B2C0032: Digital Assets 4th Q Predictions (w/ Jeff Dorman)
In this week's episode of between 2 chains Jeff Dorman joins the show with Peter Hans taking us through the predictions on the 4th quarter, uniqueness of bitcoin, fractionalization of real assets, Gaming space getting into NFT and much more
In this week's episode of between 2 chains Jeff Dorman joins the show with Peter Hans taking us through the predictions on the 4th quarter, uniqueness of bitcoin, fractionalization of real assets, Gaming space getting into NFT and much more
Visit www.realvision.com/crypto to join crypto revolution.
You can reach Peter Hans on twitter @peterdhans82
In this Episode:
NOTE*: Following transcript is generated using AI. Minor errors might be present.
REAL VISION 00:00
Welcome to The Real vision Podcast Network.
Before we get going, we want to remind you that Jeff Dorman is the co founder and chief investment officer of ARCA funds. And Peter Hans is ARCA fund Managing Director. The commentary and opinions expressed in this podcast are solely those of the podcast participants and do not necessarily reflect the opinions of our funds or its affiliates and are subject to change for any reason without notice. Any discussion of investments or investment strategies within this podcast are for informational purposes only, and not to be construed as a recommendation to buy or sell any particular investment security, digital asset or strategy. Investing in digital assets involves a high degree of risk and volatility, including the risk of the total loss of principal and now enjoy the show with your host Peter Hans.
PETER HANS 01:01
All right, it is the last day of September 30. That very interesting month in digital assets. It's also my youngest seventh birthday, happy birthday Charlotte. Those who follow her on open sea now she's a credibly prolific artist with two NFT's that I have created.
JEFF DORMAN 01:23
Well, you might have to buy one of those for her birthday.
PETER HANS 01:26
That would be incredible. I've priced one at 50 eath in a replica of Van Gogh's Starry Night
JEFF DORMAN 01:32
I think that's definitely cheap I'll happily buy that and sit on it for a few years
PETER HANS 01:36
you never know if she becomes the next Warhol it's a steal
JEFF DORMAN 01:40
well congrats to Charlotte on her open sea career and happy birthday to her
PETER HANS 01:44
absolutely yeah my my kids all love when if if I like even hinted at them in the podcast because they'll be like I'm famous I'm like you realize no one no one listens to this right
JEFF DORMAN 01:54
yeah wait till she sells her first drawing for 50 eath.
PETER HANS 01:58
that is true that is true this is very distracting because I can't see so I'm going to complain about about that a little bit but so we we've done a couple episodes now on What a crazy month September was with the with the volatility it'll it'll wrap up a generally pretty positive third quarter because we had you know great, great performance and I'm not talking about ARCA I'm talking about just kind of the overall market in July and certainly August after the rebound from 2Q and last year we saw you know kind of not you know not dissimilar right some some some weakness in September certainly you know, October from a DeFi standpoint up and then heading into a pretty massive rally that went 4Q you know, all the way through 1Q you know, six months of basically just straight up across the board in all risk assets but but certainly digital assets. I don't know if this feels different to you or it feels similar to you but I thought it would be great to just kind of felt let's get some 4Q predictions here and get a little while see where things go. So I'm going to put you right on the spot we you know, I gave you about 45 seconds to prep for this. So hit me up with one I have one two for you. But let's I want to I want to hear what you have to say.
JEFF DORMAN 03:17
Sure. I mean, before we get to the predictions I think that there's definitely similarities to last fourth quarter as we enter the fourth quarter there's definitely some some differences right? I think the fourth quarter last year was was huge for across all digital assets and especially Bitcoin and Bitcoin finished up 168% in the fourth quarter of last year. There were a lot of things that kind of led up to that right first Bitcoin had lagged almost all digital assets. You know, up until that point, I mean, Bitcoin was up about 40% heading into the fourth quarter and it finished up 300% for the year basically outperforming almost everything else in that fourth quarter. But there's a real reasons that had jumped right you had just about every traditional fund had been gearing up to get some Bitcoin exposure throughout the the second and third quarter. Well right after Paul Tudor Jones came out in April and said they wanted a Bitcoin exposure, or he had Bitcoin exposure and gave his thesis for why after MicroStrategy came out with their announcement that they were putting out the balance sheet. There was a rush from traditional macro funds, credit funds, long short funds, even some corporate treasurers to get into bitcoin and that just kicked off the the move that we saw higher, but for every other digital asset really it was kind of a banner year the entire year there was nothing that special about the fourth quarter relative to what was happening the rest of the year. So when you look into what we're seeing now, it's very similar, right? Bitcoin is one of the worst performing digital assets again this year, bitcoins up 46% this year, which is you know, I think that there's only six or seven tokens that I follow that are that have done worse than Bitcoin this year. And the differences though you don't have that catalyst so I just don't know if we're going to get that fourth quarter catalyst in terms of wall of worry though, and some of the things people are worried about though again, it looks very similar to last year you heading into September and October last year, you had the Presidential election looming. And people were very nervous about what was going to happen to the country. You know, if Trump did or didn't get reelected, it was right around the time Trump got COVID and you know, people were kind of waiting to see what would happen from a medical and government response there. You got the stimulus checks starting to run out dynomax had just been charged by the DOJ I think that happened right at the end of the third quarter or maybe the first day or first or second day of the fourth quarter
PETER HANS 05:23
JEFF DORMAN 05:24
Then you had DeFi was was starting to really struggle after DeFi you know, came out guns blazing in the in June, July and August of 2020. DeFi really started to struggle it towards the beginning of the fourth quarter because all of a sudden you started having the rumors of regulatory crackdowns. So you fast forward to today, it actually looks very similar, right. Right now we have a clash over Biden's infrastructure proposal of Congress at odds over raising the federal borrowing limit or the debt ceiling, you know, even though that's largely political theater, and there's no way that us is going to default. You know, there's certainly anxiety in the markets over that you have overseas you have China's evergrande a situation in the default that's coming there and possible contagion, give Gensler you know, in this sec, you know, on a Warpath, you're cracking down on CFi and DeFi, you know, and you have China coming out, again, reiterating its stance that all digital asset related transactions are going to be illegal, see that same exact wall of worry that we had the exact same time last year. And one by one, most of these will go away, right? The SEC is going to probably come down with some enforcement actions over the next couple of weeks. And then it'll largely kind of disappear for, you know, a couple of quarters. You know, the China news is largely just reiteration of the same news we've seen for six years. So eventually, that will dissipate. All the congressional and presidential stuff that's happening will obviously dissipate. So there's a good reason to believe that we could set up for another really big fourth quarter, I think the difference is, unless we see a new catalyst for Bitcoin, I don't think it'll be Bitcoin LED, I think it will be continued to be led by the sectors and areas of digital assets that are showing the highest growth. And to me, that means more on the NFT side. More on the gaming side, you know, those are two had those two have been leaders all year, and I think it will continue, we're just seeing no slowdown at all, with regard to the usage and the volumes of NFT's. Twitter's coming out right now with an idea where you can link your metamask or your Coinbase, wallet to your Twitter profile, and basically use your NFT's as your profile pic. And also we'll have it show up on your Twitter profile. You know, you're seeing other companies and projects start need to use digital assets in some way, or use NFT's in some way, shape, or form you as a visa get involved. You know, I think it's just going to continue. And on the gaming side, you know that the success of xe infinity in plater and we're already seeing in the venture world, tons of companies getting funded at massive valuations here to continue to bootstrap and launch the growth of other projects that are taking advantage of similar structures, that's going to start hitting in the fourth quarter, you're going to see new games launch, you're going to see new service providers dedicated to these games, I think you're gonna see a wave of announcements here in the fourth quarter of very big traditional funds that are getting involved in gaming tokens and gaming projects in blockchain. So I think that's going to be one of the leaders for sure, into this fourth quarter. You know, and I also think you'll see DeFi bounce back in a big way in the fourth quarter, because, you know, from a usage standpoint, and from a growth standpoint, there's nothing nothing changed all year, the only thing that he changed was this regulatory overhang that has been growing and growing with regard to you know, what the SEC and other regulatory bodies think of these platforms and quite frankly, the the front end user interfaces that allow people to interact with them. I think ultimately you're gonna see some settlements and then it's off to the races with regard to usage of these of these decentralized platforms especially when you see China cracking down again, you know, where does that volume go, it's not going to just end it's going to start going to decentralized platforms as it leaves Whoa, and it leaves binance in other areas.
PETER HANS 08:56
So you gave me a lot there. You said before I get into any event seven so let me just let me take a step back here. So what I heard one of the things I heard was there are similarities to last year last year in the fourth quarter we saw a large Bitcoin led rally now if I if I look you know Bitcoin last October north of 28% it was up over 42% in November it was up almost 48% 47 spot 47% December so you know of bitcoins. 300% breeze last year, I mean, a majority of that really came in the fourth quarter so you're saying you know which I don't necessarily the a a rally in 4Q 2020 but instead of being Bitcoin LED, it is, you know, led by a lot of assets and maybe not assets sectors and we've seen already showing a lot of strength this year, namely DeFi and gaming.
JEFF DORMAN 09:59
Yeah, I think that's Right and you know, again, Bitcoin certainly could and probably will do well in the fourth quarter historically it always does. But again, the difference is there were real catalysts and real reason for why Bitcoin jumped in the fourth quarter last year, as we stand here today, I just don't see it. I don't see those same candles now something could emerge, right? You know, Bitcoin has a has a history of you know, basically all of its gains coming in short periods of time. So you know, you look at you look at the news over the last few years here, it's always been jumpstarted by something you had the Bitcoin having that jumpstarted interest you had. The first time a big traditional hedge fund got involved Paul Tudor Jones the big time a corporate Treasurer got involved MicroStrategy the first time a country got involved El Salvador, a bitcoins running out of first and I just don't see on the horizon what the next one is, maybe it's the Bitcoin ETF, right? You know, even today, Gensler came out and reiterated that he thinks Bitcoin futures ETF on the CME makes the most sense. So maybe that's the next catalyst. But I don't see it on the horizon right now as we speak today. But that doesn't mean it won't happen, right? I mean, again, Bitcoin did the exact same thing last year, it lagged all year, as you mentioned, the fourth quarter was pretty much all of the gains Bitcoin had last year came in the fourth quarter, you know, you're looking at exactly the same setup today, you know, Bitcoin year to date, today is up 49% or so it was pretty much right around 46 to 50%, at this time, last year to before went on that fourth quarter terror. So, you know, stranger things have happened. But I do think we need a catalyst and I haven't seen that catalyst yet.
PETER HANS 11:28
Yeah, I mean, look, you know, the the majority returns coming in a abbreviated period of time is not is not unique to Bitcoin, certainly look at, you know, look at other digital assets, right? I mean, no, xe and the gaming, you know, absolute monster, but if you take away, what month was that, when it was up like 1000, July, August, whatever, you know, you take that away? And what is it done, right? And you can say the same thing about the s&p right, you know, doing this is why you stay invested, they don't try to time market, if you look at a 20 year period, from Jan, one night, 1999 all the ways, you know, you're in, and this is multiple market cycles. And that, you know, if you stayed fully invested every day, we're up, you know, 560 basis points. annulus, right, pretty solid. If you missed just that 10 best trading days, you know, because you're trying to time the market, and you're selling it selling when the market was falling, and you missed those rebounds, you missed some of those big days in March and February of 2009, will your annualized, you know, 5.6% 10%, just by missing 10 days or so. You know, so I guess my only being that, you know, in very no assets, is it just kind of smooth and steady, or you have to in the market, you can't you can't try to time things, those rebounds are so massive,
JEFF DORMAN 12:48
Yeah, 100% there's pretty good data, I'll give a shout out to fun strat, you know, Thomas Lee and his team and funds have done a pretty good job of mapping that out in digital assets, specifically showing exactly how important it is to be invested in those big days when it happens. because like you said, it's very difficult to predict when they're happening, but if you miss them, you know, you give out you give up 90% of the of the performance for the year for the for the decade.
PETER HANS 13:13
Oh, I'd imagine it's even more pronounced right? Because I mean, think about think about how violent in either direction, right? So, you know, if you're staying out of the market, when it's just getting hit every day, miss some of those up moves? Like that's, that's everything from a percentage. So yeah, it's it's, it's probably even more pronounced so. So then, you know, if we talk about kind of it being led by other assets and assets that have already done well, and maybe have been more stagnant of late, you know, take the gaming space, do you think this will be fundamental and catalyst driven? Do you think it will be just kind of continued adoption? incremental buyer standpoint, what do you think drives just a prediction of your churn?
JEFF DORMAN 13:58
Sure, So from from a gaming specific standpoint, you know, the numbers that we're seeing are just staggering. On a few games that do exist, you know, xe infinity, for example, put out a stat recently talking about its 30 day and 90 day churn, basically saying, of customers who play for 30 days and have customers who play for 90 days, how much actually stick with it, and the two lines were on top of each other, which is almost unheard of for anything, let alone gaming, right, that, you know, the Basically, there was just no drop off and no churn between 30 and 90 days. And what that means is this, this new idea of play to earn where you are playing a game that you enjoy, but you're also getting rewards and benefits for doing so, it has a stickiness factor that we've never seen, and as we've seen in digital assets, and really all technologies, but specifically to digital assets. So that's where we focus, there's a copycat effect, right? Once you start to see one success, you start to see a lot of them. The difference is is in a lot of other sectors of digital assets. There's been no barriers to entry and you know, you can go from non exist Since two existence in a half a day, I mean, we talked about sushi swap all the time, right sushi spot was a fork of uniswap, it was pretty much overnight that sushi swap existed. The differences with gaming is it takes a long time to germinate and develop these games and to do them, right. So we already had a fair amount of gaming projects that were being built over the last 18 months and had been funded, they're just now starting to get traction again online, and they're going to start to tweak those token ohmic models in the same way that xe did to have that play to earn those rewards. Similarly, we're seeing a enormous amount of new games and projects being built, that are getting huge valuations from the venture world. Which just means you're going to have a plethora of new games around the corner as well and the differences in digital assets because a lot of times these have tokens before the games are actually built. These these projects are building communities and building fervor before the game is even launched. And alluvium is a good example of alluvium. You know, I, I got in trouble on Twitter maybe a month ago because I was saying there's no comparison between alumium and actually, because xe is a real game with real users of huge growth metrics. And alumium to date is just, you know, two minute hype video about a game that one day might come. But the alumium token went from $3 to $500. And independent of price.
PETER HANS 13:59
Hello, hype video.
JEFF DORMAN 14:36
Yeah, independent of price and market cap we have for a second. What does that mean? It means you have all these people who are backing this game before the game even exists. You know, they're gonna have a huge sticky user base on day one, because they use the token. You know, there's others examples of that too, right? You have decentral games to Central games is building like a metaverse, a casino within the metaverse, the dgx token has been out for a while. Same thing, you know, they're just starting to get that metaverse live and have the ability to go in there and play poker and play blackjack, they already have the user base on day one because of the engagement of their discord channel and the way the token is performed and things like that. So I think that's why I'm so excited about gaming right now is that you have insane interest from the venture world funding these these projects, you've had big communities who want to be involved on day one, and help this thing even before the project is built. In fact, xe infinity just today announced an airdrop, anybody who played xe infinity prior to October 2020. So over a year ago, just got airdropped new tokens, right. So now you're incentivized to play games, even if you don't like it early on, because you never know A year later, they might airdrop you some tokens. You also have our traditional companies, right, we've seen not only venture funds, but traditional, you know, credit equity type investors, as well as big family offices getting involved in the gaming space. And quite frankly, we've even scratched the surface as to where this can go, I think axiom infinity has something like a million or a million and a half daily active users. I mean, it's nothing compared to some of the big games that you've seen, you know, from from, you know, 10 years ago, the Angry Bird type stuff to obviously, like fortnight and things like that. Now, I mean, those have been the hundreds of millions of users. So we haven't even scratched the surface yet of where this can go. But you have this engagement in this community that is unlike anything we've ever seen. So I expect I expect the gaming sector to stay hot. Um, you know, anecdotally, we've heard about a couple of big investments, and I'm not 100% sure have been announced yet. But big traditional funds and investors that are starting to get into this space.
PETER HANS 18:10
Yeah, well, clearly one of the one of the, I don't know what you would call it a value from from a corporate standpoint, I mean, from, from a societal standpoint, I could probably say it's not terribly valuable, and probably the opposite. But, you know, one of the things that's been cracked, you know, first kind of by social media and web two and increasingly by video games, right, whether they be you know, mobile based, or, or console based, is the addictive nature of them, right. Like, it has just been figured out scientifically, what makes digital products addictive, and now when you factor in, play to earn, right, it only magnifies the addiction. Which, you know, at least there's economic benefits to the to the addiction. But it seems to me and I don't I can't imagine that this is a fourth quarter catalyst just because your point takes time to develop these games, right? But it seems to me that this is inevitable, this kind of play to earn model, you know, kind of kind of taking over all of gaming. Is that is that something you see happening here?
JEFF DORMAN 19:24
I really do. I mean, shout out to our partner at ARCA David Nash, who's a very big gamer himself and has done a fair amount of research in the space but you know, just just to put some numbers around this there's 3 billion gamers in the world right and like I said, the biggest most popular game is xe infinity right now with like a million and a half daily active out of three gamers
PETER HANS 19:42
in so in play to earn games not on all games obviously,
JEFF DORMAN 19:45
it's 3 billion gamers around the world. And xe infinity is the only blockchain based game that's shown any real success yet they have a million to a million and a half daily, right?
PETER HANS 19:54
So it's tiny. It's tiny in the grand scheme of things yeah,
JEFF DORMAN 19:57
yeah. So you know, here's here's the roadblocks. Spread out I'm sure anybody with this podcast Roblox has 33 million daily activities, and the company is valued at $30 billion. So, you know, just just to put into context, you know, where we're headed. If any of these start to get real traction, right? We I mean, we don't even have I think metamask came out recently metamask the noncustodial wallet from ethereum came out recently said that they have they just crossed the 10 million user mark, right? So we're not even at 10 million users across basically all of of blockchain based interaction, when you start to have a real success in this space, you know, the, the valuations are going to be staggering, and the growth is gonna be staggering. So you know, we're pretty excited about gaming as being one of the biggest on ramps to digital assets. And I think that that word on ramp is really important here because, you know, if you go through the progression of where we've come as digital assets, three, four years ago, every single person who came into digital assets through Bitcoin first, right, that was the first interaction, some didn't even know the rest of the digital asset world existed, they just bought some Bitcoin and eventually maybe found out about something else. Last year was the first time we started to see that differ a little bit, we saw a lot of OTC desks that we speak to we're saying that people were coming into aetherium for the first time, rather than through Bitcoin, but it was still coming through Bitcoin or aetherium. For the most part, now we're starting to see it come into two games and NFT, right, there's tons and tons of people out there now don't even care about Big Query that have played NBA top shots or who have, you know, bought a little ethereum. And just to get involved in an NFT. And you're gonna see the same thing in gaming, right, you're gonna see people go right to the games, and not worry about Bitcoin or ethereum. And that's huge, right? That's another on ramp into digital assets. And, you know, in my opinion, every on ramp is a good thing. Because once you're in ecosystem, no, don't forget, these are still separate ecosystems, right? What you pretty much have to make an effort to get into the digital asset ecosystem. And once you're there, you know, for all intents and purposes, your assets are kind of trapped, right? Obviously, you can still get them out in some way, shape or form. For the most part, people who put their assets into digital assets are not really cashing out they're staying in there in some capacity
PETER HANS 21:56
JEFF DORMAN 21:57
PETER HANS 21:58
JEFF DORMAN 21:58
yeah, not yet not not trapped in the sense that you can't get it out but in the sense that they are two different ecosystems and you have to make a conscious choice to move money back to the you know, traditional banking and brokerage. So once that money comes in, it stays it. And if gaming is another huge onramp you know, it's positive for the entire space.
PETER HANS 22:15
Yeah, I mean, that is it's very interesting, kind of when you think about what those different onramps are, I think that's a really a really important point. You know, NBA top shot is an interesting one for sure. Because I you know, once you mentioned that, and obviously there are a number of NBA players who their entree into the world was probably through top shot, I'm guessing. And now you see, you know, that moving towards the NFT space, like there's just more and more NBA players and athletes as well, just getting involved in in NFT's even even you know, our NFT's I mean, I think the Steph Curry news and those investments it's I mean, it's, it's wild. And I know now dapper I think I saw recently a headline that they're partnering with the NFL to something similar to tap shots.
JEFF DORMAN 23:07
Don't just miss the southern B's and Christie's auctions as well. Right. I mean, that's another new onramp for people to get involved in NFT's. And, you know, while we kind of transitioned from gaming densities, the reality is they're not too different in the sense that most NFT's have some component of gaming involved in it, you know, whether it's, you know, future use cases, like you're going to basically, you know, get involved in an NFT that you like, but ultimately that that character might be used within a metaverse within a game at some point. You know, most gaming and NFT developers are kind of tied to the hip in ways that they're trying to make NFT's more fun, they're trying to make a more game like you're trying to use them in fantasy type world, you know, and the game's same thing, right? The games have these in game assets that you can buy and sell and hold which are NFT's. So they're definitely joined at the hip and not too dissimilar in terms of this user on ramping.
PETER HANS 24:01
Yeah, I think I think that's, that's right on very interesting. I mean, what do you think about while we're on the NFT subject, because obviously I mean most most people think NFT's they think of you know, crypto punks, board apes, you know, what are lazy lions all the other stuff. pungy penguins. What do you what do you think about the fractionalization of real assets because that's something that I'm, I'm really interested in. Just Just conceptually. You know, I there's a there's an app I have on my phone that I don't know how popular it is at all but it's called DipBS D-i-p-B-S, where you know, essentially they they do drops of very high end sports cards, you know, that that, you know, most people either wouldn't want to spend, you know, 50 grand on or whatever, whatever it's going to cost but you can buy you know, you can buy a fraction of it for $1. But the cool thing about that is actually if you wanted to you can buy up a majority of the assets, you can make it like a takeout offer, you can take physical delivery of the of the card or you can, or you can own an NFT of the card and have it stored in a vault. But I mean, you can think about that for anything for physical art for real estate for, you know, rare autos. I mean, I guess it's not dissimilar to rally road with the exception that it's that it's tokenized instead of like launching an LLC for every item that they sell, you know, where do you think that we are in the in the timeline of fractionalization?
JEFF DORMAN 25:31
Yeah, I think it's a good it's a great question. I think I think the fractionalization of real world assets is, is coming in, there's a couple of big companies that have been tackling this, there's central fuse, there's figure there's percent, which was formerly known as cadence. Even maker dow has been involved in kind of figuring out how to how to take real world assets and make them collateral on chain. But ultimately, what that does is it leads to fractionalization. Right? Once you put a real asset on chain, then you start to fractionalize it. So far, we've seen fractionalization, largely in NFT's and other on chain assets, I think we're fractionalization gets really interesting is when it's when it's when it's traditional assets that come out, right, maybe maybe that is, you know, commercial real estate, you know, things that have been difficult to own in small size historically, you know, maybe that comes in the form of, you know, monuments or, or or art right, you know, I think we've talked about in the past, like what the Mona Lisa was auctioned off is, and you could own a fraction of that. I think the issue with reconciliation to date is, it's largely been things that people don't care about, right, I think there was a, you know, there was the idea of fractional Ising, you know, fancy cars, I think there was a company camera, the name of it, there was a German company that was doing that where you could basically own, you know, fancy car that in the fractionalized, NFT form. The problem is, you know, that's a very niche industry with only a handful of people in the world who really care about that, if in most part, they want to actually own the car. So part of it is just, you know, there's there's no shortage of creativity out here in the digital asset world, I think, need to find the right assets now that people actually want to own and actually want to say that they want to, and you can see how that could work in sports, for example, right? I mean, the Green Bay Packers have not had an owner for what, 40 50 years. And what they do is they, you know, they basically sell these fractionalized ownership certificates to fans. You know, this was prior to blockchain prior to NFT's. But you know, that's how the Green Bay Packers is owned, it's owned by fans, and you get this little certificate that you own a fraction of that, right. So wait till you start to see
PETER HANS 27:28
With no actual rights but yes,
JEFF DORMAN 27:29
yeah, exactly, no, right. But wait till you start to see things like that, that happened in the NFT world where it actually does come with some rights, or it does come with some governance or comes with, you know, ability to actually, you know, show proof of what you have and get and get something for it or even have these things be tradable and transferable. So to me, it's not a matter of, if it's just when and I think it's sooner than you think i think it's just about against somebody has to find the right asset. Somebody has to own the right asset that people really want to own a piece of and say they own a piece.
PETER HANS 27:58
Yeah, the packers is actually somewhere before we get to that, do you know actually Oh, you brought up the Mona Lisa a couple times, you know, actually owns the Mona Lisa.
JEFF DORMAN 28:06
I have no idea.
PETER HANS 28:07
France, the nation of France owns the Middle East. So unlikely for the nation of France to auction off the Mona Lisa, it's been on display in the Louvre since the late 17th and 1797 if memory serves me correctly, so unlikely to ever see that auctioned off but it's a good analogy. Yeah, Green Bay Packers is an interesting one because you know when you think about this, especially in the US this you know, culture of moving teams you know, holding cities hostage to get new stadiums and and you know, I'm here I'm here in Houston, and I didn't live here at the time, but the you know, the Oilers moving to Tennessee. And you know, younger listeners might not know that the Tennessee Titans were previously the Houston Oilers and Eastern Texans were an expansion team. You know, the Rams went from LA to St. Louis, back to LA, your Cleveland Browns, also an expansion team because they are the Baltimore Ravens and so on and so forth. Right. Green Bay, I don't even know how many people live in Green Bay, it probably shouldn't have a professional sports team. Right? But it's there is no owner there. You know, there is no single centralized owner. There are 360,000 I had to look this up 760 owners of the packers and this is really interesting. The articles of incorporation of the Packers prohibit any person from owning more than 200,000 shares there's over 5 million shares so you can never have a majority owner in the Packers betting I mean that's that's really interesting way ahead of its time.
JEFF DORMAN 29:44
Yeah, I agree. I mean I think that there's there's a lot of good good on the fly research they're well done by you. I think the there's a lot of things in in sports and in you know really acids and art in general that up predate anything related to blockchain, that the idea was the same and now you just have the technology to make it easier and to make it better. So I think you'll see a lot of examples like that, that ultimately figure out, hey, why shouldn't we do this as a blockchain transparent asset that's transferable and fungible? You know, even recently, some listeners may have heard about the Miami coin, right? I think Miami, the city of Miami raised $5 million. But that was pretty rushed, right? There was no buddy, in my opinion, nobody really helped them think through what you could do with that. But there's a lot of different things that you can do, you know, with, with selling, having a municipality, sell a token, right, you can say, we're gonna have a fixed supply of tokens, and we're gonna sell them. And if you, you know, think that you're going to be rooted in the city for a long time, and you want to help the expansion, you know, here you go, here's a, you know, a unique one of 10,000, or one or 20,000 token that you're helping, instead of paying taxes, you're helping to grow the city through this token, but that token actually has real rights, you know, maybe you get lifetime free bus or taxi service. Or maybe you get, you know, you know, at the Miami airport, you get priority, things like that, right? There's all kinds of things you can do. Once you start to, and this is a little bit away from NFT's and fractionalization. It's the same idea, right, you're basically decentralizing things that have historically been, you know, owned by one or powerful entities now you can sort of decentralized these and make them more unique, more interesting. So, you know, this just goes back to what I said before, it's not the technology anymore. At this point, it's about finding the assets that people actually care about finding those municipalities that people care about. And that's when you start to fractionalize this interest, and I think, you know, it's coming, it's coming faster than most people think.
PETER HANS 31:41
Yeah, I think I think it's gonna be a huge game changer fractionalization in terms of increasing Velocity of Money, as well, which is which is interesting because, you know, one of the one of the I don't even know if it's a debate but one of the one of the points I always make with regards to you know, people talk about kind of, you know, you know, the dollars worthless and because it's you know, it's it declines in value over time and yet designed that way because, you know, our government is incentive why advise do we see a strong economy and the economy only strengthened if people spend money and people are incentivized to spend money with inflation? Right, you know, if if everything is deflationary, you're actually not incentivized to spend money, which is why, you know, the Fed is so much more concerned about a deflationary environment than they are an inflationary environment.
JEFF DORMAN 32:36
It's also why Bitcoin transactions continue to fall and why mining revenue continues to fall for that same reason, nobody actually uses their Bitcoin because it's deflationary. They want to sit on it forever.Why would you ever spend your Bitcoin?
PETER HANS 32:45
Exactly like I mean, you know, people probably, you know, a lot of people I think, look at us and say that we you know, we're, we're bearish on Bitcoin, are we a Bitcoin? And I think that's couldn't be further from the truth. Like, you know, we're both personal Bitcoin owners and investors. But like, it's not currency that I've ever got to use, right, you know, be collateral share, but I'm going to put money and put my savings in there. Because there's zero reason for me to have any, you know, cash based checking account or money fund, except for them. The funds I plan on more immediately spending, because obviously, Bitcoin is volatile. But, you know, but it's a store of value because it assuming that we are right, in the grand scheme of things, it will go up over time. Yeah, it's odd, you know, they they have the mindset, certain certain people have, I would, I would just say, but um, you know, I think the fractionalization is key, because what it does allow is, you know, theoretically, at least for the increase in velocity of money, because you can, and I think you do a great job of articulating This is, it allows non productive assets or wealth or ownership to become productive, right? If I have a 50% LTV on my home, and I have, you know, X dollars just sitting in the bank waiting for me to eventually sell my home, and then, you know, buy a new one. Well, I can fractionalize that that house, I mean, there might be, you know, people interested in using equity as collateral. I can do other things to, you know, increase spending increase the velocity of money in the economy without actually spending physical currency.
JEFF DORMAN 33:39
Yeah, and real estate's a good example because we've tried this many times, right. I mean, the entire 2008 crisis basically came from this idea of packaging mortgages together to give people exposure, right, the problem is the structures were wrong and the correlations were way too high. And once you saw a wave of defaults, you know, one house defaulted. 100 defaulted, and all of a sudden, the CDs were worthless, but the idea is the same, right. Let's say you're super bullish. On Memphis, Tennessee, Memphis, Tennessee, you're just like, this is the best city, I want to get exposure to it. You can't really do that very easily, right? I mean, you could go out there and buy a house on your own, or you could go buy, you know, a huge, you know, if you have hundreds of millions of dollars, you can go buy a huge piece of commercial real estate. There's no there's no real way right now to say I'm bullish on then, well, well, what if Memphis instead of issuing general obligation bonds, they start issuing tokens, right. And those tokens, again, are for have have unique properties about, you know, what you can do with those those tokens if you have them in terms of, you know, using parks or using the airport or using public transportation, or what if, you know, ultimately, all the houses within, you know, in Memphis, or ultimately, all the equity in the houses are fractionalized, and you can own you know, essentially a Memphis real estate ETF through some sort of fractionalized ownership of a token, right. These are ideas that have been out there forever, the technology just didn't exist to make it easy, where you can actually own it and trade it and have some liquidity. So I do think that's where we're headed, right? You are going to see fractionalization of real assets. You know, city by city, is a really good way to do that. Right? You can now get exposure to something that you don't need to you maybe you live in Houston, you've you know, you probably maybe you've never been to Memphis but you've got a bunch of friends who live there and you're just excited about it. You have no way of express that view right now. Pretty soon.
PETER HANS 36:19
I have been to Memphis but I have no friends.
JEFF DORMAN 36:22
Well, maybe. Alright, so you won't be the first buyer of the of the Memphis fracture
PETER HANS 36:27
Cambridgeshire ribs? I went by it.
JEFF DORMAN 36:28
Yeah, it's good food. And that's for sure.
PETER HANS 36:30
JEFF DORMAN 36:31
But you get the idea. Right? And we just haven't found the right assets. yet. It's not that the ideas are not there. It's not you know, when people say, Oh, you know, blockchain is just an idea without, you know, any traction. I mean, that's clearly not true, right? You can point to how many different applications that we've seen, now they're showing real traction, right? DeFi was the first real, you know, application gaming. And NFT is, the next one fractionalization of assets might be the next one. You know, we started this by saying fourth quarter predictions. I don't know if this happens in the fourth quarter or not. But I do think it happens sooner than later. Right? We just need we need the right assets and the right focus that people actually care about. And when you when you when you find something that people care about, it explodes, right? People care about money. That's why the DeFi exploded, people care about sports teams. That's why you know, sports and NFT's and Collectibles have exploded, you know, people do care about, you know, real estate and things like that as well, even when it's done, right? It's gonna, it's gonna, we're gonna see the same kind of exponential growth.
PETER HANS 37:27
Yeah, I think I'm glad you I'm glad you brought up that we talked about fourth quarter, because we did get a little I mean, in this, this is what this is what this asset class does, because there's just so many possibilities and so much potential that you just you can't help just, you know, snowballing everything. So I think we're both on the same page. So So let's take a step back here. So fourth quarter, we see a continued strength in the gaming and NFT space, probably expanding beyond the some of the assets that we've already seen. With strong, longer term, we see more of the gaming world move to this play to earn model taking advantage of the 3 billion gamers worldwide and growing. And, as this also moves through the NFT space, we see, you know, probably not the fourth quarter, but the idea of fractionalization as a, you know, a massive shot to, I would say personal and societal economic expansion, really, really take hold, maybe maybe we start to see, you know, green shoots of that in 2022, but probably not for you and I do a decent job of summarizing.
JEFF DORMAN 38:39
Yeah, I think that's right. And I think in general, the fourth quarter is gonna be pretty positive for digital assets. I think all of these worries that people have right now, one by one are gonna get knocked down. And, you know, it's, it's really hard. If you look objectively, just at the revenues, the user growth, the volumes, the transactions, the interest from the outside, I mean, everything would tell you to get invested in the space right now. You just have these overhangs right now that are that are causing overall macro and market fears that are not necessarily, you know, lining up with the actual growth and interest in this space. So I'd say fourth quarter, all very strong feelings of the fourth quarter can be very positive for investors.
PETER HANS 39:19
Yeah, I think that's a good one. Well, let me end with one more real briefly, and you touched upon it earlier, but China, you know, it's something I think, as you said, it kind of resurfaces, and at a you know, but there's a lot of new participant in this in this market institutionally. And yeah, you know, even an ARCA we increasingly get the questions. What do we make of this? Has it How does it extend to the rest of the asset class? How systemic is it? What are the long term views? You know, from my standpoint, I think a lot of it is rhetoric around China's move towards a digital one, you know, which by definition means they are not opposed to digital assets, they are not opposed to blockchain based transactions. In fact, they're, they're moving their currency to one. But they are opposed to competition for for the digital one. And I seem to have just lost Jeff, but they are opposed to competition for the digital one. So just, you know, curious fourth quarter, let's keep this tight because we could talk about and speculate about China forever. And the fact the matter is, you know, it's really just about how the market interprets everything. So, you know, what do you think we see or hear, you know, out of China that might be keep bear in mind that that's totally impossible to actually. And then, I guess, more importantly, like, do you think the market cares?
JEFF DORMAN 40:40
Well, I'll work backwards there. I saw somebody I unfortunately, can't tell you who said it. But somebody said something pretty interesting. They said, you can only ban something once every other every every other time. It's just admitting that you failed. Yeah, it's kind of it's kind of what we what the market thinks of China right now. It's like, you know, the first few times China banned digital assets. Yeah, the market reaction was pretty swift and violent, because that was pretty scary, right? That's 18% of the population. But it is sort of increasingly true, the more time you come out with the same ban, you're just admitting that your previous ones didn't work. And I think that's where the market is in China right now. Right? If you live in China, or you have a business in China, you are absolutely being affected right now. Right? There's no doubt that they are going after the exchanges. They're going after the miners they're going after any of the middlemen that are real companies or people or businesses that are making money in this digital asset space. And to your point I don't know exactly the political motivation behind it. But as is the case always with China usually it's some form of power and control and the introduction of the digital Yuan is certainly as good of a reason as any As for why they would want that. But they're not you know, they're not prosecuting individuals who are transacting on blockchain you can't right there's no way you can ban that right you can ban front end user faces you can ban business you can't ban blockchain and the transaction and ultimately you know, we've talked about this many times in the past this industry is just filled with perfect substitutes right so if you want to use something you will find a way to use it right if you can't use a certain stable coin you'll find another one if you can't use a certain exchange you'll find another one you know if you can't use a certain user interface you'll find another one a certain wallet you'll find another one so I don't think it will have that big of a effect on that sumur level what I think will have a much bigger effect on is the entities and the businesses that have boots on the ground in China
PETER HANS 42:32
Yeah, I think I think that's well put and and probably a good place to stop for now because we've been we've been going for a bad I've been what let's pick it up next time because I definitely want to touch upon DeFi and regulatory and one thing that I don't even think addiction but it will happen but I have some predictions for what will happen is you know we're gonna get we're gonna get a presidential treasure on stable coins quarter, on on and in their words, not mine on quote, benefits, risks, how to think about it. There's no doubt the government and Treasury and fed specifically are concerned about the dollar as the global wheat not from Bitcoin, they'll care about Bitcoin, but from the digital wallet. And what that means and stable coins can theoretically represent a combat to that dollar back through US dollar for dollar back stable. So that's something that you know, maybe let's touch upon next week. And otherwise, you know, great talking to you as always, Jeff, and have a great weekend.
JEFF DORMAN 43:34
You too. And again, shout out to Charlotte.
PETER HANS 43:37
Thank you. Yeah, yeah, she's, she's excited. She's She's seven years old. It's crazy.
JEFF DORMAN 43:43
Very good. Have a good one.
PETER HANS 43:44
All right, you too. Thanks all. And thanks for tuning into between 2 chains. If you enjoyed the episode, please rate review and download, and we do actually have listened, take care. Bye.
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