Warning: This newsletter will scroll long, because of all the pictures. It's also the most monetarily valuable newsletter we've ever written (it contains about $70M of art), so scroll with care.
Right around this time last year, we wrote about how stock market trading had exploded higher, as everyone was locked inside with stimulus checks and no sports to bet on. We highlighted a couple particularly juicy absurdities (remember that Hertz bankruptcy trade - which, to further highlight the absurdities of these times, apparently ended up working out? Or the wrong Zoom?) and then ended with "hold on to your purse strings". Victory lap time! A couple highlights to point out:
- KOSS, over $120 in January, now under $20
- BB (Blackberry), over $25 in January, now $8
- SPCE (Virgin Galactic), over $60 in Feb, now under $16
- INO (Inovio), over $30 in Feb, now $6
- NKLA, over $90 last summer, now $12
- TSLA, over $900 in January, now under $600
Most of the small meme stocks favored by the Robinhood crowd are down 75-85% since their highs earlier this year. Of note, GameStop is still improbably holding around $160. Diamond hands! We've had to stop selling options on GamesStop for the time being because those valuations are absurd and the premium has completely dried up on anything even approaching reasonableness. Tesla is "only" down 35% in the last few months, but for a large S&P500 company, that's a significant move.
A lot of the recent decline in certain names seems linked to the SEC throwing some cold water on the previously-scorching-hot SPAC space. It also seems likely that the attraction of "stonks always go up" has worn off in the last year, so everyone has moved on to the next shiny object: cryptocurrencies.
Stock trading (number of shares traded per day) is down 18% from this time last year, but the volume of cryptocurrencies traded is up 1,600%. Cryptos traded $1.7 trillion in the month of April, up from $100 billion last April. To paraphrase Mugatu, crypto is so hot right now.
How hot is it?
Well, let's start with the fact that there are zero barriers to entry. All you really need to create your own token is some decent proficiency with code. Kind of like how we used to program the TI-83+ calculators back in the day with amusing little graph gimmicks. (As an aside, that was right around the time the iPod was launched. How can it be that the TI-83+ is still in use and still costs about $100?)
Anyway, there are over 4,000 different cryptos in the world at the moment, most of which are about as valuable as Schrute Bucks or Stanley Nickels.
Quiz time! Here's a snapshot of the top-15 cryptos by market cap (give or take 25%, as it is a week old at this point. Edit - definitely take. It's now two weeks old and cryptos crashed 25% just yesterday). How many do you think you've heard of?
We got 8 of them. Give yourself a little prize if you beat that number.
Bitcoin, we would imagine, everyone has heard of. It was the first, it's by far the biggest and most valuable, but it's also clunky, not very efficient, and doesn't actually do anything other than exist. It's kind of like the AOL of cryptocurrency.
Later cryptos came tied to services that are offered on their platform, as an incentive to get people to use them. For instance, Ethereum is used on a blockchain-based smart contract platform, Ripple (XRP) is used on a payment processing and international currency exchange platform, and Binance Coin is - wait for it - used to pay fees on Binance (the largest crypto exchange...about 7-8x larger than Coinbase in dollar-volume terms). Creating a service platform that generates demand for the particular crypto native to the platform is a step up from Bitcoin, in our view, and a more legitimate basis for investment merit.
Rounding out the top-5 is Dogecoin, quite literally and specifically created as a joke back in 2013, based on a popular meme at the time.
That's the same Dogecoin that's up something like 12,000% so far this year (give or take a couple thousand percent) based on tweets by Elon Musk and the prospect that "it could go to $1".
Dogecoin is now spawning its own second-generation joke currencies such as "Shiba Inu coin", "Dogelon", "Akita Inu", "mwDOGE", and "OURSHIB". Bear in mind, this is no longer an April newsletter, so that is all factually accurate. Consider the following: Ethereum founder donates $1B in dog-themed memecoins to India Covid relief.
You may be asking yourself what the difference is between Bitcoin and Dogecoin - why is one the "gold standard" of crypto and one a joke? The answer: there is no difference. Okay, technically, there are some differences, notably there is a limited supply of Bitcoin whereas there currently isn't for Dogecoin, which is one of the two biggest drivers of price difference between the two of them. The other is public perception.
You just had a tight end on the Kansas City Chiefs (no, not Travis Kelce, there are apparently other TEs on the team) come out and say he's taking his entire salary in Bitcoin. Nobody's doing that for Dogecoin. Even Elon Musk wasn't allowing payments for Teslas in Dogecoin, but Bitcoin was fine. Or rather, it was until recently, when he "discovered" the high carbon footprint of mining Bitcoin.
Now, all of that is still a bit misleading. Nothing is priced in Bitcoin. You can't actually buy a Tesla denominated in Bitcoin. You buy it in USD and can pay with Bitcoin at whatever the conversion rate happens to be when you buy it. There is, as of yet, no native ecosystem for any of these crypto tokens in which goods are priced, bought, and sold without regard to the dollar.
That tight end on the Chiefs? He's not getting paid in Bitcoin. He's getting paid in dollars every two weeks, and then investing his salary in Bitcoin. It's just dollar cost averaging. If he was actually getting paid in Bitcoin, he'd be in trouble. At an exchange rate of $60,000 (which it was a couple weeks ago), let's say his salary would have been 10 BTC for the year. If Bitcoin drops 50% (which it did in the last couple weeks), he'd be out $300,000 of purchasing power. But because he's not getting paid in BTC, he's getting paid in USD and investing in BTC, he's fine. And in fact probably happy to be buying more BTC at a lower price.
Of all the things cryptos claim to be - inflation hedges, alt-currencies, stores of value - the only thing they really are at the moment are hugely speculative investments, driven entirely by public perception.
One of our early-days newsletters was on what exactly is money. And the proliferation of crypto tokens is a great example of that. What's the difference between Bitcoin and Dogecoin? What's the difference between Dogecoin and the Zimbabwean dollar at the height of its 79.6 billion percent per month inflation (not a typo)? What's the difference between the US Dollar and the Euro and Bitcoin?
Nothing. They're all worthless ones and zeros that derive value from the size and utility of the ecosystem built around using that particular token as a commonly accepted measure of worth. That ecosystem doesn't currently exist for any crypto token. At the moment, the one for the USD has global primacy, but it didn't always and won't always into the future. In the early days of the country when the Continental Congress tried to issue a national currency, it was about as much of a joke to the colonists of the time as Dogecoin is now. And look where that ended up.
But beyond the tokens themselves, you are now starting to see a Cambrian-level explosion in NFT's (non-fungible tokens...basically blockchain-verified digital signatures) in something that feels like a weird cross between the Dutch Tulip Mania and the Sword Art Online anime series.
For those unfamiliar with the Tulip Mania, it was the first speculative bubble, back in the 17th century. Tulip prices blew up, with certain rare bulbs allegedly selling for about the equivalent of 10 years' skilled labor wages. Each.
For those unfamiliar with Sword Art Online (likely significantly more of you), it's an anime series based on the idea that there's this virtual reality video game that uses a "full-dive" immersion system to put you in the game. You put this headset on, and various neural networks are engaged that lets one actually "feel" everything going on in the game. Anyway, the premise is that the developer of the game has overridden the headset consoles to keep everyone trapped in the game full-time until somebody can clear the final boss level at the top of the tower dungeon. If you die in the game, the headset fries your brain and you actually die in real life, too. It leads to lots of questions about "how does one define reality", "what is real", etc. etc.
Which leads us to NFTs. Let's start simple - art.
IRL, there are originals and reproductions. Originals are clearly more valuable than prints. No collector wants a print of a Monet. But what about digital art? When "the original" and every reproduction thereof are all exactly identical, how do you get value out of it? Enter blockchain and NFTs.
Christie's auction house just sold their first piece of digital art via NFT. It was "Everydays: The First 5000 Days" by the digital artist Beeple. Beeple has been making little JPGs every day for the last 13+ years. And he combined the first 5000 of them into this piece:
Which sold at Christie's recently for $69 million. That exact piece. To be clear - that is not a picture of the art that sold for $69 million, that is the exact art that sold for $69M. Just minus the NFT. This is a picture of Basquiat's "Warrior" that sold for $42 million recently:
It is a digital representation of something that costs $42M IRL. That image of Beeple's "Everydays" is Beeple's "Everydays", valued at $69M.
A little bit conceptually challenging, but we suppose we can see the need for an originality demarcation on a purely digital medium. Beeple recently sold a 10-second digital art video clip for $3M or so. Grimes (Elon Musk's wife and mother of their child named "X Æ A-12") sold some digital videos for $6M. Fine, it's still digital art.
But now let's get weird with it, because literally anything digital can be NFT'd and sold.
Jack Dorsey NFT'd the first ever tweet for $3M. The tweet still lives on Twitter, anybody can see the tweet, somebody just paid $3M to be able to say they "own" it.
The New York Times is trying to NFT their first articles for $500,000. Remember Bad Luck Brian? Anyway, that yearbook photo - the same one you just looked at, the same one literally thousands of people have used to make a meme, sold via NFT for $36,000.
The Nyan Cat gif sold for $500k. Google it. This CryptoKitty sold for $170,000:
To reiterate, that is not a picture of some new Tomagachi-esque toy called a CryptoKitty. That is the cryptokitty that sold for $170,000.
Somebody (wisely remaining anonymous) paid $500 to buy a 40-minute audio recording of farts.
Charmin sold some toilet paper art as NFT(P):
And Carmen Electra is going to NFT her cleavage as virtual real estate. Not kidding.
Speaking of virtual real estate (virtual estate?), that market is blowing up as well. There are apparently various virtual environments that have been selling virtual land in their virtual environments via NFT. One of those environments - Decentraland - sold $4M (actual money) in virtual real estate to 334 different buyers in March of this year. And you thought Second Life wasn't a thing anymore, didn't you.
To quote Bill Maher, "People who grew up in a digital world are starting to think they can actually live in it." Now, it's time for us to go rewatch Sword Art Online.
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