Is it a marketing stunt or the beginning of a wave of institutional interest in NFTs?
This episode is sponsored by NYDIG.
Late Sunday evening, bitcoin pushed above $50,000 for the first time in three months. Overall BTC is up 46% in the last 30 days. NLW explores arguments that this move has been spot driven and connected to institutions and whales. He also looks at the potential implications of the Federal Reserve’s Jackson Hole meeting later this week.
In the second part of the show, he looks at the news that has Crypto Twitter on fire: Visa bought a CryptoPunk. The purchase, executed for around $150,000, is being maligned by some as a marketing stunt, while others see it as heralding a new era of institutional purchases of non-fungible tokens. NLW looks at both sides and ultimately argues that neither is exactly correct. Instead, it seems to be about inserting Visa’s business into a new digital market.
“The Breakdown” is written, produced by and features NLW, with editing by Rob Mitchell and additional production support by Eleanor Pahl. Adam B. Levine is our executive producer and our theme music is “Countdown” by Neon Beach. The music you heard today behind our sponsor is “Only in Time” by Abloom. Image credit: Alexi Rosenfeld/Getty Images Entertainment, modified by CoinDesk.
What's going on guys, it is Monday, August 23 and it is an exciting little Monday morning we got here. First up, as I discussed on Saturdays weekly recap, bitcoin had just made a nice little punch up heading into the weekend. Last night, on Sunday, bitcoin lifted its head above $50,000, where it remained until about an hour ago, at the time of this recording. Some have called this last month the "short squeeze rally," referring to the fact that it was started as bitcoin held above $30,000 in the face of numerous short positions. That forced those short sellers to buy more at higher prices to keep their positions open, but a bing bada boom, short squeeze. Whatever the cause over the last 30 days, bitcoin is up around 46% and bitcoin's peak in the last 24 hours around $50,200 is a three-month high. Bitcoin has now recorded gains for five consecutive weeks, which is its longest winning streak since September of last year. Matthew Dibb, the co-founder and COO at Stack Funds, said that this rally, unlike some of our previous frenetic moves up, hasn't been driven by derivatives bets but instead by spot buying; "Looking at funding in the options market, this rally still appears to be spot driven. Our expectation is that this break of psychological resistance will likely result in a rotation back to Bitcoin in the coming weeks, with the next target of $60,000." This idea of a lot of spot buying driving things seems to be affirmed by data from into The Block, which shows that institutions in Wales appear to have been accumulating alongside price growth. They tweeted: "Institutions in Wales getting increasingly bullish on bitcoin as prices have climbed over the past few weeks, the volume and addresses with at least 1,000 bitcoin are showing a positive correlation with bitcoin's price of 0.75 in Q3."
So, let's talk about macro factors for a second. Is there anything currently on horizon that could put wind in bitcoin sails or shift momentum in the opposite direction? A CoinDesk article points to the Federal Reserve's annual Jackson Hole Symposium. So, every year the Kansas City Fed hosts a big ol' meeting they call the Jackson Hole Economic Symposium, think TED except for central bankers, traditional finance, CEOs, finance ministers, etc. It's often a pretty good space to get a bigger macro picture about where the traditional financial elites see the landscape shifting. A couple of years ago, outgoing Bank of England governor responded to Facebook's Libra with his own proposal for a new global reserve currency, something he called a synthetic hegemonic currency that would be run by central bankers but outside the purview of any one country. It wasn't such a different idea than Keynes originally proposed at Bretton Woods for a banker that would allow the world to have a reserve currency standard not tied to any one nation's currency. As an aside, it's quite clear to me that Mark Carney was not in the marketing and branding business. As the word hegemonic is probably not the word you want to describe, much less be in the name of, a type of thing that people's main concern with is increasing government power too much, but that's neither here nor there.
Anywho, Jackson Hole is coming up at the end of this week and right now, the most likely betting is that the comments we get there, from people like Jay Powell and others, will reinforce the market's belief that new questions around the Delta and other variants of COVID are going to put a pause to any tapering discussions. Basically, before the Delta variant started raising hospitalization rates all over the U.S., and getting new mask mandates and other closure policies, and yada yada. The market was heating up, and so it seemed like the Fed would be heading in the direction of peeling back their dovish monetary policy. Indeed, Jackson Hole was discussed by some as a place where we could see that meta-level signal shift. Now, the opposite is expected, with Jackson Hole serving as a venue to confirm that the insecurity around COVID changes means that from a monetary policy standpoint, nothing is changing for some time. Should that be the case, the 2020 playbook trade of selling dollars and buying everything denominated in dollars, is likely on like Donkey Kong, that almost certainly would be bullish for Bitcoin.
Let's shift over to the thing that has crypto Twitter buzzing its face off this morning. Visa has bought a CryptoPunk. For those who aren't familiar, CryptPunks are one of the OG-art NFTs. Ten thousand Punks were minted and they have become one of the most valued and most expensive NFT collections out there. The floor on Punks right now is around 69 ETH and the ceiling is, well, extremely high. In May, a collection of nine Punks that were among the first 1000 minted was sold for nearly $17 million. In an auction held by Christie's this morning, Visa announced that they had bought a Punk, CryptoPunk #7610 to be specific, one of 3,840 female Punks. The purchase price was around $150,000 but what's more interesting was Visa's commentary around it.
They published a little interview on their website with Kai Sheffield who runs the company's crypto strategy. The piece is titled "NFTs Mark a New Chapter for Digital Commerce" and I want to go through some of the key ideas. First, why NFTs? Kai says: "The practice of making and maintaining collections is as old as civilization itself. It makes sense that this drive to collect and display items of meaning would follow us into the virtual world, where we're interacting with friends, coworkers and other internet communities." Why Punk specifically, though? Kai again says: "What began as an early artistic experiment has quickly become a cultural icon for the crypto community. In fact, to recognize the role that CryptoPunks have played as a historic NFT project bridging culture and commerce, Visa has decided to purchase CryptoPunk #7610." But, why do this at all? Kai says: "We think NFTs will play an important role in the future of retail, social media, entertainment and commerce. To help our clients and partners to participate, we need a first-hand understanding of the infrastructure requirements for a global brand to purchase, store and leverage an NFT. Having worked with Anchorage Digital to complete this process, we're better positioned to help our partners navigate the process. We also want to signal our support for the creators, collectors and artists driving the future of NFT commerce, enabling buyers and sellers is what we do. Whether it's helping small and micro business owners get online, we're making it easier for companies to pay their partners across borders. We're excited to work with this growing community to make NFTs usable and accessible in a variety of contexts. Lastly, we wanted to collect an NFT that symbolizes the excitement and opportunity of this particular cultural moment. We're a company steeped in the history of commerce and payments but with our eyes on the future. With our CryptoPunk purchase, we're jumping in feet-first."
Now, zooming out again, much of the discussion on Twitter right now is whether this is one, the beginning of institutional involvement in NFTs; or two, a marketing stunt. On the marketing front, Adam Singer tweeted: "Visa spending 150K for a wave of free PR is one of the cheapest stunts in history. Back in my agency days smaller brands spent 10x this for half the press/social awareness. You all flip out but their team is actually really smart here. None of this actually has to mean anything." CryptoCobain, meanwhile, went a different direction, pointing out some hype hypocrisy and also suggesting that it was more marketing than substance. He tweets, “Visa, days after censoring financial transactions for pornograpahic content and killing OnlyFans, have signalled their support of decentralised uncensorable money by spending 0.0000001% of their daily revenue on a floor Punk." Finally, Douglas A. Boneparth wrote: "Visa just spent $150,000 on an NFT to have you talk about them nonstop. Brilliant."
Alright, so what about possibility number one, that this is the beginning of institutional involvement in NFTs? Well, Danny, aka @seedphrase tweets, "CryptoPunks are eroding the store of value narrative from Bitcoin. If you think @Visa is the last company to add a CryptoPunk to their balance sheet, think again. This is the beginning of a digital paradigm shift and I'm in possession of the Mona Lisa." So, let's talk marketing first. I don't think that the team at Visa that deals with crypto, led by Kai Sheffield, was looking to just score some marketing chatter points.
However, they certainly might have gotten other people on the Visa team, who don't really give a crap about all of this, on board by pointing out just how much chatter there was likely to be. In other words, one can see how the marketing-stunt nature of this would be appealing even to a non-cynical team. What about the "CryptoPunks are a new store of value" thesis? There is a massive difference between "I want this as a long term reserve asset" and "this is a great investment." I tend to think that the institutions who are sniffing around this are going to be more in that latter camp. To be clear, NFT communities at this point are strong enough and well capitalized enough that, in the same way that larger market changes can't really kill bitcoin because there are just too many holders who will buy all, of it all the way down, certain NFT sets like the Punks are likely to have a price floor set by the community that keeps them attractive even through market cycles.
Ultimately, institutions are in the business of making money. They're eventually going to try anything that can make them money, and while a lot of the random things that get minted in the interim will go to zero, some could stick around as long-duration assets through sheer force of will of the community. Still, I don't super think that Visa buying a Punk represents the first domino to fall in an institutional rush to get into NFTs. Instead, there's something different going on that I think Kai's comments point out. Visa wants to be in the middle of transactions across a long tail of businesses and it seems to me that part of what they're seeing is a new category of digital commerce that they want to be in the middle of. In other words, it's less about Treasury reserves and stores of value, and more about figuring out how to make money in a new economic market category.
One more quote from this piece from Kai Sheffield: "NFTs have the potential to become a powerful accelerator of the creative economy and lower the barrier to entry for individual creatives to earn a living through digital commerce. NFTs are starting to usher in a new form of social commerce that empowers both creators and collectors, NFTs could also fuel small and medium sized businesses in powerful new ways. The rise of e-commerce has made it possible for small and medium sized businesses to sell online and reach customers around the globe. But they still have to produce and ship physical goods which can have high upfront costs. NFTs give small businesses an opportunity to harness public blockchains for producing digital goods, which can be delivered instantly to a crypto wallet. We can envision a future in which your crypto address becomes as important as your mailing address. NFTs are rapidly gaining traction and we expect continued growth. For example, there's already been $1 billion in payment volume in August alone, up from less than $100 million in all of 2020. Enabling secure commerce is what we do, we're the network working for everyone. And that extends to new forms of digital commerce that unlock access. So, it's not surprising that we're thinking deeply about this space and how we can apply our expertise in enabling seamless and secure digital payments to make NFT commerce accessible and usable for buyers and sellers."
"Basically, this feels to me like a situation where we should listen to what the company is actually saying. They're telling us that what matters is the role that NFTs can play for small businesses, for the creator economy. It's about economic modalities, not just some store-of-value, Treasury-reserve play. If you're into NFTs that should seem a lot more exciting in many ways. But also, yeah, if it was for marketing, damn did it work and kudos to the team. One last note on institutionalization and digital assets. Deloitte published their 2021 Global Blockchain Survey and the numbers are pretty wild. This is a survey of nearly 1,300 senior executives and practitioners, it was conducted between the end of March and the beginning of April, one third are based in the U.S. with the rest in Brazil, China, Germany, Hong Kong, Japan, Singapore, South Africa, the UAE and the UK. Of those, almost 1,300 executives 76% think digital assets will be a "strong alternative or replacement for fiat in the next five to 10 years." 78% also said that digital assets would be important to their industry in the next two years. So, broadly speaking, the survey shows that digital assets as a category are getting significantly more normalized. And whether that means that every corporation is going to eventually buy a Punk is a whole different question, but the broader trajectory is clear. Alright guys, lots of other things are happening this week. USDC says it's moving to 100% cash and U.S. Treasury backing. There's rumors of a big old Binance fundraise, lots and lots of good stuff. For now, I appreciate you listening and until tomorrow, be safe and take care of each other. Peace!