NFT Tax Breakdown
Central Exchange Risks + Magic Eden Collection Offers
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gm, happy Friday!
Here is the breakdown of today's newsletter:
💰 NFT taxes🧐 Crypto exchanges shady?🪄 New Magic Eden Feature
Redbull will be rocking an Azuki decal on their F1 vehicles at the Abu Dhabi Grand Prix. The Azuki in question is #8494 "Lei the Lightning" (CT)
Pudgy Penguins partner with Kellogs to bring their NFTs to cereal boxes! (@pudgypenguins)
CrytpoPunks have flipped BAYC during this bear market (BT)
Comic and Web3 Advisor Leah Lamarr is selling out her comedy tour and sharing more than a few NFT-themed punchlines. (@LeahLamarr)
Do you owe taxes on your NFTs? Check out this helpful chart. (CD)
Founder of Metamask Dan Finlay has developed Moby Mask, an anti-phishing initiative. (@MobyMask)
Are Coachella Lifetime Ticket NFTs lost to the now-collapsed FTX? (PF)
The Syndicate investment group implements Social Staking for Y00ts PFPs on Twitter. (@thesolsyndicate)
Co-Founder of Solana NFT protocol maker Metaplex, announced the protocol has undergone a company-wide round of layoffs. (@meta_hess)
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NFT Tax Season Fast Approaching 👀
Let's not beat around the bush. A lot of our beloved NFT community’s portfolios aren’t looking the most stellar. Chances are, you might have bought the NFT at the right time but you didn’t sell it at the right time. Another possibility is that Ethereum’s fluctuating price offsets the gains you made with NFTs. Regardless of if you experience a lackluster year in NFT trading, the bright side is that you may be able to offset the taxes you owe on gains with the losses you accumulated. It turns out those losses still can have a small outcome of good...
We may be internally decentralized… but the whole entire superstructure of crypto is being surveilled by the state’s surveillance center. They know all the moves you made because you had to have purchased crypto from a custodial account that asked for your SSN, and they have systems that can connect the flow of capital from there to the places you sent it like MetaMask.
Calculating everything yourself can be complicated… but fortunately, there are a few software options that can account for your NFT purchases and sales and their underlying crypto purchases and sales. CoinLedger offers tax calculation on your NFT trading as do some other software.
💡 Here is a good breakdown of NFT taxes:
THE DROPIt can be tempting to shy away from being transparent about crypto and NFT trading to Uncle Sam, and one may even develop a number of reasons for doing so. But the last thing you want to risk is getting audited some years down the line for some buys and sells that you made. The IRS plays a weird game with its citizens where it says, “hey report everything that you can possibly remember doing so that we can take our fair share of the cut…but also we already know everything that you did so don't screw up :)” Fortunately there are automated programs that take much of the leg work out of this obligation of ours, check out your options.
Exchange Reserves Put Into Question 🧐
After the downfall of FTX, the reserves that CEXs hold have come into question. That being said, there are a lot of exchanges out there that function very similarly to FTX, or in the same fashion as FTX: with minimal reserves.
Here are some of the facts that you should keep in mind:
Binance has an approximately $69 billion in reserves across all coins. But, a large portion of their reserve, 31.44%, is held in their native stable token $BUSD (over 21.7 billion). Binance has said that these are backed by customer deposits, but platforms like FTX said this numerous times. And we all know what happened with that.
Crypto.com “mistakenly” sent 80% of their Ethereum reserve to Gate.io. While they did receive those funds back, it bears the question: Why are hundreds of thousands of dollars in reserves being transferred between liquidity providers? What is the reason for that? It’s definitely not just a typing error…
On Wednesday, Gemini had an influx of withdrawals, which added up to over $485 million. While they have come out and said that customer deposits are backed 1 to 1 (Twitter). It seems like every exchange is coming out to say this just to slow down the outbound traffic a little…
"The assets we disclosed were 100% user assets. We don't do any conversion, it's just held as is," says @cz_binance. "Our internal operating funds, we have about a third of stable coins. We're still profitable, so we don't dig into our reserves for money."
— Squawk Box (@SquawkCNBC)
Nov 17, 2022
The DropAs daily users of cryptocurrency, we have to make sure that we’re informed on the reserve capacity and control of these CEXs. Even if you don’t have any money sitting inside of a hot centralized wallet, you should still keep in mind that these CEXs are the reason why prices are the way they are. They define the inbound and outbound orders in the market. They’re the market makers. If they don’t exist, our tokens are worth nothing. WAGMI.
Magic Eden Introduces Collection Offers 🔥
Magic Eden has rolled out a series of updates for its community this week. From the ‘Creator Monetization Hackathon’ to ‘Collection Offers and Instant Sell’ and to Fair Mint Mechanism. The announcements just kept rolling in with the latest being that the marketplace with Coral Cube is adding an extra $20k bounty to the Hackathon for those that use the CC royalty API in a submission. The Hackathon which has been underway since 28th October invites innovators to experiment and innovate with ideas that will allow creators in the Solana NFT space to earn royalties or identify alternative monetization models.
The Fair mint Mechanism is a new feature that is only available for Ethereum projects for now. It provides a new way for NFT projects to conduct primary sales. This solution needs the marketplace to balance and determine a ‘clearing price’ based on the amount of ETH deposited and the number of NFTs available for minters.
🧵/ INTRODUCING AN EXCITING NEW WAY TO MINT!
Ever scheduled your day around a mint? Thought some mint prices were too high or too low? Or maybe you missed a mint because everyone else was too fast?
Then this is the solution for you.
Check this out 👇
— Magic Eden 🪄 (@MagicEden)
Nov 16, 2022
Collection Offers enable buyers to easily place offers globally on an entire NFT collection. This feature is useful when you want to buy into a project at a specified price but also are not particular about exactly which item you're buying. The introduction of this feature - Collection Offers means all holders or potential sellers will have the option of instantly selling their NFT.
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Disclaimer: The Drop DOES NOT provide financial advice. All content is for informational purposes only. The Drop is not a registered investment, legal, or tax advisor or a broker/dealer. Trading any crypto-related asset is extremely risky and could result in significant capital losses.
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