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Title : NFT Money Laundering: FACT OR FICTION?! Deep Dive
link : NFT Money Laundering: FACT OR FICTION?! Deep Dive

NFT Money Laundering: FACT OR FICTION?! Deep Dive

NFT Money Laundering: FACT OR FICTION?! Deep Dive

the united states department of the treasury recently released a report about money laundering in art and mentioned cryptocurrency nfts as an area of concern this got me thinking about the dark side of nfts and whether regulators are actually concerned about this emerging asset class today I'm going to briefly explain what nfts are tell you a bit about money laundering in art and see whether there are any signs of illicit activity in the nft market if you currently hold any nfts or plan on acquiring some in the future this is a video you cannot afford to miss  before we talk about any jpegs there's something that needs to be said if you believe i'm a financial advisor i'm afraid you've been misled education and entertainment are the only things i spread please 

contact a financial advisor if your portfolio is deep in the red if this is the first time you see me on screen my name is guy and crypto is my scene the coin bureau youtube channel is a high quality crypto content machine coins tokens news and reviews are just a few of the topics in my routine if this is the sort of stuff you want to see subscribe to the channel and ping that notification bell if you're keen if you don't have time to stick around until the end you can use the timestamps below to skip ahead just remember to like the video before you go and consider sharing this video with a friend that's all you need to know about me now let's explore the dark side of nfts if you still don't know what nfts are how they work and why they're valuable here's the simple explanation nft stands for non-fungible token now non-fungible is effectively a fancy term for something that is unique and has a limited quantity like an old 

collection of fine wines from a specific region for instance a token is a digital asset that exists on a blockchain which is basically a database of information that's shared across multiple computers these computers constantly check that the information in that database is correct and up to date and this makes any digital assets on the blockchain very difficult if not impossible to modify or delete most nfts exist on cryptocurrency blockchains and primarily on ethereum that said there are millions of nfts on other cryptocurrency blockchains such as solana and cardano now there are many things that give nfts value for starters there's scarcity when something is in short supply it tends to be valuable this is basic economics and though this principle doesn't apply perfectly to non-fungible assets like nfts it does play a role in their valuations next there's utility many nfts give the holder additional perks such as access to an exclusive 

club discounts to certain events or services and even cryptocurrency airdrops this ties into another value driver and that's status if an nft was created by someone famous or even just previously held by someone famous then this gives that nft additional value in the eyes of some investors and finally there's plain old speculation this can be because of something like a promise that the nft in question will eventually have some utility or status driver that will give it value in the future now there are actually many different types of nfts and many other factors that give them value besides the ones i mentioned here 

you can learn more about those using the link in the description as most of you have probably noticed by now the nft market has been booming according to chain analysis over 44 billion dollars was invested into nfts in 2021 on ethereum alone to put things into perspective just 106 million dollars was invested into ethereum-based nfts in 2020. the catalyst for the meteoric rise of cryptocurrency nfts was the 69 million sale of beeples nft consisting of his first 5 000 artworks in march 2021 people's every day's nft is the most expensive cryptocurrency nft ever sold to this day and the crazy thing is that its purchase price is dimes on the dollar compared to the most expensive painting ever 

sold this is the salvatore mundi which is believed to have been painted by renaissance polymath leonardo da vinci more than 500 years ago now the salvator mundi was last sold in 2017 for over 450 million dollars and is now worth 475 million dollars because of inflation but wait it gets better in 1958 the salvatore mundi sold for just 72 dollars to an anonymous buyer who went by the pseudonym kuntz this is because the salvator mundi was originally believed to be the work of one of leonardo da vinci's students in 2013 however a group of art collectors including the then owner of the painting came together and determined that it had in fact been painted by leonardo himself the salvatore mundi subsequently sold for a staggering 80 million dollars 

creating a lot of controversy in the fine art community the 127 million sale that happened shortly after that even resulted in a lawsuit now besides the fact that the authenticity of the salvatore mundi is disputed to this day the auction house which sold the painting allegedly has a history of working with money launderers whether the auction house knew they were working with money launderers isn't clear however because you don't always need to complete kyc to buy and sell fine art put simply the buyers and sellers of fine art can be and often are anonymous this makes fine art the perfect industry for money laundering for those unfamiliar money laundering involves turning so-called dirty 

money that was earned by illegal means into clean money that looks like it was earned legitimately the term comes from mafia boss al capone who is believed to have used laundromats to make the dirty money from his shady shenanigans look legit all he had to do was say that lots of people had come in to do their laundry and it wouldn't raise any red flags at government authorities like the irs in reality it's possible not a single person came now money laundering in fine art works much the same way and a famous example involves an art dealer named matthew greene what matthew would do is write up fake ownership papers for famous works of art for criminals who were looking to launder 

money then the criminals would sell the artworks for their true value via matthew and matthew would keep a cut of the sale as commission other popular money laundering methods in fine art involve variations of what some believe happened with the salvator mundi buy an old painting for a few bucks have your friends in the art community say it was painted by someone famous and then resell it for millions of dollars to some billionaire who isn't all that bright because the buyers and sellers can be anonymous this means there's a low risk that the person who bought the painting will be able to hunt you down 

legally or otherwise but wait there's more most fine art trading happens in special places called freeports now freeports are warehouses which are usually located at or near major international trading hubs such as well ports here's the kicker any items inside freeports or other so-called free economic zones are technically in transit and this means that any items sold inside freeports are subject to little or no tax it should come as no surprise then that freeports are extremely popular with the financial elite so much so that the geneva freeport in switzerland alone is believed to hold over 100 billion dollars in fine art now on that note if you're looking for help with your crypto taxes be sure to 

check out my video about the top crypto tax tools using the link in the description anyhow unfortunately for the financial elite it looks like these fine art loopholes could end and that's because of a recent report released by the united states treasury department about money laundering in fine art obviously they take issue with the fact that the fine art market is a quote black box and they're not too happy about all the tax avoidance happening at all the free ports around the world either what's interesting is that the authors note that 8 billion is estimated to have been laundered using fine art in 2010 given that the fine art market saw around 50 billion dollars in sales in 2010 this suggests that almost 20 of all fine art sales involved ill-gotten gains note that this is just my quick 

maths now if that wasn't bad enough almost half of all fine art trading takes place in the united states and that figure rises to over 80 percent when you include china and the good old united kingdom so what about nfts well contrary to what the crypto headlines would have you believe the treasury's report didn't spend too much time talking about them this is primarily because the financial action task force or fat f which issues recommendations for money laundering regulations doesn't recognize nfts as an asset class for whatever reason it's also partially because the treasury department apparently doesn't think the nft market is large enough to warrant extreme scrutiny this is odd 

because the authors simultaneously acknowledge that the nft industry has quote reached similar valuations as traditional art mediums they also highlight the fact that money laundering is easy to do with nfts since someone just needs to mint an nft and buy it from themselves using another cryptocurrency wallet with their illicit funds and claim they sold a legitimate work of art to the authorities when they cash out back to that in a bit the only really concerning thing about nfts in the treasury report relates to nft marketplaces like openc which the authors say could be subject to the same regulations as cryptocurrency exchanges in the united states if this were to happen this means you would have to complete kyc to buy and sell nfts on most major nft marketplaces which is ironic given how little scrutiny the fine art industry has faced in that department case in point auction houses in the united states are not legally required to 

collect any information at all about buyers and sellers though a few have opted to do so voluntarily in a bid to cover up their patchy pasts in any case if you're curious about the top nft marketplaces in cryptocurrency you can check out my video about that using the link in the description now earlier i mentioned that the hype around nfts began after the big beeple nft sale in march last year however it looks like there was another possibly more significant factor that caused billions of dollars to pour into the nft industry as pointed out by the treasury report fine art sales fell from 67 billion to just 50 billion in 2020. the authors speculate that this was primarily because of the pandemic people couldn't meet in person so it was hard for high profile high value fine art sales to take place although i couldn't find a figure for fine arts sales in 2021 i reckon it's safe to assume that the same downtrend continued given that the pandemic was still around last year i'd go as far as to assert that fine art sales fell even more in 2021 

than they did in 2020 since many countries imposed even harsher restrictions than they did during the first wave as such it's possible if not likely that some of the money missing from the fine art market found its way into the nft market last year this is certainly good news but recall that money laundering appears to be rampant in the fine art community and it's arguably easier to launder money with nfts than physical non-fungibles this begs the question of just how much illicit activity took place in the nft industry last year and this is a question that chainalysis attempted to answer in a recent report of its own chainalysis divided illicit activity with nfts into two categories wash trading and money laundering in the context of nfts wash trading is when someone buys an nft from themselves with other crypto wallets they operate to make it look like their nft is more valuable than it is and then sell it for a profit this is because 

the trading history will suggest that there were a bunch of other people who bought and sold the nft at similar or even higher valuations in the past causing untrained nft traders to ape-in chain analysis identified 262 users that frequently engaged in nft wash trading with frequently meaning more than 25 trades with wallets they own and operate funnily enough wash trading isn't all that profitable after you account for all the gas fees and the largest wash trader actually ended up losing over eight thousand dollars from their 830 wash traded sales this is what you're seeing in the image by the way even so some nft wash traders were insanely profitable so much so they actually made up for the losses of their peers to the tune of about 8.5 million dollars when it comes to money 

laundering chain analysis estimates that around three million dollars of dirty money were made clean with nfts in 2021. now this is a drop in the bucket compared to the 44 billion dollars that was invested into nfts during the same period even when you add it to the 8.5 million made from wash trading if these figures are correct it means we're unlikely to see a crackdown on the nft industry anytime soon which is certainly good news now if you want to learn more about blockchain analytics companies like analysis and how it figures out all this stuff you can do that by clicking the link in the description anyways if you're surprised by chain Alice's findings of illicit activity in the nft industry you're not alone as much as I love nfts I'm not blind to the fact that these numbers don't seem to add up especially when you consider the frequency of money laundering 

in fine art it's not a stretch to draw such parallels between the two industries either this is because chainalysis recently published another report about nfts which inadvertently reveals just how similar the nft market and fine art market really are recall that some fine art pieces such as the salvator mundi saw a sudden spike in price after being worth nothing for a while as it so happens some nft collections saw abnormally high spikes in trading volume and price during short periods of time in 2021 to be fair this could just be a sign of a pump and dump by the nft creator recall that most fine art trading takes place in the united states united kingdom and china and that switzerland houses one of the largest free ports in the world now as it so happens most nft traders come from these regions and at similar percentages though this could admittedly be a consequence of the fact that these regions are wealthy enough to spend 

lots of money on crypto stuff recall that most money laundering methods in fine art involve a trusted third party of some kind be it an auction house or individual what's also interesting is that the nft sales with the highest profits are those with a white list this is when certain community members are allowed to purchase an nft in advance often for a lower price as highlighted by chain analysis quote the data suggests it's nearly impossible to achieve outsized returns on minting purchases without being whitelisted though this could just be the basic byproduct of getting in early then again chain analysis found that quote just five percent of all addresses account for 80 of profits made on secondary sales which is a suspiciously high success rate moreover quote our most interesting finding is this the most successful nft investors actually don't have a significantly higher hit rate than others when it comes to flipping nfts in other words the most successful nft investors are using the same strategy as their 

counterparts yet they are somehow making more profits and by a wide margin at the end of the report chanalysis reiterates that quote the data shows that a very small group of highly sophisticated investors rake in most of the profits from nft collecting sounds eerily similar to the fine art market if you ask me now again this could all be explained by the expression of a statistical phenomenon called the Pareto distribution look it up when you have the time now the one chain analysis finding that's harder to explain away however is the origin of funds for nft traders as you can see more than a third of these funds came from d5 protocols and more than 80 came from a smart contract of some kind 

meanwhile, only 15 percent came from centralized exchanges this is significant because interaction with centralized exchanges is typically how blockchain analytics companies such as chain analysis identify wallet holders this is because anyone using a centralized exchange must complete KYC especially after the widespread regulatory crackdown last summer by contrast d5 protocols and smart contracts don't require KYC to use and this means the nft traders using funds from these sources are following the same standards as fine art trading near-total anonymity while some of the smart contract functionality can be explained away by smart contracts associated with NFTs even chain analysis admits that quote this doesn't look like the average crypto wallet whether this 

the connection can be drawn ultimately depends on how much money laundering is going on in define and a preview of analysis's upcoming crypto crime report suggests a connection is there specifically analysis estimates that criminals laundered 8.6 billion dollars worth of crypto in 2021. almost 20 percent of this crypto found its way to d5 protocols so about 1.5 billion dollars now that's not much compared to the total value locked in d5 nor is it much compared to the total amount of money invested into nfts last year however these figures are high enough to suggest that there is likely more illicit activity happening in the nft industry than meets the eye not only that but the 

abnormal valuations of nft collections are common and that means nobody would ever bother to ask questions about where that money is coming from or going to a picture of a rock for 500k sounds fair one million dollars for selfies totally normal four million dollars for the doge meme seems legit 530 million dollars for a pixelated jpeg oh wait that was a flashlight now you can learn more about those using the link in the description ps some are speculating that the nft flash loan was used for money laundering too just saying now that's it for my analysis of the dark side of nfts if you found the video interesting let me know by smashing that like button be sure to subscribe to the channel too and ping that notification 

bell so you don't miss the next video while you wait for the next one to hit the tube you can head on over to coin bureau clips if you want to see what goes on behind the scenes you can also follow me on Twitter TikTok and Instagram to get my thoughts on the crypto market in real-time if you prefer a summary of what i say join my telegram channel for detailed daily crypto market updates if you're curious about the cryptos and nfts i personally hold you can find out what they are by subscribing to my weekly newsletter and finally there's the coin bureau merch store which is packed with crypto themed hoodies teas sweaters beanies mugs and more you can find your way to all these resources using the links down below thank you all so much for watching remember to keep calm and hodl on adios adenosine ciao goodbye

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