Last week, CryptoPunk #4156 sold for a whopping $3.3 million. However, the sale came at a $7 million loss for the owner.
Last Friday, one of the rarest CryptoPunks sold for 2,691 ETH, which at the moment was worth roughly $3.3 million. But what surprised most is that the owner lost $7 million on the deal. How is this possible?
When Did CryptoPunk #4156 Sell?
This rare CryptoPunk, whose rare traits include an “ape-like” appearance and a blue bandana, is one of the 24 apes in the collection and is, therefore, one of the rarest characters. It was originally sold on December 9th, 2021, for 2,500 ETH. That’s nearly 200 ETH than it was sold today.
However, if you’ve just a bit familiar with the crypto market, you’re quite aware that the price of Ethereum has been plummeting over the last few months. Last December, 2,500 ETH was worth much more than it does today.
The Punk made the owner nearly $10.3 million last year at the sale.
How Does This Benefit the Seller?
So, what’s going on here? Why did the owner sell at a $7 million loss? Some NFT investors think that the Punk in question is easily worth more than $25 million at this point. However, the owner may have sold for a loss on purpose.
It turns out the sale may have something to do with taxes.
The former owner of the Punk will now be able to write off this sale as a $7 million loss on his taxes. In the end, the sale could prove financially beneficial for him. That happens through a process known as “tax loss harvesting.”
The move has become extremely popular in the crypto community over the last couple of years.
What Is Tax Loss Harvesting?
In the United States (and many other countries), when you sell an asset for more than you bought it for, you have to pay capital gains taxes on the profits. If you sell an asset for less than paid, you can write off the loss on your taxes.
This is where tax loss harvesting comes in.
Some investors intentionally sell assets at a loss to offset their capital gains and reduce their tax liability.
For example, let’s say an investor bought a CryptoPunk for $1 million. The value of the Punk then surged to $10 million. The investor then sells the Punk and pays capital gains taxes on the $9 million profit.
Now, let’s say the value of the Punk plummets to $5 million. The investor then sells the Punk at a $5 million loss. The investor can now use that $5 million loss to offset the $9 million in capital gains taxes from the first sale.
Was This a Smart Move?
As some Twitter users have pointed out, as far as financial moves go, the sale might be a “really smart move.” That’s because making a positive ROI on this Punk couldn’t be possible soon due to the crypto winter we’re experiencing.And this isn’t even the only big crypto sale in the last month. Punk #464 – another Ape Punk – was sold for around $2.6 million. Will we see more big sales like this as the bear market continues? From the look of things, it’s quite possible.