FMF: LAYER-1S CONTINUE TO EXPLODE, NFT GAMBLING, DEFI REGS IMMINENT?
The 5-minute newsletter on the important stuff in finance — reporting what’s going on, and why.
Let’s see what’s going on this week:
- Gensler Puts the Regulatory Cart Before the Horse
- Amazon Hopeful, Matt Furlong, Strikes Out GME Investors
- Tokenization Spree Blurs DeFi-CeFi Border
- NFTs Join the Ranks of Online Casinos
- Altcoins as More Promising Yield Bearers
SEC Needles Prominent FinTech/DeFi Firms to Test Regulation
- After Gary Gensler’s renewed remarks that DeFi must be regulated, Uniswap DEX comes under scrutiny. (link)
- Sen. Elizabeth Warren goes further than Gensler in seeking to regulate “shadow banks”. On her regulatory table, banning stablecoin firms from accessing banks is an option. (link)
SEC’s Drive-By Regulation
To say that regulation of the blockchain space is a mess would be an understatement. While Bitcoin was gaining ground to become digital gold, not much attention was directed at decentralized finance (DeFi). But now, that’s beginning to change.
It would be fair to assume that major banks such as Bank of America and JPMorgan Chase see DeFi as a threat to their bread & butter. DeFi’s smart contracts can replicate and automate many of their services with a fraction of a cost. In the age of near-zero interest savings accounts, this made DeFi grow to a $122.83 billion industry within record time — just one year.
Gross value locked in top smart contract platforms, Image credit: The Block, source: DeBank.com
Now that inflation appears to be spiraling out of control, the US government is in a rush to close the floodgate to DeFi. Yet, even Bitcoin remains vaguely classified. The CFTC considers it a commodity while the IRS views it as a property.
Because DeFi is a new financial infrastructure, the regulatory fog is even thicker. Gary Gensler, the SEC chair, can’t even clear up which cryptos constitute securities. Coinbase learned this the hard way when the SEC blocked it from launching a lending service. In this drive-by regulation, the approach seems to be to unevenly select the biggest platforms and set up precedents along the way.
GameStop’s Fresh CEO Skimps on Details
- GameStop’s overview before the Q2 2021 earnings call. How much did short-sellers lose so far? Can the company tackle established gaming store giants — Steam and Epic Games Store? (link)
- New GameStop CEO, Matt Furlong, failed to impress investors, causing a GME drop by 10.5%. Retail investors swiftly neutralized the dip to pre-earnings call. (link)
GameStop Bets on E-Commerce and Order-Fulfilling
With 4,800 stores across the world, GameStop was hit hard by the lockdowns. Without the help of retail traders, its financial fate would have been sealed. As an extra bonus for traders, they made Wall Street hedge funds lose billions in the short squeeze.
Since then, GameStop cut its operating losses by 164% and increased its net sales by 25%. On the road to recovery, what kind of company can GameStop become? Its Chairman, Ryan Cohen, suggested that it should be like Amazon of gaming. For this purpose, he hired an Amazon veteran Matt Furlong as the one to push the plan to fruition.
GME stock didn’t receive Furlong’s presentation well, but retail traders bought the dip and stabilized it to previous level, source: Yahoo Finance
Unfortunately, Furlong only outlined GameStop’s transformation in broad strokes without taking a Q&A. His key points revolved around upscaling operations, competitive pricing, wider selection, and fast shipping. Effectively, making GameStop’s infrastructure leaner and more responsive.
Most strikingly, Furlong failed to mention video games in the 10-minute call. Furthermore, this was the third earnings call that evaded juicy strategy details. Regardless, GME’s ape army has grown accustomed to holding the stock, betting on clandestine moves to sneak up on the competition.
DeFi or CeFi, the End-User Value Is What Matters
- Bitfinex, Hong Kong-based crypto exchange, is launching Bitfinex Securities for trading tokenized stocks, funds of private companies and bonds. (link)
- WallStreetBets app (WSB DApp) partners with Balancer DEX platform to expand its trading offering with tokenized ETFs. (link)
Stock Trading Without Stock Exchanges
If we were to magically reset civilization with current technology, would we bother recreating certain things as they exist now? Probably not. Much of schooling and work would be done outside of physical buildings. Likewise, much of finance, if not all, would be done on a blockchain.
This is the trend we are witnessing now. The old financial world has its legacy inertia, slowly grinded down by FinTech platforms. Old financial instruments still exist, but they are increasingly finding more effective hosts — the blockchain.
Synthetix was the first to offer the tokenization rail from off-chain to on-chain assets, source: stats.synthetix.io
After Synthetix, Binance introduced stock tokens. They are to stocks what stablecoin is to fiat money. Now, other FinTech firms are taking the tokenization torch further: bonds, funds, equities. As this gap between cryptos and traditional finance shrinks, competition will even out the playing field, making funding more accessible and ultimately bringing benefits to the end-user.
NFTs Expand to Gambling
- As blockchain gaming catches on, play-2-earn guilds are sprouting, bypassing the barrier to entry by lending NFTs. Combined with tokens, Axie Infinity shows the way to fun passive income. (link)
- The online gambling industry is starting to embrace NFTs, with Evolution Gaming casino developer first to have bought four NFTs from the mega-popular CryptoPunks collection. (link)
NFTs and Online Casinos — A Match Made in Speculation
Long before anyone even heard of “blockchain” or “tokenomics”, gamers were making money from gaming. Selling gold in RuneScape has been particularly popular as gamers sell their time doing tedious tasks for passive income. With the birth of NFT games, staking, and decentralized exchanges, the path is cleared toward a complete overhaul of what it means to play-2-earn.
Virtual economies may be virtual, but the entire edifice of human society is based on symbols. Therefore, what is valuable is a matter of perspective. Those who share the same perspective then share real value that spills into real money. With a compound annual growth rate (CAGR) of 12.3%, the online gambling industry knows this well.
Evolution Gaming taps into pop-culture themes — Egypt, Vikings, Pirates — and transforms them into addictive online slot games. Having bought CryptoPunks, online gamblers will now have a chance to win speculative assets instead of fixed money prizes. The four NFTs are now worth 86 ETH (about $300k), but who knows what appreciation waits for the lucky winners?
Although OpenSea, the top NFT marketplace, experienced a 64% drop from August peak, it is clear that companies are starting to place long-term bets on this speculative market. When the growth becomes stabilized and less explosive, we will be out of the bubble territory.
Altcoins Continue to Draw Significant Interest
- Investment funds increasingly fill their portfolio inflows with altcoins, up to 35%. (link)
- What made Solana (SOL) price skyrocket over 13,000% year-to-date. (link)
Solana Keeps Breaching New Price Ceilings
There are fewer and fewer people who doubt Bitcoin’s merit as a store of value. After all, the facts speak for themselves as Bitcoin outperformed gold by 100X. At the same time, for brand new Bitcoin investors to gain merely 2X yield, Bitcoin would have to reach at least $90k. At this point in time, it seems far off.
Bitcoin vs commodities, indices and blue-chip stocks, source: @case4bitcoin
Given Bitcoin’s matured state, investors are seeking cryptocurrency projects that are yet to gain stellar showing. Accordingly, the altcoin allure to repeat Bitcoin’s gains is at an all-time high. CoinShares reported that up to 35% of institutional portfolios consist of altcoins.
Thanks to renewed NFT mania via Degenerate Apes, Solana entered the public consciousness as a fast blockchain with negligible gas fees. Not only does it already have energy-friendly Proof-of-Stake but it uniquely combines it with Proof-of-History.
Investors have taken note. Solana’s SOL token has skyrocketed over 13,000% since the beginning of 2021.
Tweets of the Week
“El Salvador’s new bitcoin wallets could cost Western Union $400 million a year”
“There’s no other way to say this:
The Chairman of the SEC is simply lying to people.
“Talk to us, come in, engage, ask permission”
Then a platform like Coinbase does just that they get a Wells notice vs. guidance? Why should anyone trust the SEC or its leadership?”
“Price down because of a leverage wipeout meanwhile all indications of accumulation grew stronger, including a large uptick in BTC supply held by strong hands.
Bull market is not over, just another shakeout. Underlying market structure continues to strengthen.”
“The entire history of monetary insanity follows this pattern:
- Print currency - Say there is no inflation. Print more- Prices rise.- Say it’s transitory. Print more. - Blame businesses. Print more. - Intervene sectors. Print more.- Blame consumers”
“Sotheby’s sells a lot of 101 Bored Ape NFTs for $24,393,000.
Average price per ape: $241,515.
TWO MONTHS AGO, the average price of Bored Ape on Opensea was $3,600.”
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