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The Muscular Portfolios Newsletter — No. 34 — Apr. 16, 2021
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The $69m NFT buyer & seller were partners
 By Brian Livingston
The international auction house Christie’s made headlines on Mar. 11 when it announced that a buyer had bid $69 million for a digital “token” linked to an artist’s JPEG image. Unknown to most people, the high bidder had publicly sold millions of “shares” representing fractions of some of the artist’s other works.
The ultimate winner of the JPEG auction had also given away 2% of his shares to the artist in advance of the sale. This grant created a partnership of interest between the top bidder and the seller.
Usually, an auction bidder wants to obtain an art object for the lowest possible price. But in this case, the high bidder profited by making the JPEG sell on Mar. 11 for as much as possible, thereby increasing the market value of his shares.
Incentivized by the gift, the artist himself promoted purchases of the bidder’s tokens to his 2 million Instagram followers prior to Christie’s auction. (See Figure 1.)
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Figure 1. Seven weeks before Christie’s auction, the high bidder created 10 million shares called “B.20 digital tokens.” He initially sold 24% of these crypto coins in public and private sales, kept 59% for himself, and gave the remainder of the coins to the artist and others. Image from a Medium.com article by Metakovan associate Twobadour Paanar.
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How creating 10 million ‘tokens’ made the bid possible
The JPEG file that was sold on Mar. 11 was called “Everydays: The First 5,000 Days.” It’s a single giant JPEG containing 5,000 digital images that were created over a 13-year period by artist Mike Winkelmann. Working under the name Beeple, Winkelmann is a talented illustrator whose clients include NBC, Pepsi, and many others.
The buyer was — well, that’s where the story really begins.
- The top bidder uses the screen name Metakovan. In real life, Metakovan is a cryptocurrency entrepreneur named Vignesh Sundaresen. He’s a native of the Tamil region of India but currently lives in Singapore. (Metakovan means “king of meta” in the Tamil language.)
- Seven weeks before Christie’s auction of “Everydays,” Metakovan’s cryptocurrency fund began selling new digital tokens. These coins, which were called B.20 tokens, were created by Metakovan in a quantity of 10 million. The initial offering price was $0.39 per token. (The price would soon rise as demand for the new coins increased.)
- In December 2020, Metakovan’s fund, named Metaverse, had purchased for $2.2 million a “Beeple 20 Collection” consisting of 20 Winkelmann images. This art acquisition occurred three months before Christie’s $69 million auction of “Everydays.”
- The B.20 tokens were advertised as “shared ownership.” Each token represented one ten-millionth (1/10,000,000th) of a share of the $2.2 million Beeple Collection.
- “Imagine being able to not only own some of the art in the MoMA [Museum of Modern Art], but also a piece of the MoMA museum itself and the land it sits on,” the Metaverse website said. “Visitors and viewers would become shareholders.”
- Buyers of B.20 tokens were told that the Beeple 20 Collection could soon be sold. Metakovan was willing to sell the 20 JPEGs to any buyer who offered between $12 million and $15 million.
- If such a sale actually occurred, each $0.39 token would in theory become worth $1.20 to $1.50. That would represent an eye-popping 207% to 285% gain within only a few weeks. The idea of this outright sale tied the price of a B.20 token to the perceived value of all Beeple artwork.
- What many B.20 buyers didn’t know is that Metakoven had given Beeple 2% of the tokens. This made Metakovan and Beeple, in effect, partners who would both gain if B.20 prices went up.
- More importantly, Metakoven retained for himself 59% of the B.20 tokens he’d created in January. (The initial percentages held by Metakovan and Beeple are shown in Figure 1.)
- All of the publicly available B.20 tokens were purchased in the first hour of online sales on Jan. 23. Seeing the demand, Metakoven immediately sold another 9 percentage points from his own holdings. This still allowed him to own 50% of the tokens, according to an article by his associate Twobadour Paanarn (whose real name is Anand Venkateswaran).
- Between Jan. 23 and Mar. 11, as Christie’s auction was being heavily promoted, buyers flowed into B.20 coins. Twenty of Beeple’s JPEGs had been purchased by Metakovan for $2.2 million in December, suggesting that each JPEG had a value of $110,000. Imagine how much more those 20 artworks would be worth after Christie’s ground-breaking Mar. 11 sale of 5,000 of them!
- The value of B.20 tokens soared in parallel with bids on Christie’s public website. From a starting bid of a mere $100 on Feb. 25, the top offer had reached $13 million by Mar. 10, one day before the auction’s end. To obtain B.20 tokens, coin buyers transferred millions of dollars of hard currency to Uniswap, one of only two crypto exchanges that will trade B.20 for anything else. (Uniswap will convert B.20 into ether, a cryptocurrency based on the Ethereum blockchain. Ether can be converted into dollars.)
- On Mar. 10, B.20 coins sold for an intraday high of $29.78, according to Coin Market Cap data. At that price, the 5 million tokens Metakovan had retained for himself would have been worth $148.9 million if converted to ether (minus transaction fees).
- Early holders sold over $100 million worth of their B.20 tokens around the peak. During the five days when the auction was generating worldwide headlines — Mar. 9 through 13 — owners of B.20 sold millions of their tokens to eager buyers. (See Figure 2.)
- This profit-taking made the B.20 tokens crash. Within just seven calendar days — crypto coins trade 24/7 — the price fell almost 75%. From the Mar. 10 high of $29.78, B.20 fell on Mar. 19 to an intraday low of $7.45. Since that time, the price has fallen by half again, closing on Apr. 15 at $3.72.
- Christie’s had preannounced that it would allow the winner to pay for the art using ether instead of dollars. (Christie’s even accepted ether instead of cash for the firm’s 15% auctioneer’s fee, according to a Bloomberg article.) Is it possible that a large holder of B.20 tokens had sold those tokens at the height, converting them into ether? The value of a few million B.20 tokens could have generated more than $69,346,250 worth of ether to pay Christie’s.
- Was it Metakovan and his associates who were selling B.20 at the peak? We may never know. The buyers and sellers of B.20 tokens aren’t disclosed.
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Figure 2. Over $100 million worth of B.20 tokens were sold by early holders to excited buyers during the five days of worldwide publicity about Christie’s auction. This profit-taking by B.20 owners caused the coin’s value to crash 75%. B.20 has lost another half of its value since then. Illustration by author.
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The $69 million sale doesn’t appear in any blockchain, although it should be clearly identifiable as a transaction of 42,329.453 ether, according to an analysis by independent journalist Amy Castor.
If the high bidder held an ether-denominated account at Coinbase Custody Trust — as Christie’s does — the internal transaction would never become visible, says Castor. (Visit her Patreon page to support her research.)
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Is an NFT a fountain of riches or a worthless script?
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Many of the excited articles about Christie’s auction failed to ask a basic question: Why would anyone pay $69 million for a JPEG image that you can make a copy of on the Internet for free?
That’s especially true because the successful bidder could look at the JPEG file but did not obtain the copyright. For example, Beeple has the right to sell individual artworks from the 5,000-piece collage — and has already done so — but the buyer legally cannot, according to a CNBC interview with the artist.
David Gerard, the author of Attack of the 50-Foot Blockchain and other books, says the unbelievable price for “Everydays” is part of the ephemeral nature of the new non-fungible tokens (NFTs) that many people are being irresistably drawn to.
“An NFT is a crypto-token on a blockchain,” Gerard explains. The blockchain entry can contain a Web address or any other descriptor. “An NFT is just a pointer.”
“Fungible” means “interchangeable.” For instance, one $10 bill is worth the same as any other $10 bill. Dollar bills are fungible (ignoring rare collectibles). An NFT is non-fungible because it’s unique. Any given NFT is not exactly the same as a different one.
You might get something of value when you buy an NFT, but then again you might not. Gerald illustrates the concept thusly: “Would you like to watch your favourite show — or would you like me to write on a piece of paper that you own the show? All you get is the piece of paper.”
To make the point even more clear, comedian John Cleese of Monty Python fame announced that he would auction as an NFT a scribble he did of the Brooklyn Bridge. You wouldn’t get the illustration — which the actor scrawled on an iPad — unless you paid the reserve price of $69 million, he told Vanity Fair. (His auction ended on April Fool’s Day.)
An NFT may or may not be worth anything, but crypto websites are using them to make a lot of money. Purveyors are charging artists, musicians, and others up to $200 to write the blockchain entry that creates a single NFT, according to a Business Insider analysis.
For his part, Metakovan steadfastly maintains that he is a businessman motivated primarily by a dream of a better world. “We were inspired by the idea of not only being able to own historic artwork, like the Mona Lisa, but also being able to own the museum it was displayed in, and then sharing that ownership and experience with the public,” says an explanation in Metapurser.
Hmm, if the B.20 token is a share, and the owners of it are shareholders, isn’t that, um, a security?
Securities & Exchange Commission official Hester Peirce warned investors on Mar. 25 that fundraising tied to NFTs might “raise the same kinds of questions that ICOs have raised.” The SEC has taken the position that just about every token ever sold through an initial coin offering is an unregistered security. The agency has filed numerous lawsuits against the sellers, as explained in a Decrypt.co article.
Whether or not fractional NFT shares are illegal, the bubble may already have burst. The average price of tradable NFTs fell 70% between Feb. 22 and the beginning of April, according to a Bloomberg story. Hold onto your wallets!
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News from the leading edge
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LinkedIn deliberately scrambles résumés, experts say
LinkedIn, with 760 million members in more than 200 countries, constantly changes the format of its PDF résumés to make it hard for companies to search for possible job applicants, according to human-resource consultants. The full story is in Brian Livingston’s weekly Public Defender column in the AskWoody Newsletter. See the story
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About the author: Brian Livingston is a successful dot-com entrepreneur, an award-winning business journalist, a contributor to MarketWatch and StockCharts, and the author of Muscular Portfolios (2018, BenBella Books). He is also the author or co-author of 11 books in the Windows Secrets series (1991–2007, John Wiley & Sons), with over 2.5 million copies sold. From 1986 to 1991, he worked in New York City as the assistant IT manager of UBS Securities; as a consultant for Morgan Guaranty Trust (now JPMorgan Chase); and as technology adviser for Lazard Ltd. He was the weekly Windows columnist for InfoWorld magazine from 1991 to 2003. During portions of that period, he was also a contributing editor of CNET, PC World, eWeek, PC/Computing, Datamation, and Windows magazine, and the editor of E-Business Secrets. In 2003, he founded the Windows Secrets Newsletter, which grew from zero to 400,000 email subscribers. He served as its editorial director until he sold the business in 2010. He is president emeritus of the Seattle regional chapter of the American Association of Individual Investors (AAII). Stipple illustration by The Wall Street Journal.
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