NFTs are tax write-offs for investors.

Just a year ago, Washington DC’s Hirshhorn art museum – the capital’s preeminent contemporary art museum – was asking whether non-fungible tokens (NFTs) were a “fad or the future of art”. After a year, it appears that “tax write-off” was the correct answer.

This year was not only the year that cryptocurrency values were destroyed by investor fears, rising interest rates, inflation, and scandals; it was also the year that crypto’s cartoonish art cousin the NFT – an electronic identifier confirming the authenticity of a digital collectible – collided with reality.

Christie’s sold a digital collage NFT by the artist Beeple for nearly $70 million (£58 million) in March 2021. In January, Justin Bieber paid $1.29 million (£1 million) for a “Bored Ape” NFT, a graphic of a, well, bored ape. From Michael Jordan to former First Lady Melania Trump, everyone was in on the joke.

Now, along with the broader crypto market, the appetite for NFTs has waned to the point where a specialized market has emerged for collectors looking to sell off their once-valuable “digital collectibles” as tax losses to offset their income tax bills.

Unsellable, a recently launched service, aims to assist collectors in doing just that. Consider it a distressed asset fire sale.

“While every investment class has losers, many of the NFTs we invested in were not only down big; they were now totally worthless… illiquid… unsellable,” according to the service’s website.

Unsellable, which claims to be “building the world’s largest collection of worthless NFTs,” buy the underlying tokens for a fraction of their original value and issues an official tax receipt.

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The company then collects the NFTs into “The Unsellable Collection” – currently containing 1,600 digital collectibles – with the aim of creating the “ultimate artifact of the early days of Web3”.

It’s easy to understand why buyers might be eager to sell for a fraction of their initial investment. The demand for digital certificates of ownership, which underpin NFTs, has dwindled. Between January and March 2022, more than $19 billion (£16 billion) was spent on NFTs. Monthly spending has dropped by 87% since then, according to blockchain analysis firm Chainalysis.

Only $442 million (£368 million) was spent in November, and the number of active NFT traders is roughly two-thirds of what it was a year ago. On January 16, 2022, 144,000 NFTs were sold for $142 million (£118 million) according to the Nonfungible.com market tracker. There were 17,000 sales for $28,000 (£23,294) on Wednesday.

Images from the Bored Ape Yacht Club (BAYC), such as the one Bieber purchased, are the most traded collection of NFTs. Each Bored Ape image contains a one-of-a-kind combination of 170 possible traits, such as expression, headwear, clothing, and more. “All apes are dope, but some are rarer than others,” according to the company.

Yuga Labs, the company behind Bored Ape, was recently hit with a class-action lawsuit alleging that it exaggerated the value of its intangible goods. Celebrities and former NFT evangelists named in the lawsuit include Bieber, Paris Hilton, Madonna, Jimmy Fallon, and Kevin Hart.

“Defendants’ promotional campaign was wildly successful, generating billions of dollars in sales and re-sales,” according to the lawsuit, which was filed on December 8 in a California district court.

“During the relevant period, the manufactured celebrity endorsements and misleading promotions regarding the launch of an entire BAYC ecosystem (the so-called Otherside metaverse) were able to artificially increase the interest in and price of the BAYC NFTs, causing investors to purchase these losing investments at drastically inflated prices.”

The NFT market is a long way from where it sat in October 2021, when Mike Winkelmann – the digital artist known as Beeple – sold his work at Christie’s, making him “among the top three most valuable living artists”.

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Winkelmann was upbeat about the internet’s role in creating art last week, but he admitted: “The market is a bit crap right now,” he told Bloomberg. “Do I believe it will return to where it was? I’m not sure… I believe it will continue to rise from here.”

And one former celebrity, as well as a former US president, concurs. Donald Trump launched a collection of digital collectibles depicting him as an astronaut, a cowboy, and a superhero earlier this month. It was gone in less than a day.

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