Commentary》Why are art exhibitions disappearing, and Crypto Assets becoming the rich's Money Laundering trap?

Where does art and cryptocurrency meet? Sometimes they are competitive? Contemporary cryptocurrencies have risen with their unparalleled efficiency and anonymity, and the traditional art market has been sucked to the bottom and lost its status as a store of value and even a "money laundering tool". (Synopsis: The Return of Bitcoin NFTs) What are ordinal NFTs, inscriptions, electronic art? (Wall Street Journal: China's rich flee $254 billion a year, cryptocurrencies and art become regulatory blind spots) The rich often discuss how to "save taxes", and as for art, more people jokingly call it a good tool for the rich to "launder money". Last week, Facebook art content creator Katy Tsai threw out a post lamenting that the "Taiwan Contemporary Art Fair announced the closure of the Taiwan Contemporary Art Fair" in Taipei, which in the eyes of many may be just an innocuous message on the art page. But for anyone who has long tracked the trajectory of capital flows, it means that its moat, long used as a traditional tool for the wealthy to store value, hedge risk, and even navigate gray areas, is being washed away by more ferocious and efficient crypto forces. The closure of the Taipei Contemporary Art Fair is officially described as a "strategic adjustment" in response to changes in the art market. This is certainly true, but it is a symptom, not a cause. The real question the community asks that art fairs are difficult to run is, why is the art market shrinking? Where did all the "hot money" that was supposed to flow into galleries and auctions go? The answer, hidden in the total market capitalization of cryptocurrencies of up to $4 trillion, is a huge pool of money that is difficult for the traditional art market to catch up. The logic of capital is never romantic, it only chooses the path with the least resistance and the highest efficiency. How to "save taxes" on traditional art? Let's not discuss how to really use art to launder money, but traditionally speaking, the rich like to buy art unless they pursue beauty, and there is a strong need for tax saving, value-added, anonymous transactions, transfers and so on. Use 1031 Exchange (U.S. Regulations) This is a tool for "deferred capital gains tax", which was originally used to exchange real estate, but in the past many wealthy Americans have used it to operate art to save taxes. Selling a painting for a profit is theoretically subject to capital gains tax (up to 28% in the United States), but if you immediately use the money to buy another painting of similar or higher value, you can legally defer the tax. It's like a DeFi matryoshka doll, layer by layer, never having to pay taxes. * The Trump administration restricted this trick to real estate in its 2017 reforms, but those who played before made money, and now that the volume of real estate transactions in the United States is low, there may be stimulus tax reforms for the rich Set up an art trust or foundation Donate art to an art foundation you founded (such as the "XX Family Cultural Trust"), which can also be tax-deductible, while the art is still displayed on the wall of your home, but the book belongs to the foundation. This kind of "separation of ownership and use" game, the IRS is difficult to check this operation, so it is normal for rich people to have some high-priced collectibles in their homes. Stored in a "Freeport" (like Geneva, Switzerland) Storing art in a Freeport is only "in transit" on the books and has not yet entered the market. From there, you can change hands anonymously, wait for the market price to fluctuate, or even pledge the loan. Freeport is like a dark web warehouse in the art world, where all the high-priced art lies quietly as a safe haven, and the IRS can't see or touch it. Probably only Rob Patinson from the movie "Heavenly Energy" can invade. Capital Makes Ruthless Choices: Crypto now makes the most direct comparison. When a high-net-worth individual decides to put tens of millions of dollars into the market, he is faced with two choices. Choose one, buy a contemporary art painting. He needs to contact the gallery, be vetted for purchase, hire a consultant to verify authenticity and valuation, be taken by the above professionals, and later deal with complex international shipping, customs clearance and tax issues. The whole process, from the idea to the actual hanging of the artwork on the wall, takes weeks or even months, and the friction costs and uncertainties are extremely high, like transporting gold with an old set of darts based on trust and connections, slow and expensive. The second option is to invest this money in the cryptocurrency market. He only needs a few clicks on the 3C product to complete a global transaction in minutes. The market operates 24/7 and is liquid all over the world. He can easily disperse assets into different tokens and even lend them through DeFi (decentralized finance) protocols to earn additional income. The transparency of the blockchain system (all transactions can be tracked on-chain), low transaction costs and immediacy completely crush the traditional art market. Some family offices have allocated as much as 25% to digital assets, which proves that the new generation of wealth managers is voting with their feet. The essence of capital is profit-seeking, and reducing wear and tear is profit. When a market has high transaction costs, it is bound to be replaced by a more efficient market, which is why part of the art market is seized by the crypto market. Generations of Money Laundering Channels Now, let's seriously talk about "money laundering". The art market has long been regarded as an ideal money laundering tool due to the subjectivity of pricing, the privacy of transactions, and the ease of transportation across borders. The value of a painting can easily be overestimated or undervalued under "expert opinion", providing the perfect excuse for the transfer of illicit funds. However, the seemingly perfect approach is becoming increasingly vulnerable in the nearly two decades of tightening global anti-money laundering (AML) and counter-financing (CFT) regulations. Every physical transaction may leave customs records, cash flow traces and insurance documents. In contrast, cryptocurrencies offer greater anonymity. Through tools such as blockchain mixers, the source of funds can be disrupted and difficult to trace. A sum of hundreds of millions of dollars that can cross borders in seconds without declaring it to any customs or financial institution. This is fatal for the pursuit of hidden illicit funds. Also, do you know who issued the meme coin with a large market cap? Who is trading? A wave of tokens that have soared in market capitalization in a month, and Swap in DeFi is also an undisclosed secret of using cryptocurrencies to launder money. Top Art Myths Of course, there must be people who refute it, look at Christie's and Sotheby's auctions, aren't those top blue-chip artworks still creating price ceilings? The works of Picasso and Monet are still heirlooms sought after by the world's richest people. Doesn't that mean the art market remains stable? This view is only half said, capital inheritance is undergoing a sharp "asset differentiation". Those billion-dollar "Preservation Capital", they buy top art, not only assets, but also social status, cultural capital and a ticket to the elite. This is an extremely risk-averse, physical and stable fund, and the high volatility and "unreliable sense without history" of cryptocurrencies cannot meet their needs. So the market at the top of the art pyramid is indeed still solid. However, a healthy market ecology cannot survive only on a few art bigwigs. Truly supporting the entire industrial chain and feeding countless galleries, curators, artists, and art consignment sales is the vast market in the middle and bottom of the pyramid. Art fairs are the most important trading venue in the mid-market. It is this mid-market that is hollowed out after the "speculative capital" that pursues excess returns is sucked out by cryptocurrencies. The suspension of Taipei Contemporary proves that...