Global NFT sales rose 22.7% in December from the previous month, which appears like a robust surge in demand but is more attributed to holders selling and buying back digital assets to lock in tax savings.

Total NFT sales increased to US$678.2 million in December, the highest since June, according to data from NFT aggregation site CryptoSlam. The number of NFT sellers rose by 11.8% from November, while buyers fell 8.6%, the data showed.

“What we’re seeing I would speculate is just end-of-year tax loss harvesting from the players who are still engaged in NFTs,” said Yehudah Petscher, NFT relations strategist for CryptoSlam. “There are services offering to buy NFTs for pennies, for the purpose of loss harvesting, and multiple of these services are being sold thousands of NFTs from savvy traders.”

Tax loss harvesting uses a loophole in U.S. rules that allows cryptocurrency investors to make deductions from capital gains taxes by selling their digital assets at a loss then buying back those same assets. This has become a common practice, said Benjamin Goldburd, tax lawyer at Goldburd McCone LL in New York City, in an interview

The strategy reflects a slump in the price of Bitcoin and Ether cryptocurrencies in 2022, with Bitcoin trading around US$16,600 at the end of the year from US$47,100 a year earlier, according to data from CoinMarketCap. Ether changed hands at around US$1,200 at the end of 2022, compared to US$3,700 at the end of 2021.

“People were taking losses on NFT purchases made when the Ether price was a lot higher in the summer,” said Yohann Calpu, chief marketing officer at CryptoSlam.

In addition, the Y00ts NFT collection stood out in December as it was in the process of moving from the Solana blockchain to live on Polygon, Petscher said. Y00ts is one of the most traded Solana NFT collections on the OpenSea marketplace, with a current 450 SOL (US$5,960) floor price.

“Polygon has been outpacing all [other major] blockchains by a significant amount in terms of percentage of increase in buyers, sellers and sales,” Petscher added.

Polygon saw US$15.58 million in NFT sales in the past 30 days, making it the third-largest network after Ethereum and Solana, CryptoSlam data showed.

See related article: ‘Tis the season for crypto tax-loss harvesting: IRS, regulators remain silent on crypto tax loophole ahead of new year