Musician's $3M NFT Fortune Vanishes in Crypto Tax Nightmare
Jun 9
2 min read
Musician Jonathan Mann, known for his "Song A Day" project, experienced a significant financial setback after his $3 million NFT earnings were decimated by a crypto market crash and a substantial tax bill. His story serves as a stark reminder of the volatile nature of digital assets and the complex tax implications for crypto investors.
A $3 Million NFT Fortune Vanishes
Jonathan Mann sold his entire catalog of 3,700 songs as NFTs in January 2022, generating approximately $3 million in Ethereum (ETH). Driven by excitement and a lack of a clear financial strategy, Mann and his wife decided to hold onto their ETH, anticipating further price increases. However, the crypto market took a sharp downturn, with ETH's value plummeting in 2022, exacerbated by the Terra ecosystem collapse. This left Mann with a drastically reduced portfolio value.
The Crypto Tax Nightmare
Despite the significant drop in the value of his ETH holdings, the U.S. Internal Revenue Service (IRS) taxed Mann's earnings as income based on the ETH's value at the time he received it. This meant he faced a tax bill of over $1 million, even though the underlying asset had lost most of its value. To avoid selling his ETH at a loss, Mann and his wife took out a loan from the lending protocol Aave, using their ETH as collateral. Unfortunately, the market crash triggered liquidations, leading to the loss of 300 ETH and effectively erasing his $3 million fortune.
Key Takeaways
Volatility of Crypto Assets: The rapid and unpredictable fluctuations in cryptocurrency values can lead to substantial losses, even for initial gains.
Taxation on Crypto Income: Earnings from crypto sales are taxed as income based on their value at the time of receipt, regardless of subsequent market depreciation.
Risks of Crypto-Backed Loans: Using crypto as collateral for loans can be perilous, as market downturns can trigger liquidations and further financial losses.
Importance of Financial Planning: A clear strategy for managing and diversifying crypto assets, along with understanding tax obligations, is crucial for investors.
A Rare Autoglyph to the Rescue
Faced with a daunting tax debt of $1,095,171.79 and the threat of losing their home, Mann resorted to selling a rare Autoglyph NFT he had acquired in the early days of crypto. He found a broker who offered $1.1 million for the NFT, just enough to cover his tax obligations. Due to the previous losses incurred from the Aave loan, Mann did not owe capital gains taxes on the Autoglyph sale.
Continuing the Journey
Despite this challenging ordeal, Jonathan Mann continues his "Song A Day" project, still minting and selling NFTs. His experience has become a cautionary tale within the crypto community, highlighting the critical need for thorough financial planning and an understanding of tax implications in the volatile world of digital assets.
Sources
$3 Million NFT Fortune Vanishes To Crypto Tax and Market Crash, Here's How, Coinspeaker.
Musician’s $3M NFT Loss Sparks Move to 2025’s Best Altcoins, Bitcoinist.com.
How One Musician’s $3M NFT Success Turned Into a Costly Tax Lesson, Cryptodnes.bg.
NFT artist relives ‘crypto tax nightmare’ in new song, Cointelegraph.
Musician Made $3M From NFTs—Then Faced A Brutal Tax Hit And Crypto Crash: Here's The Musician’s Ordeal -Benzinga, Benzinga.