Crypto Gathering 2023: Is It Game On? Web3 & NFTs

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1:29What's going on, guys? I'm Sergio Silva. Welcome to Real Vision, the crypto gathering, which is our special week-long campaign here where we ask this big question, is the game on in crypto? And if so, how do you position for it? Are we about to enter the next bull run. So yesterday we tried to answer that question through technical analysis. Ash spoke with Will Clemente, Kyle Droops, and Rekt Capital. They're all very bullish right now. Rex said he thinks we've definitely hit the bottom already. He thinks we're in the early stages of a bull market with a new all-time high for Bitcoin expected after next year's halving.

2:09Kyle and Will will also say the trend is highly favorable. And now on today's show, this is very, very exciting. As we look to answer, once again, the question of, is it game on? Through the lens of NFTs, Web3, and CryptoBroadly. Joining me today are two NFT legends and good friends. OSF, Obi Farouk, artist, creator of Rec Guys, investor, and just overall good guy. And Mando, who is probably his better half, I would say. also one of the creators of Red Guys, Cannery Labs, legendary NFT investor, and also really good guy. Guys, welcome to the show. Hey, man, thanks for having us. Yeah, that was a lot of flowers.

2:59Thank you. You made Mando sound like the better guy, but at least we're both good guys. You know, I obviously messed up the intro there a little bit before the clip, and I was making sure that I wasn't missing anything. But it's a lot easier to talk about people that you know. And yeah, I saw you guys last in Austin for Consensus. We celebrated my birthday together. And we spoke about crypto back then. It's been, what, three months since. Obviously, things have been moving, to say the least, both in spot prices and crypto tokens, but also in NFTs. So why don't we jump right into it? Let's start with a big question.

3:40You guys, legendary for diamond handing a lot of apes through one of the biggest bull markets in the history of humanity, and then waking up one day or before going to bed and deciding to take your profits and cash out of that trade. what were the conditions that led you guys to make that decision and you know I would love to kind of like give the audience a little bit more context as to what the trade really was what the you know kind of theory going into it and then why and when you guys cashed out god yeah that's quite a trade so like it all started um really with Ovi he minted um um and we're talking about board apes here which is one of the most well-known collections in the nft space uh ovi ended up minting 150 of them i think um at origin and really saw them as a trade i think at the start right you just held them for a flip um and kind of was out of them all within a month apart from a few um and and that was a decent what three to five x trade um and this was around the time that uh it's very nascent time for nfts particularly the idea of utility uh being attached to nfts before that they were they were mainly just art or there were some like gaming nfts or things like crypto kitties and axiom penalty but the idea of clubs and profile feature clubs was was kind of new um and we we originally got into nfts but art investing we were mainly investing in one of ones on super rare and we kind of um we felt like that was a trend and And then we just saw this trend starting up with clubs.

5:20CryptoPunks has obviously been around before that. And they were art, but also a club. I think Bordhaves were mainly a club. The art was cool to a certain extent, but it was mainly about just being part of a club. And then I got back into that trade and we ended up in a decent amount, about 75 of them. And originally it was just a trade because I felt as though it would be a 3x. I think they were trading around three, three when they were. And I was like, well, at the time, a lot of NFTs, which now is the norm, is they build out IP with things like airdrops. And the idea is that you have like a Pokemon or a Disney style model where the original NFT is your original Pikachu or your original Mickey.

6:05And they start building out the IP with airdrops to the original holders. And I just felt like that model could could spiral. And I held them going into one of those drops. So at the time it was Mutant Apes. And I felt like it was going to be a decent run. And then by the time we ended up, me and Obi decided to kind of go in together, we decided that we kind of felt like that was going to be a longer term trend. So we held on to them for a while. And if I'm honest, we were happy to keep on holding them. They'd already paid us out a decent amount because they did the coin in 2020, 2022, 8coin, which is now trading.

6:43And we monetized that almost straight away. and we were like, well, if you monetize the coin, we can hold on to the apes. But also the big change that happened at the start of this year was just liquidity. Liquidity in the NFT space went parabolic. It didn't, and you'll see kind of what the effects of that were with time, but earlier this year and at the back of last year, there seemed to be a bit of a marketplace war happen between various different platforms and a new one emerged, which is Blur. and they started incentivizing liquidity in the space, mainly people to bid on NFT projects. And suddenly what had been quite in a liquid market became a very, very liquid one, particularly for whales, so people with large positions in many different collections, just because people were being incentivized to bid on those collections, particularly the most traded collections, like collections of things like Punks, Wood Apes, and various others.

7:42And at that time, our background was in distressed debt and high yields, kind of similar to you. And it felt as though one way to look at markets is that when those sort of illiquid markets suddenly become very liquid, the upside potential becomes limited or less gappy, let's say. and we just felt as though if we were going to stay in something liquid we might as well keep it in eith um rather than in nfts so we moved our basically our whole portfolio into eith because we felt like that was really the bet and we were also very bullish on eith eith at this time was trading at a kind of 1200 1300 and it felt like a decent time to get a to get a quite a big ETH bag.

8:33So that's why we ended up monetizing it. And we did monetize every pro-population collection we had, because we did feel like that could be a medium-term trend, that things were getting too liquid to have upside. So we had Azuki's, we had CoolCats, we had a few other things. People in the NFT space would know. And then, yeah, the NFT space, it stayed pretty healthy for a little bit, maybe a few weeks after the blur started incentivizing some of the security. But then over the course of the last few months, it's really decreasing in ETH price. In dollar terms, it's not as horrific because obviously ETH has had a big run up.

9:13But it has been, I don't know, not a great period, I would say, for the NFT space. Actually, you just gave me the framework for every question that I wanted to ask. and part of this conversation. You know, as we see, kind of like Web3 going forward and as a trading market, potential investment, how it correlates to spot, you know, crypto prices and the macro and the like. By the way, to the audience, you guys can ask any questions you want. Please put them in the chat. We'll ask the best ones on air. Remember, Real Vision members take priority. If you're not a Real Vision member yet, go to realvision.com slash crypto.

9:53But yeah, the team will take those questions and send them over, and then we'll ask them to Obi and Mando and myself as we go through the conversation. But going back to what you said there at the beginning, right, you guys saw kind of like the utility NFTs as this next pillar besides art, and you decided to make a play alongside, right? You already had an art play, and you saw the PFP utility NFT play club membership, which really was kind of like what people thought of NFTs early on, right? Like ticketing and things that you can unlock, maybe like loyalty programs. We've seen that with big corporates.

10:30And that played out for you. Going forward from today on, like, do you guys still think, you know, you mentioned that the market has a lot of liquidity now, or at least more liquidity avenues. Obviously it fluctuates a lot, but there's a lot more easy ways to provide liquidity to the market. And that, to you, took away the upside, especially vis-a-vis ETH and some other things. However, NFTs are a bit more well-known. I wouldn't call them mainstream. But more companies are coming to the space. We just saw 7-Eleven this morning announcing NFT slurpees. How do you guys match up the concept of Web3 adoption and then the potential for financial returns?

11:14what's the model that you guys are thinking going forward from today um into like the short and medium term i think that's a good question i think it's something that often gets conflated by people who own nfts because it's like hey um starbucks have an nft and um 7-eleven have an nft or you have uh you know um dolce and gabbana doing nft etc like like lvmh etc and you see all these big names into this the web 3 space and everyone's like oh great that means like the nfts that i own in my portfolio that means they must go up because we're seeing all these big players and i think the problem is like those two things get conflated like when you do get big brands big names big adoption and eventually mass adoption of the space um what that is good for and the most bullish thing for is the infrastructure on which that's built on not necessarily the existing roads or the existing cars on the roads, if that makes sense.

12:11So in a situation like that, it's great for ETH. It's great for other hugely adopted networks and chains or whatever you want to call them, because the usage of those going up and you're getting bigger players starting to use that technology. And I think it's great for those technologies. What does that mean for existing NFTs? It's a real tough one, you know, and you have to then have to start asking the questions as to why you own what you do and what your thesis is. And do you own an NFT because you think, hey, this has a cultural and historical significance as a piece of art, just like how you might buy any piece of art.

12:52Yeah, that is bullish for that because you'll get more eyes on it. But do you own your NFT because, hey, I bought this profile picture and really I've just funded like a Web3 startup who's going out there to try and build a brand or build a game or build something else. you know, it's not going to have much impact on that. So I think, you know, as you see these big players enter the Web3 space, enter the NFT space, I think it's great for the technology, which I think in turn is like definitively bullish for Ethereum. But for the existing NFTs out there, it's more of a mixed question, I think. And the NFT market is huge.

13:27An NFT can be something that you use in a game. It can be a piece of art. It can be a profile picture. It can be, you know, just your anything really. It can expand to lots of different things. So I think you have to pick and choose which parts of the market we're referring to and talking about when we're trying to understand the value drives, I think. Hey, everyone, we're going to take a quick pause and hear a word from our partners. We'll be right back.

13:58that's a very very interesting answer because probably a lot of the nft guys watching this are like damn it these are very smart guys and i think you know what i think deep inside a lot of people will agree uh i think you're being honest with yourself you kind of like seen it play out where you know mass adoption might not mean you know financial returns for my backs um and and it's funny hearing you say well you know mass adoption might not be good for for your NFT IP. However, it's a trade that worked great for you guys, right? And so what do you think is the difference between 2021 and maybe minting or buying Apes 3 Ether and 2023 and maybe minting or buying kind of like up and coming NFT collections?

14:44What is the main, I guess, differentiator between your trade and somebody coming into the space today? yeah look i think um with utility-based nfts you can often get these sort of parabolic moves because if that utility um kicks or like it really hits home and people pick up on it uh they can move very very quickly and you'll see that with gaming nfts as they as as the gaming infrastructure of web3 grows like some of these utility-based nfts will just go parabolic particularly if you see big games start coming into the space um i think being early to a to a movement of clubs just meant that you didn't really know how this was going to play out ugolabs is now going down the route of gaming so arguably you could still have those sort of you know large exponential run-ups and some of their assets just because the games become mainstream but you know there's a long route to that um so i think it is slightly different um than it was in 2021, because a lot of these stories have played out.

15:46And it feels as though that idea of building IP via progressively airdropping assets is only going to be available to a very, very, very, very small group of collections that already have that perceived value about them. I think there's probably only one or two where you could argue that airdrops or companion collections will ever really extend the IP. Yuga is potentially one of them, and maybe like a Zuki would be another one. But it's a dangerous game going down that route because obviously you get these sort of ponsonomics, which people don't tend to particularly like. And you need to have a real concept of how the new assets are pushing forward the IP.

16:34So I think what we've seen is a lot of that model has collapsed in on itself. And we never really played that strongly into that as the model, if I'm honest. We also kind of felt as though by being one of those original collections, that this would have a historical importance. In the same way that when most people mention NFTs in real life, you're like, oh, those monkey JPEGs. It comes up like we felt like they would be culturally relevant for a while. so that's why we only really had a majority of our portfolio and that even though that was the route the IP went I think now going forward the healthiest bit of the market is the market where there is some level of of cultural or historical significance you're seeing that come back with things like CryptoPunks, Generative Art and with I do think that some of these pro-publications will come back as culturally significant.

17:29In the same way that Pokemon went through its ups and downs, even as its own IP, and kind of came back, that's kind of how I can see some of these happening as well. It doesn't necessarily need it to hit at all times. As long as they stay culturally relevant in the space for a while, I think they will come back. So I think some of those original IPs will come back. But I do think it's becoming increasingly difficult for a new project, new entrepreneurs come into the space with an idea about IP and think about how to monetize it. There's two reasons mainly why. Number one, trading fees has gone down exponentially across the board.

18:05It's very, very different. And that was one of the main innovations of the space, if I'm honest. And there are various reasons for that. But some of the ways that the NFTs are traded now means you can basically bypass some of the revenue of it. So So the idea of someone coming into this space perhaps doesn't have the revenue stream that they used to think they had. And the second one is, if I'm honest, the regulations, security regulations around this stuff, it's very difficult to accrue the value of that IP back to the holder of the NFT. Where does an NFT sit in a capital structure? Should it sit in a capital structure?

18:46Is there any ownership of anything? I think that's something that people have questioned a few times with some of these. And I think when we were back in 2021, the idea of how that value could be returned to holders was pretty nascent. We were still trying to work out how that could be done. Some of the collections obviously went down routes like coins as a way to do it and DAOs. And that has had limited success. It still feels like that is an elusive situation. So the idea that the value of the IP can be returned to NFT holders is still a little bit unknown. In the same way that it's still difficult with DAOs to work out how money from DAOs will be exactly returned to DAO holders, NFTs as well, like without clear regulation around some of this stuff or what people can and can't do around them, I think it's a little bit difficult to work out how the value accrues.

19:37But that could change. And in time, some of these NFT IPs could be able to latch on the back of that. So for now, it feels like the safest place is still in historical or culturally significant artifacts on the internet, essentially, or in the crypto space. Okay. But you guys are super bullish, Ether. You're super bullish, Web3. Your way of expressing it going forward will mostly, you already did it. you mentioned at the beginning of the show and also people that track your wallets can see that you guys pretty much went on ETH. I know, Ovi, you bought a few cultural significant NFTs and you've been accumulating some of those, but really the majority of your bags are now in Ether.

20:21Are there any other crypto token, like fungible tokens that you guys are bullish on or excited about or starting to look at now that you've decided to express your bullishness on this technology via fungibles instead of non-fungibles? The short answer is yes. I think you can be bullish on a few different things here. You can be bullish on technology. So you look for things like Ether, things like other forms of technology which improve systems, improve efficiency, et cetera, et cetera, et cetera. The other thing can be bullish on it's just bullish on culture or community or these low iq players as people call them like you know the the game stop what's going to be the next game stop of of 2023 or 2024 like what's going to be the next like four days or something and that doesn't have to be an nft format doesn't necessarily have to be in non in fungible format it could be a sort whatever it is but like oh i'm always we're always looking for like that that trade which is like you know it doesn't really it can't really be explained by like these are the five reasons why this has value and where the value derives from and this these are the five problems that it solves but it's something that people can get behind um and get you know and get big and just something that captures this idea of like community virality culture that kind of stuff and um to that to that note like what you know we we own a lot of eth from the apes that we sold something that we bought a lot of recently was this pepe coin which is the you know that it was a the the fastest coin to a billion dollar market cap and it's sold off again.

21:58But that's something which I think ticks a few boxes, something that has a lot of volume every day, something that a lot of people can get around and get involved, something that people who try to explain valuations hate and cannot explain, which I think is always a bullish thing. You saw the same thing with GameStop, you saw the same thing with Dogecoin. And it's something that I think has displayed a lot of correlation to ETH in the higher beta way consistently now for three months with$100 million dollars of volumes every day. So that's an interesting trade, I think. And that's something that we own.

22:28And the rest, most of it is in ETH, obviously. But I think those are the kind of trades we're looking at. I'm not really trying to think, oh, hey, here's this new technology, which is game-changing. It's more like, what thing, whether it's an NFT, whether it's a fungible token, whether it's a stock, whatever it is, what thing is something that a large amount of people can connect with and own very easily without having to overthink it and not technology that's difficult to explain and that you can just get like a massive amount of people getting involved in it very quickly that's the thing i think that's the kind of thing that i think outperforms if you do have a real crypto bull run and if you do have a real crypto bull run it does mean alt coins start to outperform bitcoin right now bitcoin dominance is um 51 and a half percent So it's the highest it's been in over 12 months.

23:19And if you look at the bull market of 2021, Bitcoin dominance was close to something like 40 % or maybe even lower at points in time. So that moonshot, that big thing we're trying to play for, if you do have this bull run, I'm not saying put all your money in these crazy outcomes because it's inevitably 99 % and it goes to zero. But I think having the ETH trades worked pretty well since June last year, over the last 12 months, it's more than doubled. And as you get to this next stage, I guess what we're both looking at is like, how do we allocate smaller amounts of our portfolio to these things that can actually do a 10x or 100x or 1000x?

23:53And maybe only one or two of them get there. But it's feeling like now it's time to me to have some exposure to it. And I want to really reiterate, it's just some exposure. It's not load the boat on that stuff because inevitably, be, you know, a lot of it will go to zero. We're dialing up risk. We have been. For the last month or two, we sat down, we were like, look, we actually think we're going to come out of this. It feels much quieter, but you're starting to see rallies and you're starting to see a lot of the value of crypto, whether it's via what we saw with regional banks or what you're seeing with still issues with provenance in many different collectibles markets.

24:35We think this is going to be valuable um and particularly you're starting to see the start of some of those narratives i just feel as though on that classic bull run chart this this we're kind of getting into the denial phase so we want to make sure that we have some plays which could be a 10x if if that happens um so i to be you might want to not want to hear this if people know us from the nft market but when we did the scout out across all the things that we think could do a 10x from here it was more difficult to find some plays in the NFT market. Some of the best bets are pretty highly priced assets already, you know, like things like Fidenzas or Autoglyphs or Punks.

25:17To see them do a 10x is a little bit difficult. So, although we do think they could rise in each price. So, that was one that just ticked the box. But I think there's still massive bull cases for the NFT market. I think it's just that some of the use cases, I think, the things that I think will drive the next full run in NFTs is gaming and it's real world assets. It's the tokenization of provenance in kind of where DeFi meets NFTs, where you get a loan on a watch, like a Rolex or something like that. or you can get you could I don't know fund various different um collectibles lending or you could um even do provenance and things like the wine market or the or the in real life art market like this is stuff that drives the technology but doesn't necessarily mean pumped up digital IP valuations um and then gaming I think we could have some hits in in the gaming space over the next two years I don't know if it's like this year but it feels like we could have something so that's where i think that you can real and if if a game starts you know picking up in the ft space we'll be the first one to pick up on it like we're there we'll know which games are starting to under hit like there'll be assets to buy and i think there'll be some parabolic runs no doubt in that but for now it feels as though you're going really for kind of historical nfts eth and maybe some of these some of these meme style coins or which it's only really one that we're interested in, which is Pepe.

26:56I like that you guys are kind of seeing the green shoots, positioning accordingly. I guess my question now is, what will stop you and make you think that you're wrong on your conviction longs on not just crypto, but like your NFTs risk? Obviously, the world out there seems pretty good still, but there's some charts and some stats that really make you stop and wonder. You know, credit card, not only the rates are the highest, but debt levels are very, very high in the US. It's a consumer-driven economy. 70 % of GDP comes from that. Like, could there be a, you know, is this kind of like less inflation that we're seeing more indicative of lower consumer demand, which obviously does not bode well for earnings and the like?

27:45How does your macro, you know, framework play into your crypto view, especially given your professional background and what will be the red flags that will make you stop and say, okay, maybe we're wrong. Maybe we had the wrong. Ether was$800 in June of last year. It's now close to$1 ,900. That's a solid return in a year, especially a bad year as people were expecting. I think there's a few reasons why I'm bullish. And if any of those reasons get invalidated, that would change my view. So one of them is for crypto specifically is this idea of ETF approvals for BlackRock and Fidelity. And I'm of the belief that these guys haven't applied without demand and haven't applied without having some clarity as to whether there'd be a successful application or not.

28:36So if that gets rejected or if they say, but we're drawing application, we're pulling out this, that would be a big negative to me because I think having the largest, two of the three largest asset managers in the world entering this market is insanely bullish for this medium to long term and short term when it gets approved. If something changed with regard to that, that would be a red flag for me. The second thing, which I think is more of a risk that has been on my mind recently is, look, we came into this year, I have been pretty bullish everything since the beginning of this year, because my view was that the US would enter a recession, the Fed would then have to be forced to start cutting rates, and then you have the same story again.

29:14And when we had the regional banking crisis later, earlier in the year, that was even more of a narrative for the Fed to actually not have the license to be able to keep raising rates. What we've actually seen in the last two or three months is an extremely strong labor market and the banking sector kind of being okay, although I'm sure there's still some fragility there. And the Fed just continuing to reiterate that they're not going to cut rates this year, that we will have higher rates for longer. And that's something that I think is a little bit concerning because, yes, we've seen inflation drop from 9.8 % all the way down to 3 % as of today.

29:50But it's the next six months as the comps get more difficult. As the labor market says, it's very strong. The US economy is still very strong. It's the next six to 12 months, geopolitical tensions affecting energy prices. It's really the next six to 12 months that are very important. And if you can stay at 3 % or below, that's fantastic. But you start to see that number rise again, I think the Fed, personally, I think the Fed will not hesitate to act and raise rates. And that's something that I feel different about than I did earlier in this year, because I thought we would actually be heading more towards a recession, but the data doesn't seem to be showing that.

30:26So I think that the risk for me is like, inflation starts to come back, the US labor market stays very strong, the economy stays very strong, and the Fed's like, you know what, we're going to keep raising rates because we have, because we're not going to, they're not really caring that much about stocks, they don't want to ruin the economy. So I just feel like they have more of a license to do that. And we know that crypto reacts negatively to that because we've seen that. We know the impact on tech stocks. We know the correlation of crypto to tech stocks. And for me, that would be the, that's, I think, a real concern.