The owner of NFT lost $7 million on its sale, but stayed in the black. How is this possible?
The day before, a very strange transaction took place with one of CryptoPunks’ NFT collection copies: the token owner sold it for about $7 million below the purchase price, which means that he essentially got rid of the asset at a serious disadvantage than he sold it as well. Such a large difference in dollar terms is due to the collapse of the Etherium exchange rate since the NFT acquisition, as well as the declining popularity of non-interchangeable tokens in general. But it’s the motivation behind the sale that is of interest – it turns out that such a deal could even be profitable for the seller. We tell you more about what’s going on.
It should be noted that in recent weeks the minimum value of CryptoPunks NFT-collection representatives noticeably grows. This is especially noticeable when compared to the most popular series called Bored Ape Yacht Club.
Specifically, as of today, CryptoPunks have a minimum price of 83.72 ETH, while BAYC representatives are priced at no less than 93.36 ETH. Accordingly, the gap is already less than 10 ETH.
Minimum value of NFT collections of BAYC (in blue) and Cryptopunks (in red)
Despite this, some owners of popular NFTs are getting rid of them at a disadvantage. However, even this scheme has a point.
How NFT tokens are being used
A transaction took place on Friday with a token from the CryptoPunks collection, number #4156, which is associated with an image of a monkey wearing a piskel-art bandana. Such a high price tag for NFT is due in part to this appearance – the monkey motif has become very popular in the cryptocurrency space in the last couple of years, as it is associated with crypto investors who are willing to take any risk for huge profits. Often they lose all the money invested, but sometimes they also make serious profits.
Punk #4156
Punk #4156 was sold for 2,691 ETH or $3.3 million at current cryptocurrency exchange rates. While such an amount might seem huge to the average investor, many crypto-enthusiasts on Twitter were surprised by the low price of the deal. Here, for example, is what the owner of Punk token #3938 under the nickname borovik.eth wrote.
I’ve been talking about this all day. The market is so bearish that investors are selling the holy grail of all NFTs. In my eyes it is worth at least $25 million.
In other words, members of a certain narrow category of investors see this NFT as much more expensive. Again, it's all about the reputation of this image-monkey.
Punk trading history #4156
According to Decrypt’s sources, the seller of the token purchased it back in December 2021 for 2500 ETH. This is less than its resale amount in Etherium by 191 ETH. However, Punk #4156 was worth $10.26 million at the time, as the price of Ether itself was almost three times its current value. In other words, the owner of NFT earned a little in ETH, but lost significantly in dollar equivalent.
Read also: The creators of the Bored Ape Yacht Club were accused of supporting Nazism. What did the representatives of the NFT collection respond?
So why did the token owner allow such a big loss in currency? If one omits the assumption that he urgently needs the money, one amusing fact emerges that has to do with tax deductions. If the former owner of Punk #4156 writes off the sale as a $7 million loss in his taxes, it could be a financially beneficial move. Although, for tax purposes, the IRS may consider the loss realised when the NFT is sold, the seller does not need to convert ETH into US dollars to write off the loss. That is, he has essentially increased his own amount in ethers, but has been able to take a tax deduction, i.e. reduce the amount of income that is taxable.
Etherium exchange rate
This type of deliberate paper loss is a common practice that traders use to reduce capital gains obligations. It’s also possible that reducing capital gains by $7 million could even reduce the tax rate of the NFT seller, resulting in an even more financial benefit.
NFT-series Cryptopunks are one of the most popular collections of unique tokens
The version of the tricky tax scheme was commented on by a crypto-enthusiast under the nickname MISHKA. Here’s his rejoinder.
It’s actually very clever for tax deductions if the NFT seller is confident that he won’t be receiving income from that investment anytime soon.
In other words, the scheme works as long as Etherium is not rising in value. Since it is currently in a bearish trend and the altcoin is in an accumulation phase, it is unlikely that its value will rise significantly by the end of the year. So overall, the former owner of Punk #4156 picked a very good time for such a stunt.
Now he has Etherium, which will surely show growth in the long run, but now he can get a tax deduction to this growth, which, taking into account the amount of NFT sale, can make hundreds of thousands of dollars. In other words, if the investor is willing to walk ETH and wait for its value to rise, the current action is sure to be financially profitable for him.
We believe this kind of behaviour requires serious faith in digital assets. That said, it is clear here that the investor has no doubts about the bright future of Etherium and the rise in value of the second cryptocurrency in terms of market capitalisation. Accordingly, in the long run he will receive no less in dollar terms, but for now it is a matter of saving a serious amount in fiat.
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