LooksRare Has Reportedly Generated $8B in Ethereum NFT Wash Trading (decrypt.co) 65
LooksRare seemingly came out of nowhere to become the biggest rival yet to leading NFT marketplace OpenSea earlier this month, but there's a big asterisk on the astronomical trading figures coming out of the platform. From a report: It's marred by rampant wash trading, as users buy and sell NFTs between wallets they control in an effort to manipulate daily trading rewards. Now we have a sense of how severe the wash trading has become since LooksRare launched on January 10. NFT analytics firm CryptoSlam reported today that it has identified more than $8.3 billion worth of wash trading from LooksRare, making up the vast majority of trading volume on the marketplace to date. Most of the wash trading comes from royalty-free collections, which means that sellers don't have to pay the creators a secondary sale fee. Larva Labs' Meebits has seen the most wash trading at $4.4 billion, with Terraforms at $2.9 billion, Loot at $705 million, and CryptoPhunks (a CryptoPunks derivative project) at $251 million, plus $62 million from other projects.
Tax fraud too (Score:2)
Every single crypto or NFT transaction is a taxable event. Wash traders owe taxes on the amount of each buy and sell.
Re:Tax fraud too (Score:5, Informative)
Every single crypto or NFT transaction is a taxable event. Wash traders owe taxes on the amount of each buy and sell.
Yes, except that if it is a true wash trade, there is no profit or loss to be taxed on. If I sell myself something priced at $50 and then sell it back at $100, I have not made a net profit and owe no taxes. Of course, such dealings are generally illegal, but since the NFT market is essentially unregulated, there is probably no penalty. Since none of these things have any intrinsic value, the prices are merely a formality anyway. At least with tulips, you could plant them and have a pretty flower.
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I don't think that's correct, there's a $50 taxable "profit" in your hypothetical. It could be a $100 profit depending how it's claimed.
It's really moot, none of these people are paying taxes. At some point they'll need to cash out actual $ and that's where the IRS will hopefully get their pound of flesh, especially with the new reporting rules.
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I don't think that's correct, there's a $50 taxable "profit" in your hypothetical... It could be a $100 profit depending how it's claimed
Since they are not really selling it, just doing sham transactions with themselves to raise the price, there is no tax event. It's like me writing myself a check for a million dollars for an autographed picture of myself. It "sold" for a million but was never really sold. Though typically, a wash sale generates a loss that is not tax deductible; ie. I sell X shares of stock I own at a loss of $5 per share and and buy X shares back (or substantially similar ones) at the lower price, essentially creating
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Depending on your jurisdiction, the sales event itself is or may be taxable, without regard to net profit. I see many presumptions in this (and other cryptocurrency threads) that NFTs are similar conceptually to stocks or other financial instruments; if the tax codes decide NFTs should be treated as common assets (as, for instance, an art work or a concert ticket), then the tax treatments will also follow.
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Depending on your jurisdiction, the sales event itself is or may be taxable, without regard to net profit. I see many presumptions in this (and other cryptocurrency threads) that NFTs are similar conceptually to stocks or other financial instruments; if the tax codes decide NFTs should be treated as common assets (as, for instance, an art work or a concert ticket), then the tax treatments will also follow.
It would be interesting to see if a tax authority considered a sale to be taxable if it was made between 2 separate accounts that were controlled by the same person. I would think most would, however, if the sale was between 2 separate entities.
Re:Tax fraud too (Score:5, Interesting)
"The IRS therefore sees NFT transactions as a simultaneous sale of your cryptocurrency and purchase of a new asset which is an NFT, therefore resulting in a capital gain or loss"
https://www.coindesk.com/marke... [coindesk.com]
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"The IRS therefore sees NFT transactions as a simultaneous sale of your cryptocurrency and purchase of a new asset which is an NFT, therefore resulting in a capital gain or loss"
https://www.coindesk.com/marke... [coindesk.com]
There never was any transaction, the asset and the coins were owned by the same person, per the TFA. All they did was move coins from one wallet to another, under the guise of buying an NFT they owned. Had they sold it to a third party it's be a different story. If they had done the same thing in reverse to create a loss the IRS would probably say, "Uh, no..." because there never was a sale of any of the assets involved.
I agree crypto should be treated for tax purposes like any other asset and the value
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That doesn't matter to the IRS. There's a reason wash-trading is illegal, it's fraud.
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That doesn't matter to the IRS. There's a reason wash-trading is illegal, it's fraud.
Wash trading is illegal because it creates an artificial loss; what was described in the TFA is not was trading, as defined in securities law.
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It's like, you're trying to argue, "It wasn't a taxable event because it was wire fraud!"
The implication is that you go to jail, but also still owe the taxes.
If you were self-dealing on some market, I agree that makes them "sham" transactions, but I don't see why that would shield them from taxes.
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Most of the artificial inflation of NFT's is so they can then be used as collateral for crypto loans. The entire crypto sphere is one gigantic fraud and soooo many people are going to be wiped out soon when it goes pop.
I would love to be a fly on the wall when that person explains to the IRS that he was just artificially inflating the price of his NFT asset to deceive a lender or potential buyers so it's all good. What is with these crypto-children?
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It's like, you're trying to argue, "It wasn't a taxable event because it was wire fraud!"
The implication is that you go to jail, but also still owe the taxes.
If you were self-dealing on some market, I agree that makes them "sham" transactions, but I don't see why that would shield them from taxes.
Because no actual sale took place, hence no profits.
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Most of the artificial inflation of NFT's is so they can then be used as collateral for crypto loans. The entire crypto sphere is one gigantic fraud and soooo many people are going to be wiped out soon when it goes pop.
I would love to be a fly on the wall when that person explains to the IRS that he was just artificially inflating the price of his NFT asset to deceive a lender or potential buyers so it's all good. What is with these crypto-children?
I agree they are setting up to defraud buyers by artificially driving up prices, something that is not new in the art world. However, until an actual sale occurs, there are no tax implications.
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Here I'll try to simplify it for you. Let's say you have two wallets, Wallet A and Wallet B.
You mint an NFT to Wallet A.
Wallet B buys that NFT from Wallet A for 50 ETH. According to IRS rules Wallet A now has a $134,450 short-term capital gain at current ETH prices..
Wallet A then buys it back for 100 ETH. According to IRS rules Wallet B now has a $134,450 short-term capital gain.
Wallet B buys it back again for 150 ETH. According to IRS rules Wallet A now has another $134,450 short-term capital gain.
Your
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I messed up subtracting the $3k from $121k. The $3k should've been subtracted from the $405,350.
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Here I'll try to simplify it for you. Let's say you have two wallets, Wallet A and Wallet B.
You mint an NFT to Wallet A.
Wallet B buys that NFT from Wallet A for 50 ETH. According to IRS rules Wallet A now has a $134,450 short-term capital gain at current ETH prices..
Wallet A then buys it back for 100 ETH. According to IRS rules Wallet B now has a $134,450 short-term capital gain.
Wallet B buys it back again for 150 ETH. According to IRS rules Wallet A now has another $134,450 short-term capital gain.
Your NFT is "valued" at 150 ETH but nobody is going to buy it from you for that.
As the owner of both wallets you now owe the IRS short-term capital gains taxes (~30%) on $405,350, or about $121,005 USD. That's not even counting whatever trading was involved in when you acquired the ETH. The IRS doesn't accept ETH so you better come up with $121k cash. If you sell crypto to raise that money that's more capital gains taxes owed next year. If you sell the ETH for less than you paid for it that's a loss you can claim but there's a cap on how much losses you can claim per year (something like $3,000/yr?). There is no cap on the amount of taxes owed on profits though so even if you do have the max losses to claim you'll still owe them at least $118,005.
See how this works now? Can you grasp how many people have just ruined themselves in the past six months? The country is bankrupt so bet your ass the IRS is coming for it.
The problem with your argument in the scenario described in the TFA is all that actually occurred was a transfer of coins from one wallet to another owned by the same person, which is not a taxable event. It may have been made to look like an actual exchange of something of value but no exchange actually occurred. Similarly, if the coins used had 2 different basis a paper loss could have occurred but would not be tax deductible because no actual transaction occurred, all that happened was one person moved
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Jesus Christ you are in for a rude awakening.
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Jesus Christ you are in for a rude awakening.
Cryptocurrencies are capital assets, i.e. receive similar tax treatment to stocks. If I move stocks from one brokerage account to another, even if I say it was to buy a car I already, I have not incurred any capital gains as no ownership change occurred.
If the person purchased $50 of ETH and then used it to pay, there are no capital gains because the basis in ETH was $50. If he paid $100 for it and bought it for $50 he could not claim a $50 capital loss, either, since he owned both assets in the deal. O
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Have fun explaining that to the IRS and how the rules they've already crafted for crypto and NFT's are wrong. Also be sure to tell them that you were only artificially inflating your NFT asset to deceive a lender or other potential buyer. That way they'll refer your case to the DOJ at the same time they're garnishing your wages and seizing assets.
https://www.coindesk.com/marke... [coindesk.com]
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Have fun explaining that to the IRS and how the rules they've already crafted for crypto and NFT's are wrong.
I'm not saying the IRS is wrong, just your application to the transaction described in TFA. The key part of the reference you provided is:
The IRS classifies cryptocurrency as property rather than currency, Waltman says. So when you buy an NFT using cryptocurrency – like most NFT transactions – you’ll technically be buying and holding an asset for a short period of time.
They, crypto and NFTs clearly are property. However, if you own the NFT and the crypto, you are not buying or sell
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Just explain to the IRS that money-laundering is OK because you just want to be rich.
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Just explain to the IRS that money-laundering is OK because you just want to be rich.
IRS does not care as long as you report the income. Tax returns are confidential; they can't run to the DOJ and say "look at this..." A smart crook declares all their income because they learned from Al Capone...
Re:Tax fraud too (Score:4, Interesting)
NFT transactions are done in crypto. Buying an NFT is a sale of crypto according to the IRS. Selling an NFT is a purchase of crypto. Every single transaction is a taxable event.
https://www.coindesk.com/marke... [coindesk.com]
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NFT transactions are done in crypto. Buying an NFT is a sale of crypto according to the IRS. Selling an NFT is a purchase of crypto. Every single transaction is a taxable event.
https://www.coindesk.com/marke... [coindesk.com]
As I pointed out elsewhere, only if there is a real transaction. I can move coins between my wallets all day long without generating a taxable event; which is what the NFT "buyers" did.
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I'm sorry but you incorrect. You'd better have rock-solid documentation of every movement between wallets and proof you own all the wallets. So much for that whole anonymous govt-proof currency thing huh?
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I'm sorry but you incorrect. You'd better have rock-solid documentation of every movement between wallets and proof you own all the wallets.
Of course, you always need good documentation; I never claimed otherwise. If you don't; you're toast. If you do, you don't owe anything. Now, if you use teh new "value" of the NFT to inflate your net worth for say a loan, then you're stepping into the fraud zone.
So much for that whole anonymous govt-proof currency thing huh?
Anyone that thinks crypto is anonymous is a fool; just ask those in jail who though using crypto for drug deals protected them.
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It's like me writing myself a check for a million dollars for an autographed picture of myself. It "sold" for a million but was never really sold. Though typically, a wash sale generates a loss that is not tax deductible; ie. I sell X shares of stock I own at a loss of $5 per share and and buy X shares back (or substantially similar ones) at the lower price, essentially creating a paper loss since I still own X shares at the end.
As an active stock trader, this is something I have to think about all the time, and have to reconcile on my taxes every year.
You're only part way there.
When you sell yourself the painting for $1m dollars, that's $1m in income you received. If you can deduct the loss, then there is no net gain; the loss equals the gain. That's not the same as not having a taxable event, though! But if you can't deduct the loss, you're stuck paying taxes on the the gain! In your example, you owe taxes on $1m in profits. Yo
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This is a bit different. In order to buy an NFT you have to convert the cash into crypto first then buy the NFT with that.
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It's like me writing myself a check for a million dollars for an autographed picture of myself. It "sold" for a million but was never really sold. Though typically, a wash sale generates a loss that is not tax deductible; ie. I sell X shares of stock I own at a loss of $5 per share and and buy X shares back (or substantially similar ones) at the lower price, essentially creating a paper loss since I still own X shares at the end.
As an active stock trader, this is something I have to think about all the time, and have to reconcile on my taxes every year.
You're only part way there.
When you sell yourself the painting for $1m dollars, that's $1m in income you received. If you can deduct the loss, then there is no net gain; the loss equals the gain. That's not the same as not having a taxable event, though! But if you can't deduct the loss, you're stuck paying taxes on the the gain! In your example, you owe taxes on $1m in profits. You don't get to decide which events are taxable after the fact; an event is either taxable, or it isn't, regardless of your net profit/loss.
People new to stock trading do this to themselves all the time; they try to be a day-trader buying and selling just 1 stock, but when they sold it for a loss and then bought it back again, they're not allowed to deduct the loss. Which means that even though they lost money on each trade, they're still generating taxable profits. I saw a guy last week who had lost $150k, but had taxable gains of ~ $300. And as he realized, "it could have been a lot worse." But it was still pretty bad, because if he'd paid attention to the tax implications and not generated wash sales, he'd have had a huge capital loss that he could have rolled over to offset gains in future years.
The other problem with wash sales is they are illegal; but the fundamental difference between a wash sale and what TFA described was in a stock trade an actual exchange occurs; i.e. you are trading something of value, money, for some other item, such as stock, even if in the end you wind up with the same position. Even if you do a barter transaction it is a taxable event. In the TFA, nothing ever changed hands. Now, if the person who created the NFT didn't own the NFT, it's a whole different story.
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"every trade a tax" sounds pretty absurd to me
but nft's = howwash, glad it stands out so fast, the intention was to remove the middle man, which ofcourse horribly failed just like wallstreet took over btc to make sure the middle man owns it and mcdonalds doesnt run out of cheap slaves
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Every single crypto or NFT transaction is a taxable event. Wash traders owe taxes on the amount of each buy and sell.
Only on the sells, not on the buys.
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Wrong. When you buy an NFT you are selling crypto according to the IRS. EVERY NFT and crypto transaction is a taxable event.
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Buying a security is not a taxable event, it doesn't generate income and there is no excise tax.
If you buy a bow-and-arrows, or a fire truck, those have excise tax so it is a taxable event. For the vast majority of products, selling it is a taxable event, buy buying it is not.
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As a stock trader you're used to buying securities with cash. To buy an NFT you first have to buy crypto with cash and then use that crypto to buy the NFT. Taxable events all the way down according to the IRS. A bunch of people are in for a very rude awakening in the coming months (unless they just commit more fraud and don't report it).
wealth creation (Score:5, Insightful)
There was a time when companies created wealth by making things or providing services that improved the lives of people around the world.
Food and its distribution, new and renovated buildings, medicine, clothing, energy, chocolate.
Now wealth is created by selling each other houses for no productive gain, or digital hashes of images FFS. People, do something productive if you want to create wealth.
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No. They're digital number sequences. They're not the images. Nor are they in any way related to the images, aside from someone saying "Look. I say that this number sequence pretends to be this image!"
So it's far worse than even you thought :)
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Right-click a million-dollar NFT image, do a save-as and then mint a new NFT from it.
Now what?
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Profit!
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Now nothing. You made an NFT. Congratulations.
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Right-click a million-dollar NFT image, do a save-as and then mint a new NFT from it.
Now what?
Unless you're already wealthy and/or famous enough to convince suckers that your new NFT is worth buying, nothing.
Of course, if you're already in a position to influence people to buy your NFTs, there's no reason to copy the content of existing NFTs. You can take daily pictures of your sock drawer and make 'em into NFTs, so long as you've got a convincing line of shit to sell 'em with.
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Take a picture of Mona Lisa, print out a copy, now what?
Right there is an interest even if its vanity in having the first/original of a thing when it comes to art.
Which is probably the right way to look at these things. They perhaps do have some artistic value, even if they (or what they point to) can be reproduced a bazillion times at virtually no cost.
Just like the paintings the little old lady down the road turns out these things are probably worth $50 to a few hundred bucks if the underlying digital as
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There literally is no underlying digital asset. The NFT isn't the asset, nor will you be the owner of the 'asset', so there is no actual underlying asset.
The NFT is a string of numbers. The fact someone associates something with it, is completely irrelevant.
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yes yes yes - its a digital signature on URL - we get it...
The NFT is a string of numbers. The fact someone associates something with it, is completely irrelevant.
No its not...There is a social construct here. Social constructs have value as long as enough people follow/adhere to them. The NFT is accepted as you having 'the first one/real one/authenticated one' whatever collectors generally get excited about.
Its EXACTLY the same thing as valuing an original painting more highly than an masterful copy. Look at all the trouble and failure around authenticating art works. The copies are often so good multiple ex
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Someone could print and sell a certificate of authenticity for anything, even if they don't own the thing that they're claiming is authentic. In fact, they could print hundreds of certificates and sell each of them to different people.
And just like an NFT, owning a certificate of authenticity doesn't give you any sort of ownership or control over the thing. The owner of the thing can move it, sell it, or do whatever else th
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You may appreciate this:
https://www.dailyemerald.com/o... [dailyemerald.com]
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There was a time when companies created wealth by making things or providing services that improved the lives of people around the world.
Ever played a game of Monopoly? It was created in 1903 to demonstrate that absent regulations and appropriate taxation, people would just put their wealth to work for them and gobble up all the money.
Re:wealth creation (Score:5, Funny)
Re: wealth creation (Score:1)
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There was a time when companies created wealth by making things or providing services that improved the lives of people around the world.
This is commonly called value added work.
Now wealth is created by selling each other houses for no productive gain, or digital hashes of images FFS.
Clearly there is excessive speculation. [wikipedia.org] A solution to this is tricky. US tax code already tries to tax speculative activity higher than investment activity by having a higher tax rate on short term capital gains. [investopedia.com]
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Amazing (Score:1)
Even I who don't really understand the finer points of NFTs can see that a lot of gullible people are going to lose a lot of money and be very sorry in a few years, when the whole cryptocurrency Ponzi scheme comes crashing down.
If you invest in NFTs, you're either very stupid of very willing to suspend your disbelief.
NFTs aren't the point (Score:1)
NFTs whole raison d'etre is to pump up Ethereum. The idea is that the more Ethereum gets used, the more coin which gets burned in "gas" fees, and the more the remaining coins go up in value. It's all just a scheme to benefit the HODLers.
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If you invest in NFTs, you're either very stupid of very willing to suspend your disbelief.
It's no worse than 'skins' in Fortnite and all that other non-existant stuff people spend their money on.
OK, those who spent hundreds of thousands need a checkup from the neck up.
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At least with a game skin, if you buy it you get to see it while you play. If you don't buy it, you don't get to see it while you play.
With an NFT all you get is a hash. You can look at, or get a copy of, the digital asset without having the hash. Somebody else can also download "your" hash from the blockchain, and also view it!
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> It's no worse than 'skins' in Fortnite and all that other non-existant stuff people spend their money on.
Yeah, I dunno, I don't recall anyone saying Fortnite were going to change the world and take power from the Big Guy and give it to the Little Guy and we'd all live in paradise. I've heard lots of people say crypto is going to do that.
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I would be interested to see how the energy/CO2 footprint of NFTs works out compared to digital goods like Fortnite skins. I feel like virtual goods might meet society's lust for conspicuous consumption and wealth-signalling, with less environmental impact... but I haven't seen any numbers to back this up. And if it goes hand in hand with burning energy to add hashes to a blockchain, then the environmental costs go up too.
Learn math, make money (Score:2)
The name "LooksRare"... (Score:1)
... wasn't a red flag???
Fraud is a part of capitalism (Score:2)
The crypto crowd is learning the hard way that where there's money to be made there's fraud. That's why you need a market regulator, to prevent fraud.
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-Those who ignore history are doomed to be ripped off.
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The fraud and corruption is completely built into crypto. It's by design, it's not a bug.
Sounds familiar (Score:2)
A blast from the past [cornell.edu]:
Tip tow through the tulips... (Score:3)
When does the insanity end?