The NFT bonanza: from obscurity to a $40bn market

Going Ape

“If you see this, you’re very early.” The line has become a familiar trope in the frothy market for nonfungible tokens (NFTs), “where block-chain powered proof of ownership has created a hyper-speculative digital art market”, said Tim Bradshaw in the FT. Being “early” in the unregulated world of NFTs can be highly lucrative.

The first supporters of a new project are often rewarded with “whitelist” access before the token goes on sale to the general public – meaning a purchase costing “a few hundred dollars” can be “resold for thousands just hours later” if all goes well. Still, “in the increasingly desperate scramble to find the next Bored Ape Yacht Club” (the “iconic” NFT cartoonish series, which frequently sell for millions) “the opportunities for due diligence are limited”. And fraud is increasingly rife.

Monkey Business

So is money-laundering, said Tristan Kirk in the London Evening Standard. Last week, a New York couple – Ilya Lichtenstein and Heather Morgan (a rapper who dubs herself the “Crocodile of Wall Street”) – were accused of using fake IDs to convert a stash of bitcoin stolen five years ago into other digital currencies and NFTs. In Britain, the taxman is on the case, said Tom Rees in The Daily Telegraph. In a recent sting, HMRC seized “its first NFTs”, claiming they were part of a “sophisticated” VAT scam to defraud the taxman of £1.4m. Crypto and NFT dabblers beware: the taxman isn’t just “stepping up its clampdown on criminal gangs hiding money”, but also on regular investors unaware that they may be evading tax. Most investors who have sunk funds into these assets will be liable to pay Capital Gains Tax (CGT) if they exceed their annual £12,300 allowance when they sell or use them in a transaction. In other words, “gains should be treated like those made on other investments, such as shares”.

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Block buster

In the space of a year, NFTs have exploded from obscurity to a $40bn market. All credit to HMRC for being on top of the situation, said Emma Agyemang in the FT. As David Carlisle of the blockchain analyst Elliptic observes: “the UK is demonstrating increased sophistication in its ability to seize crypto assets”. There’s a new cop on the block.