Welcome to the early March edition of Crypto: Decrypted. I’ll begin by saying that it’s no surprise that the markets are continuing to grow. While no one knows for sure where the ceiling is, the Chief Investment Officer of a hedge fund recently predicted a $23T market cap by 2023. As it turns out that CIO was our own Jake Ryan, featured in Business Insider where he discussed this and other key asset classes in this new world. Well done Jake!
Bulls, Banks, Buys and About Faces!
It’s not only Jake. Market sentiment continues to grow along with the markets themselves.
According to German Philosopher, Arthur Schopenhauer, “All truth passes through three stages: First, it is ridiculed. Second, it is violently opposed. Third, it is accepted as self-evident”.
It would seem that we’re seeing this unfold in real time in the world of crypto as Citibank, originally a bitcoin naysayer like so many other big banks, hedged their opinion. They weighed in on the world of Bitcoin and published a 100 page paper on March 1st stating that bitcoin is at a “tipping point” and could “become the currency of choice for international trade.” Not to be outdone, Deutsche Bank went a step further musing that we may be at the “start of the end of fiat money”, and that cryptocurrency could be a viable alternative.
They weren’t the only naysayer to turn, as Kevin “Mr. Wonderful” O’Leary from Shark Tank fame also did an about face. Famously stating in January 2021 that, “Bitcoin is a nothing-burger, a giant nothing-burger”, he then publicly stated in February 2021 that he is planning non putting 3% of his portfolio into bitcoin, stating bitcoin ETFs and inflation worries changed is perspective.
And while these players are just now turning the corner, Michael Saylor announced that MicroStrategy keeps buying up more and more, adding another $15M to their holdings (which are now worth $4.47B), and likewise Square, which disclosed they had purchased $50M in BTC this past summer just revealed in their Q4 financials that they now had a $170M position in the asset.
While many are concerned that they’ve missed this train, we believe that at this point everyone – and I mean everyone – is still early. We’re looking at a technology that is going to change the way the world works and we’re still at the very beginning. As a way of comparison, think about Amazon which was founded in 1994 to sell books on the internet (which was considered by many preposterous at the time.) Amazon then had its IPO in 1997 and, well, we all know the mighty footprint of Amazon today. Well, in the blockchain world it’s like 1997 and, in our opinion, the change that we’re going to experience from the world of blockchain is going to dwarf the story of Amazon.
What the heck is an NFT?
Let’s remember that the blockchain revolution is much bigger than just Bitcoin. Last blog we talked about DeFi, and this one I’m going to turn to another burgeoning crypto asset, and that is the Non-Fungible Token or “NFT”. I know that’s not a very helpful name so let’s break this down. First, let’s look at the word fungible. Fungible is just a fancy way of saying equivalent. If you and I each have a dollar bill and we swap dollar bills, we then still each have a dollar bill that is worth one dollar. Same for a bitcoin. If I hold 1 bitcoin, and you hold 1 bitcoin, and we swap bitcoin it’s a zero-sum game.
Non-Fungible, then is just a fancy way of saying non-equivalent. Unique. One of a kind. Authentic. An NFT then is a one-of-a-kind token, a digital asset that sits on a blockchain that has guaranteed uniqueness. An analogy could be like Baseball Cards. If you have a vintage Babe Ruth baseball card you probably wouldn’t swap that for just any other baseball card. They aren’t equivalent, and it’s easy to tell why.
It’s now possible for people to own a digital item and not only have proof of ownership but proof that is irreplicable. I can hold it, buy it, sell it, use it etc. but the point is that if I control an NFT I can be assured there’s no other digital asset that is exactly like this one. It is digitally unique. Importantly, NFTs can be owned and transferred easily. This is part of the magic that they bring.
The uses for this are countless. There’s the obvious, art, which is one of the main uses today. Digital art is being created that is certified unique with an NFT on a blockchain and that hasn’t been possible until now. There’s a good (slightly technical) overview from Art News to dive deeper into this subject for those inclined. While ultimately the value of any art is speculative, the fact that it is a unique digital item is a fact. This creates not only authenticity but provable scarcity. Just as limited physical prints of an artist are sold today, limited runs of digital works can now also follow suit.
The singer Grimes recently sold digital artworks as unique limited runs. Each was a part of a limited series, each an NFT uniquely identified, just like a limited run physical print with a certificate would be. What’s interesting about this is that the pieces sold for accumulative total of $5.8M. Five point eight million. MILLION. That’s crazy. And it’s happening.
It’s bigger than art however, as NFTs can store all kinds of digital information on them. It could be title to property (unique), legal contracts (unique), insurance documents (unique), tickets to a show (unique), your driver’s license (unique) or any kind of information that one wants to own digitally with guaranteed uniqueness.
Surely, there’s a lot of experimentation now and yet to come. The American rock band Kings of Leon recently issued their most recent album with an NFT to spur sales. With streaming services many are no longer purchasing CDs or albums, so this is an attempt to draw people back into the world of purchasing, which is good for artists. While an NFT for each album sold may be a bit contrived, they then then went further and offered limited NFT art as well as six “golden ticket” packages as NFTs. Each package consisted of a one-of-a-kind digital artwork and – here’s the catch – four front row tickets to their show forever. Not just this tour. Every tour. The holder also gets to pick the venue anywhere in the world. Once date/location is selected by the holder, the NFT is authorized and voila, another show is set. The digital ticket can be redeemed for seats, and then next tour authorized with four more seats and so on. This is possible because it is a digital asset. The NFT can also be sold or traded, and the bearer would also get the benefit of the token’s unique properties – in this case tickets. It’s a very unique use case that combines everything we’re talking about.
Was it successful? I’ll let you be the judge and simply state that they sold five of the six “golden tickets” for prices ranging from 50 ether ($91,000) to 89 ether ($162,000)! You can see the entire collection on the OpenSea NFT marketplace here.
I’m bringing all of this to your attention because you are going to see a lot on this topic over the coming years. Is it very hype-y? Sure. Will NFTs have a boom-and-bust bubble? Possibly. That does not, however, take away from the underlying value in the technology, and because of this it would not be surprising to see NFTs as a part of daily life more and more over the coming decade.
I’ll probably do a part II on this topic since there is so much to say so consider this a primer. If you’re not clear yet it’s OK. This stuff takes a while to grok.
In Closing
Bitcoin continues to boom but while (most) media is focused on this financial giant, the world of crypto assets is continuing to grow, and the foundational underpinnings of this technology are being piloted in many places. Just as Amazon is now ever-present, it won’t be long before we see these blockchain technologies everywhere in life. Welcome to the Age of Autonomy.
Until next time, be well, stay safe, and, of course, we’ll continue to Decrypt: Crypto for you!