Are NFTs The Next Big Thing? #18
Market Meditations | September 23, 2020
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Bitcoin-on-Ethereum Token Tbtc Relaunches Following Buggy Debut in May
U.S. Banks Can Hold Reserve Funds for Stablecoin Issuers, Says Federal Regulator
Crypto, Global Equity Markets Rattled During Monday Morning Trading Session
JPMorgan to Move $230 Billion Assets to Germany Under Brexit
U.S. Banks Can Hold Reserve Funds for Stablecoin Issuers, Says Federal Regulator
Investor Buzz Builds Ahead of Ant Group Listing
TheCryptoDog: Venture Capital, Nootropics and Trading
How to Win Even if You Fail
Are NFTs The Next Big Thing?
During a consolidation period in DeFi, non-fungible tokens (NFT) suddenly became a hot topic on Twitter yesterday. Antony Pompliano and Ari Paul, two respected crypto investors came out and announced that digital art and other NFT’s would be a strong focus of their funds in the upcoming months and years. Various tokens related to the NFT market jumped upwards 50-100% in less than a day and suddenly everybody wanted a piece of this upcoming crypto theme. Is this sudden momentum sustainable or were bored investors looking for the next thing to park their money in? Let’s take a deeper look!
What’s an NFT?
Non-fungible tokens or NFT’s are a special type of token that represent a unique asset like digital art, in-game items and other collectibles. To understand what fungibility means, think about a $10 bill in your wallet. The $10 bill in my wallet holds the exact same value as the $10 in your wallet. We could exchange them with each other without the both of us losing any value. A store owner happily accepts both our $10 bills, even if we exchanged them before entering the store.
In contrast, non-fungibility means that the asset is unique, authentic and only an X amount of them exist. An NFT is simply a representation of such a unique item on the blockchain in the form of a token. The most popular type of NFT is based on Ethereum’s ERC-721 token standard, which allows non-fungible items to exist on the Ethereum blockchain. Each NFT has its own unique value and is to be treated individually. Due to the public nature of a blockchain, owners of any given NFT can easily prove that they are the rightful owner of a particular piece or item.
The Promise of NFT’s
There are several sub-sections of NFT’s that show promise on a long enough timescale but the value of digital art and in-game items are the easiest to comprehend. In-game items of popular online games are often sold for hundreds or even thousands of dollars. Users often spend enormous amounts of time acquiring rare and valuable in-game items but do not actually own it. If the company behind a particular game decides to ban the account, the user loses everything that he managed to collect on his account. If in-game items traded on a blockchain and gamers actually own the items they’ve collected by playing, a whole marketplace of rare and sought-after in-game items could develop allowing users to monetize their in-game experience.
Digital art and collectibles are another type of NFT that early adopters are excited about because of a blockchain’s ability to create provable digital scarcity. In his newsletter to investors yesterday, Pomp wrote about why he was so excited for the digital art revolution: “Digital art is the next evolution of art. Each piece can incorporate complex movement and motion into the art. A single screen on a wall can periodically cycle through different pieces of art at the predetermined direction of the homeowner or art collector. The digital art can be sent to anyone in the world with a few clicks of a button, it is immune from damage, and authenticity and provenance is transparently available for anyone to verify.” Readers that want to take a look at some art that is already being sold can visit popular platforms like SuperRare, OpenSea and Rarible
Niche Market, Illiquidity and Risks Involved
Although digital art and collectibles, in-game items and other NFT’s could one day represent a multi-billion market and show great promise, yesterday’s sudden hype seemed overblown which is reflected in the strong corrections today. In a tweetstorm yesterday, Ari Paul expanded on the promise of NFT’s and the current bottlenecks preventing mainstream attention.
The NFT space is still in a very early stage with only a small percentage of crypto users involved and up to speed on valuing these new opportunities. Although platforms exist to connect buyers with sellers, there are no order books available to quickly sell or buy a particular item. Buying an NFT never guarantees that you’ll be able to sell that to a next buyer, let alone at a higher price. It is by definition a collector’s item which you should be comfortable with holding for a very long time. The digital revolution is already here and NFT’s are a logical extension of that. There are lots of obstacles to be tackled but eventually we’ll reach a tipping point allowing these digitally scarce items to flourish. Until then, be careful out there!
Bitcoin-on-Ethereum Token Tbtc Relaunches Following Buggy Debut in May. The amount of bitcoin that is trading on the Ethereum blockchain continues to grow and has lately surpassed $1 billion. So far, BitGo’s Wrapped Bitcoin (WBTC) has a big market share but this week a new alternative went live. tBTC, first announced in April but delayed due to a smart contract bug, is now ready for a new start. Users who worry about censorship risk using WBTC are invited to deposit BTC and mint tBTC tokens on the open-source project. Getting bitcoin on Ethereum has become more popular due to the decentralized finance (DeFi) ecosystem on Ethereum. By getting bitcoin on the Ethereum chain, bitcoin holders can gain yields on their holdings in a completely decentralized way. Read more.
U.S. Banks Can Hold Reserve Funds for Stablecoin Issuers, Says Federal Regulator. Transparency is important for trust. National banks and federal saving associations in the U.S. can now hold reserve funds for fiat-backed stablecoins, according to new guidance from the Office of the Comptroller of the Currency. In a six-page letter, the regulator notes that “stablecoin issuers may desire to place assets in a reserve account with a national bank to provide assurance that the issuer has sufficient assets backing the stablecoin in situations where there is a hosted wallet. For the reasons discussed below, we conclude that a national bank may hold such stablecoin “reserves” as a service to bank customers.” That said, the letter only addresses stablecoin that are backed on a 1:1 basis by a single fiat currency and warns that banks who take on this kind of business should adhere to anti-money laundering and KYC regulations at all times. Read more.
Crypto, Global Equity Markets Rattled During Monday Morning Trading Session. An important (temporary) development this year is the fact that crypto assets and bitcoin and ethereum in particular are no longer an uncorrelated market as they have been in the past. Risk sentiment in stocks and safe haven assets like gold has been increasingly reflected in crypto’s price action over the last few months. With global equity moving downwards on Monday, both bitcoin and ethereum did not manage to hold and corrected over 5% and 10% respectively. In an interview with The Block Edward Maya of OANDA noted: “Surging coronavirus cases and doubts over the next round of fiscal support is triggering a wide range risk averse tone that is sending the dollar higher and sinking gold. Exponential coronavirus growth is a big risk in Europe and that is sending the dollar sharply higher. Dollar strength can go a little further as emerging market currencies have room for bigger declines.” Read more.
JPMorgan to Move $230 Billion Assets to Germany Under Brexit. JPMorgan Chase & Co is moving about 200 billion euros ($230 billion) from the U.K. to Frankfurt as a result of Britain’s exit from the European Union, a shift that will make it one of the largest banks in Germany. The U.S. bank plans to finish the migration of assets to its Frankfurt-based subsidiary by the end of the year, people familiar with the matter said. The change could boost its balance sheet enough to become the country’s sixth largest bank, based on the assets of the biggest commercial lenders last year. However, it’s not just Brexit. JPMorgan has repeatedly said that its German unit will seek market share in investment banking, corporate banking and wealth management. While JPMorgan has made the biggest shift to Frankfurt, other banks have chosen to bulk up in Germany’s financial hub, including Citigroup Inc., UBS Group AG and Standard Chartered Plc. Nevertheless, it will be interesting to see whether this has a knock on effect on the ‘attractiveness’ of the UK as a financial investment given not only the concerns regarding Brexit but also the dramatic spike in coronavirus cases (and increased restrictions). Read more.
European Stocks Rally on Hopes of More Pandemic Driven Stimulus. European equity markets rose on Wednesday as investors placed bets on more monetary aid for the eurozone’s weakest economies, but Wall Street stocks failed to join in on the rally as tech shares fell. The Nasdaq Composite fell 0.7% in early New York trades, putting it on course to fall for the 6th session in the past seven, as a 7% fall in Tesla shares dragged on the tech-heavy index. The electric vehicle maker’s shares were under pressure after founder Elon Musk pledged to halve the cost of the cars’ batteries but also warned of ‘the extreme difficulty of scaling production of new technology’. Other technology stocks including Apple and Google parent Alphabet came under more modest selling pressure with each down about 1% in early dealings. Read more.
Investor Buzz Builds Ahead of Ant Group Listing. An investor scramble is underway to take part in Ant Group’s upcoming initial public offering in Hong Kong and Shanghai, which is shaping up to be one of the world’s largest ever equity raisings. The Chinese technology company’s dual offering could come as early as next month. Anth should face the Hong Kong listing committee by the middle of next week, people familiar with the matter said, after winning approval from regulators in Shanghai last week. The company is expected to offer at least 10% of its shares and secure an overall market valuation of between $200bn and $300bn. Hong Kong based brokers report strong appetite. One wealth manager, which declined to be named, said it was offering loans to clients to increase their investment in the offering. Analysts at Bank of America even valued Ant at up to $318bn, based on a forward price to earnings multiple (a common valuation measure) of about 45, based on expected 2021 profits. Read more.
#8 TheCryptoDog: Venture Capital, Nootropics and Trading
Today’s I’m joined by the hugely successful TheCryptoDog. One of the most ambitious people in the crypto twitter space. He’s always building and taking on new projects, I even know how he managed to find time to come on our podcast.
TheCryptoDog is a succesful trader, entrepreneur and Twitter influencer. He is the founder of nootropics company Betterbrand and also a partner at a startup accelerator, where he leverages his background to support upcoming projects in the cryptocurrency space.
In this episode, we talk about the value of having a big Twitter account, his background in science which helped him cofound his nootropics company BetterBrand. We also talk about his work at a startup accelerator which focuses on emerging industries like crypto. He talks about the importance of surrounding yourself with the right team which allows him to combine multiple jobs at once.
Don’t skip this episode. If you’re a Market Meditations reader you’re here to build a richer life, Dog has done that and continues to do so.
How to Win Even if You Fail
Chance of failure shouldn’t scare us. It always brings something valuable and it teaches us a lesson to prevent us from making the same mistake twice. Having the right system in place to learn from the feedback you receive is important. Each failure and feedback loop brings us a little closer to the truth. Each iteration increases your odds of success. You either win or you learn.
Scott Adams, creator of the widely successful comic strip Dilbert, wrote a book called ‘How to Fail at Almost Everything and Still Win Big’ in which he described how he failed at multiple business ventures before eventually finding success in his life. Looking at his personal experience, he wrote down a template for increasing your odds of success:
Scott describes that every skill you acquire doubles your chances of success. Being the best at something is incredibly hard to achieve. Belonging the top 25% on several skills is something almost anybody can achieve when they put in the effort.
Goal oriented people exist in a constant state of failure or waiting for the goal. Systems people win every day just by sticking to their systems. The systems focused people tend to perform better and be happier. Systems people succeed every time they apply their systems.
Optimize for personal energy levels. “The way I approach the problem of multiple priorities is by focusing on just one main metric: my energy. I make choices that maximize my personal energy because that makes it easier to manage all of my other priorities.”
In the end, success isn’t magic. It’s generally the product of picking a good system and following it until luck finds you. Threat success as a learnable skill. Figure out the price and pay it.