An array or NFT of it: which one will have the most value?



British artist Damien Hirst, best known for putting a shark in a formaldehyde tank, has jumped on the NFT bandwagon.

NFTs, or non-fungible tokens, rely on blockchain technology to refer to an official copy of digital media that would otherwise be cheap or free. Mr. Hirst is sell a collection of 10,000 NFT, each of which is a physical dot painting, for $ 2,000 each. A year from now, collectors of the series, titled “The Currency,” will have to decide whether to keep the NFT or the painting; the one they do not choose will be destroyed.

Is it better to keep the NFT or the physical artwork? What will be the most valuable investment? It’s hard to know. Some NFTs bring in large sums of money, but not all. As with any new art form, what will happen over the next few years is difficult to predict. And anyone who invests in NFTs for the purpose of generating returns similar to those of an investment should understand the risks.

“This is new territory” Diana Wierbicki, Partner and Global Head of Art Law at Withersworldwide. “It can go up; it can go down. It’s like any contemporary art: values ​​are not fixed, so you take a risk.

What an NFT can be varies widely. Beeple, the digital artist whose real name is Mike Winkelmann, made headlines when an NFT he created titled “Everydays – the First 5,000 Days” sold for $ 69 million during a Christie’s online auction in March. The NFT was a collection of 5,000 images that he had already uploaded, starting in 2007.

Among the most well-known NFTs are the National Basketball Association’s Top Shot NFTs – essentially an NFT of one or more strengths. Their prices vary widely. A pack of NFT can sell for around $ 20, while a LeBron James’ NFT doing a reverse dunk in tribute to a famous Kobe Bryant dunk, who died in 2020, sold for $ 387,000. And it wasn’t even the only one. (It was # 3 of 59 in an NFT dunk series.)

“NFTs are an asset class like fine art,” said Alex Tapscott, managing director of the Digital Asset Group at Ninepoint Partners. “They’re newer, so riskier, but at the end of the day they’re still an asset. People buy them in the hope that they can sell them for a higher price.

There are certainly some people who are bullish on the tokens.

Chris Ciobanica, a cryptocurrency investor better known as Silver Surfer, started buying NFTs last summer. He said he has amassed more than $ 10 million from these digital images, most of which relates to physical works of art. (Its wealth from crypto investments is several times that amount, said Mr. Ciobanica, a former technology system administrator, but declined to be more specific.)

“I don’t see NFTs as collectibles like baseball cards,” he said. “I see them as those rare digital works of art. They are just a different shape than what you would see in traditional art.

It brought together works by the artist known as Pak, whose NFT work was auctioned off by Sotheby’s. A one-gray pixel artwork sold for $ 1.35 million. Mr Ciobanica said he paid $ 20,000 to $ 40,000 for NFT by Pak last year, but more recently he paid around $ 1 million for one.

As his collection appreciated, he said, he became interested in NFTs to escape cryptocurrency price volatility. He owns or operates Bitcoin, Ether, and Dogecoin.

“I had never collected traditional art,” he says. “It was very new to me. I just liked the community and the artists. I would collect these pieces and make friends with all these artists.

Evan Beard, who heads the arts services group as head of specialty segments at Bank of America Private Bank, said he has divided NFT buyers into four categories.

There is the crypto diversifier, which has been buying cryptocurrency for years and viewing NFTs as another form of currency; the digital native, who is used to paying real money for virtual stuff in online games; the enterprising collector, who is also financially motivated but listens to art history and sees NFTs as the start of something new; and the Segment Specialist, which focuses on content, whether it’s a piece of art or a LeBron James dunk.

“If auction houses and museums are one of them, the NFT fundraising has the potential to be really big,” Mr. Beard said. “It also has the potential to be like Beanie Babies, fun splurge, and we’ll look back and say, ‘Can you believe we bought these digital tokens? “”

Jeff Marsilio, who led the introduction of NBA Top Shot, launched a new NFT platform, Nifty’s, with the release of 92,000 NFTs related to the movie “Space Jam: A New Legacy,” which stars Mr. James. The majority of NFTs were free in exchange for some recipient’s online promotional activities. Those who bought the NFTs were charged $ 2.99 each.

The Nifty’s platform is also responsible for buying and selling Mr. Hirst’s “The Currency” in the secondary market. These NFTs are expected to appreciate over time, like many other works by Mr. Hirst.

“The platform is somewhat agnostic about the value of NFTs or their investment potential,” Mr. Marsilio said. “It’s a place to keep your collections and discover new NFTs. It is also a place to trade to buy and sell NFTs.

Like Mr. Hirst’s work, some NFTs test the connection between the virtual and physical worlds. Cult Wines, a fine wine investment advisory firm, is auctioning off a Château Angélus barrel via an NFT. The highest bidder will get the barrel – equivalent to about 300 full-size wine bottles valued at at least $ 100,000 – but will also decide what size bottles to put the wine in; a virtual tasting with the general manager of the estate, Stéphanie de Boüard-Rivoal; and participate in the harvest next year.

But due to the underlying blockchain technology, the company views French wine related NFTs as something that can ensure the safety of Bordeaux futures buyers, who buy through the en primeur system, which collects money. money now for wine that won’t be bottled and shipped for several years.

Bordeaux chateaux that sell futures as non-physical assets have always been open to fraudulent activity, said Tom Gearing, CEO and co-founder of Cult Wines.

“If a business says, ‘I have a bottle of wine that I’m going to sell you in two years’, but if that business goes bankrupt, you can lose that wine,” he said. “If an NFT can identify the owner of a barrel that is going to be delivered at a future date, it could open up the idea of ​​buying first to a whole new audience.”

Cameron Smith, director of Mayfair Private Office, which invests in real estate around London, has made an offer on NFT wine. The wine barrel-tied NFT auction opens up the buying experience to more people, Smith said.

“They also created something with the NFT to bring forward wine buying into the 21st century,” he said.

One issue that has not caught up with technology is how DTVs will be taxed. Cryptocurrency is taxed at the capital gains rate, and many experts say they believe NFTs will be considered collectibles, which are taxed at a rate of 28%. But the tax issue gets complicated as many NFTs are purchased using cryptocurrency. Thus, any transaction would be considered a realization of the gains of this cryptocurrency.

“This is a perfect example where the law has not caught up with technology,” said Jere Doyle, senior vice president of BNY Mellon Wealth Management. “Collectable in Code Sections indicates any work of art, rugs or antiques, metal or antiques, or other tangible personal property. Would a work of art be tangible or digital? Does the tangible modify a work of art? We do not know.

One thing is for sure, Mr Doyle said: If NFTs go up in value, the owner will have to pay taxes on it.


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