocurrency community and the current state of the cryptocurrency market, which naturally affects NFT’s ability to store value.
However, the emergence of the NFT tweet could still have changed hands for $ 50 million if one collector with enough ether (ETH) to go around had decided that the token was truly worth it. Bored Apes are still trading at an average price of hundreds of thousands of US dollars. There are signs that the market is declining. But why should it not be, since the whole cryptocurrency market is down?
So, one of the key features that makes high quality art handy for shady trades – often the arbitrary nature of its valuation – is more or less in play with NFTs too. What may make or break the future of NFT as a new version of high quality art is whether they can also offer the same legal and financial flexibility that traditional merchandise art brings to the table.
A chain analysis report points out that money laundering is a small part of NFT trading, even despite a recent increase. In this case, however, money laundering specifically refers to the use of cryptocurrencies and scams to buy NFT, which is a little too narrow if we remember the backdrop of what happens in a traditional art market. Instead, it matters whether and how the NFT scene develops its machine that fills art value, in the same way that museums, galleries and auction houses do. If anything, the traditional art institutions that move deeper into this space could be a part of it, and so can the aforementioned star-studded creeps.
Connected: Most NFT laundries report a chain analysis report unprofitable
At the other end of this equation are, well, the end users, due to the lack of a better word, and all the legal complications outside the chain. Take taxes again, for example. When you sell artwork from your collection, you have to pay capital gains tax. The same goes for selling NFT.
With traditional art, however, it is possible to avoid paying this tax with ingenious taste. You can store your treasure in a high-security warehouse in one of the many free ports in the world, where it can sit for decades, changing hands, but not its location. While the art is sitting there, there is no need to bother the esteemed taxman about the business.
NFTs live on a chain, and all transactions that transfer its ownership to another wallet will be open to anyone to view – including the US Treasury Department. Hypothesis, even when it comes to duty free shops, there could still be some tricks to try. Say you have a cold wallet with lots of expensive NFT devices and you keep them in a duty free shop, even though the tokens are still in the chain. And when you decide it’s time to sell them, you sell the device yourself, without chain trading. Would that make sense? This depends on the exact return on investment that everyone involved receives.
This leads us to an ironic conclusion: In a world where art is a speculative asset, the future of NFT art does not depend on its artistic value but on its properties as a financial instrument. Can you get a tax deduction by buying a cheap NFT, increasing its value with a few laundry transactions (in other words, swapping it between your own wallet) and donating it to a museum or charity? How about temporarily installing or locking NFT in a digital protocol? Maybe you can put it in the museum’s wallet to get a little tax deduction? Can you counterfeit NFT theft, simply popping it into your other wallet, to write off your property loss tax? Would it make more sense to buy NFT from the official in charge of this juicy, juicy soft, or maybe this cool vase on their desk works better?
These are all good questions and if you earn enough to pay people specifically to find out how you can avoid taxation, then your lawyers are probably already looking into it. For everyone else, the NFT art market is at best another platform to support their favorite authors, which is a whole other incentive compared to getting rich quick. In this respect, there is little more to offer than a rat race to find the next big thing, and given the coolness and superiority of the top museums, the next big thing can only come from – and for – the big thing. boys’ club.
This article does not include investment advice or advice. Every investment and trading business involves risk and readers should do their own research when making a decision.
The views, thoughts and opinions expressed herein are the sole responsibility of the authors and do not necessarily reflect or represent the views and opinions of the Cointelegraph.
Denis Khoronenko is a journalist, novelist and content editor at ReBlode PR Agency.
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