A Painting or an NFT of It: Which Will Be More Valuable?

British artist Damien Hirst, best known for sticking a shark in a tank of formaldehyde, got on the NFT train.

NFTs, or non-fungible tokens, rely on blockchain technology to mark an official copy of a digital medium that would otherwise be cheap or free. Mr. Hirst sells a collection of 10,000 NFTs, each corresponding to a physical point painting, for $ 2,000 each. In a year the collectors of the series “The Currency” will have to decide whether to keep the NFT or the painting; whatever they don’t choose will be destroyed.

Is it better to keep the NFT or the physical artwork? Which will be the more valuable investment? It’s hard to know Certain NFTs make large sums of money, but not all. As with any new art form, it’s hard to predict what will happen in the next few years. And anyone who invests in NFTs for asset-like returns needs to understand the risks.

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

What an NFT can be is very different. Beeple, the digital artist whose real name is Mike Winkelmann, hit the headlines when an NFT he created called “Everydays – the First 5,000 Days” sold for $ 69 million at an online Christie’s auction in March. The NFT was a collection of 5,000 images that he had put online since 2007.

The best-known NFTs include the National Basketball Association’s Top Shot NFTs – essentially an NFT of a single highlight or multiple highlights. Their prices range widely. A pack of NFTs can sell for around $ 20 while an NFT by LeBron James, who makes 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 on an NFT series by The Dunks.)

“NFTs are an asset class like the fine arts,” says Alex Tapscott, managing director of Ninepoint Partners’ digital asset group. “They’re newer, so riskier, but ultimately they’re still a win. People buy them with the expectation that they can sell them for more. “

There are certainly people who are optimistic about the tokens.

Chris Ciobanica, a cryptocurrency investor better known as Silver Surfer, started buying NFTs last summer. He said he amassed over $ 10 million worth of these digital images, most of them tied to physical works of art. (His crypto investing fortune is many times higher, said Mr. Ciobanica, a former technical systems administrator, but declined to provide details.)

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

He has collected works by artist Pak, whose NFT artwork was auctioned by Sotheby’s. A work of a gray pixel sold for $ 1.35 million. Mr Ciobanica said he paid $ 20,000 to $ 40,000 for Pak’s NFTs last year but recently paid about $ 1 million for them.

While his collection was being valued, he began to take an interest in NFTs to escape the volatility of cryptocurrency prices. He owns or mines Bitcoin, Ether and Dogecoin.

“I had never collected traditional art,” he said. “That was brand 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 Art Services Group as head of specialty segments at Bank of America Private Bank, divided NFT buyers into four categories.

There is the crypto diversifier who has been buying cryptocurrencies for years and sees NFTs as another currency; the digital native, used to paying real dollars for virtual things in online games; the enterprising collector who is also financially motivated but tuned to art history and sees NFTs as the beginning of something new; and the segment specialist who focuses on the content, be it a work of art or a LeBron James Dunk.

“When it comes to auction houses and museums, NFT collecting has the potential to get really big,” said Mr Beard. “It also has the potential to be like beanie babies, some fun folly, and we’ll look back and say, ‘Can you believe we bought these digital tokens?'”

Jeff Marsilio, who led the launch 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,” starring Mr. James. The majority of NFTs were free when recipients did certain promotions online. Those who bought the NFTs were charged $ 2.99 each.

The Nifty platform is also responsible for the publication of Mr. Hirst’s “The Currency” and, like many other works by Mr. Hirst, these NFTs are expected to appreciate in value over time.

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

Similar to the work of Mr. Hirst, some NFTs test the connection between the virtual and the physical world. Cult Wines, a company that advises on investing in fine wines, is auctioning a barrel of Château Angélus through an NFT. The highest bidder receives the barrel – that’s about 300 bottles of normal size wine worth at least $ 100,000 – but also decides which bottle size the wine should be filled into. Take part in a virtual tasting with the manager of the winery, Stéphanie de Boüard-Rivoal; and take part in next year’s grape harvest.

But because of the underlying blockchain technology, the company sees NFTs linked to French wine as something that can provide security for Bordeaux futures buyers who are buying through the en-primeur system, which is now raising money for wine that is not bottled and has been delivered for several years.

Bordeaux locks, which sell wine futures as non-physical assets, have always been vulnerable to fraudulent activity, said Tom Gearing, CEO and co-founder of Cult Wines.

“If a company says, ‘I have a bottle of wine that I want to sell you in two years’ time,’ but if that company goes bankrupt you can lose that wine,” he said. “If an NFT can identify the owner of a keg that will be delivered at a later date, it could open the idea of ​​first-time buyers to a whole new audience.”

Cameron Smith, director of Mayfair Private Office, which invests in real estate around London, has bid for the NFT wine. Auctioning the NFT when paired with a wine barrel opens up the buying experience for more people, Smith said.

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

One issue that technology hasn’t caught up with is the taxation of NFTs. Cryptocurrency is taxed at the capital gains rate, and many experts believe that NFTs are considered collectibles, which are taxed at a rate of 28 percent. But the tax question gets more complicated because a lot of NFTs are bought with cryptocurrency. So every transaction would be seen as a realization of the profits of this cryptocurrency.

“It’s a perfect example of the law not catching up with technology,” said Jere Doyle, senior vice president at BNY Mellon Wealth Management. “Collectibles in sections of code refer to any work of art, carpet or antique, metal or antique, or any other tangible personal property. Would a work of art be tangible or digital? Does material change a work of art? We do not know it.”

One thing is certain, said Mr Doyle, when NFTs increase in value, the owner must pay taxes on them.

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