The Breakdown - How November Bear Market-Proofed the Crypto Industry

Episode Date: December 3, 2021

This episode is sponsored by NYDIG. On today’s episode, NLW breaks down investor Travis Kling’s recap of the biggest events in crypto from the month of November. He says two trends are huge capital raises and a focus on NFTs and the metaverse. Both, he suggests, make the crypto markets more resilient to future downturns.  Enjoying this content?   SUBSCRIBE to the Podcast Apple:  https://podcasts.apple.com/podcast/id1438693620?at=1000lSDb Spotify: https://open.spotify.com/show/538vuul1PuorUDwgkC8JWF?si=ddSvD-HST2e_E7wgxcjtfQ Google: https://podcasts.google.com/feed/aHR0cHM6Ly9ubHdjcnlwdG8ubGlic3luLmNvbS9yc3M=   Join the discussion: https://discord.gg/VrKRrfKCz8   Follow on Twitter: NLW: https://twitter.com/nlw Breakdown: https://twitter.com/BreakdownNLW NYDIG, the institutional-grade platform for bitcoin, is making it possible for thousands of banks who have trusted relationships with hundreds of millions of customers, to offer Bitcoin. Learn more at NYDIG.com/NLW. - “The Breakdown” is written, produced by and features Nathaniel Whittemore aka NLW, with editing by Rob Mitchell, research by Scott Hill and additional production support by Eleanor Pahl. Adam B. Levine is our executive producer and our theme music is “Countdown” by Neon Beach. The music you heard today behind our sponsor is “Dark Crazed Cap” by Isaac Joel. Image credit: No-Mad/iStock/Getty Images Plus, modified by CoinDesk.

So the point that Travis was making and that I'm going to reinforce here is that November shows just how bare market proof the crypto industry is. That doesn't mean there couldn't be a lot of pain coming. But even if or when it does, there's going to be a lot of significant players who still have the capital to weather the storm and keep the whole thing moving forward. Welcome back to The Breakdown with me, NLW. It's a daily podcast on macro, Bitcoin, and the big picture power shifts remaking our world. The breakdown is sponsored by Nidig and produced and distributed by CoinDesk. What's going on, guys?

It is Thursday, December 2nd, and today we are talking about November, the month that just passed. Now, I find the discussion from the last few weeks pretty interesting in the sense that there has been this vibe, almost this anticipation of a bare turn. We've been ready to rinse our hands and say, that's it. We must be going the other direction. ready for winter. It feels to me partially just like PTSD from the 2017 cycle and seeing the timeline is close enough in the year, but I don't necessarily think that that's borne out by reality.

It could also be that the number from Plan B's stock to flow model for the month was 98K, so people see that not being hit as a disappointment as well. Third and finally, after the raging upward motion of October, aka October, maybe November was just a little bit of a let's down, right? In any case, I want to tell kind of a different story about November, and the way that I want to do it is actually to crib one of my favorite people in the industry, Travis Kling. Travis Kling writes one of the most essential monthly newsletters for his fund, Ikega. And part of what he does is he writes a list of the top news from the month that passed. Now, he captioned a screenshot of his list on Twitter by saying, another massive month for crypto in November. Please, help me understand

how a deep, long, bare market is right around the corner when the breadth and magnitude of capital raises are this huge. So what I'm going to do is I'm going to go through Travis's full list, and different items on the list I might give more or less consideration. Some of them I have more thoughts on, some of them I don't. And then at the end, we'll try to sum up, I think, a couple of the clear takeaways. So again, this is Travis Kling's list of the top things that happened in the crypto industry last month. Paradigm raises $2.5 billion. venture fund. Paradigm is a crypto-native fund. They have a really interesting approach of bringing very smart people in and letting them tinker and do things and not really trying to force them into a

traditional analyst type of role. And it's clearly worked out well for them. Their $2.5 billion fund is the largest round in crypto history. Next on Travis's list is another huge venture round that is nothing to scoff at either. Pantara, another crypto-native fund, raises a $600 million fund. And if you remember from when I talked about that on the show a couple weeks ago, it had a much higher composition of institutional investors than their previous funds had, showing that while institutions may not be announcing their entrance into Bitcoin or Crypto every day like they were at the end of last year, they're still very much getting into this space. Crypto.com signs 20-year $700 million deal to rename the Staples Center.

I talked about this a little bit before as well. Like I said, as someone who works with FTX, we are no strangers to big naming rights deals, but this was huge. Crypto.com's CEO said that he thought it would be one of the moments that would show the mainstreaming of this industry. And while we won't know that until the history books are written into the future, it is an unignorable sign of the crypto industry's intentions to play at the highest and most mainstream levels. Consensus raises $200 million at a $3.2 billion valuation. One of the stalwarts of the Ethereum ecosystem, the company behind the Metamask wallet, this is in many ways seen as both a validation of and an investment in a Web 3 future that's

powered by tools and infrastructure like Metamask. Commonwealth Bank leads $400 million fundraise in Gemini at a $7 billion valuation. Again, another exchange raising at an extremely high valuation, and what makes Gemini's raise particularly interesting is that they hadn't raised outside capital before. It had been all funded by the Winklevoss twins and, of course, by revenue. That $400 million gives Gemini a big new arsenal to go build new products, make acquisitions, do whatever they think is best to continue to grow. Speaking of big fundraises, blockchain gaming company Forte raises $725 million Series B. That is an enormous amount of money to raise as a Series B and shows just how big an interest there is in these new worlds of

NFTs and metaverses, particularly in the context of gaming. Speaking of which, FtX, Lightspeed Ventures, and Solana Ventures partner on $100 million Web3 Gaming Fund. Same story. This is a new area that is attracting major investor attention. Reddit co-founder to invest $100 million in social media on Solana. This one is notable because Alexis O'Hanian is someone who has a very deep sense of the core of internet culture. He was, after all, a co-founder of Reddit. He came into the Salana conference earlier this month, planning on making a $50 million bet on social media tools that were built on Solana, and instead,

up doubling it. A16Z leads $150 million fundraise for NFT game platform mythical games at a $1.25 billion valuation. Same story as before. You're seeing a lot of common threads here. You've got venture funds raising big new rounds. You've got companies in the Metaverse and gaming space raising big new rounds. And this is no exception. Next, FTX leads $150 million fundraise in African payments firm, chip or cash at $2 billion valuation. This activity is not limited to one part of the world. It is totally, totally global. Kucoin Labs launches $100 million metaverse play-to-earn in gaming fund. More of that hot metaverse action. Starkware raises $50 million at a $2 billion valuation, and this part wasn't on Travis's list, but they also deployed live to mainnet.

Starkware is one of the most promising approaches to scaling on Ethereum, and so to see them not only raising money, but actually moving to the next phase of deployment is pretty exciting. HXRO raises $34 million from SIG and Jump to build derivatives infrastructure on Solana. This one represents a new type of product being built out for a wider audience. Pokemon Go developer Niantic raises $300 million at a $9 billion valuation to build the Metaverse. Niantic has long been one of the tech darling's most hyped companies. They will be one of the players that is going to plant a flag on whatever this Metaverse becomes. Speaking of which, Alan Howard, Chris Dixon, and Winklevoss Twins back $100 million Metaverse fund. There it is again.

Music Rights NFT Platform Royal raises $55 million, led by A16Z. This one is, of course, from Justin Blow, who performs as Three-Lau and is showing ways that NFTs aren't just for profile picks. Neon Labs, developer of Ethereum Virtual Machine on Solana, raises $40 million. ARCA launches $30 million NFT fund. Bitcoin ETF provider Valkyri launching $100 million on-chain defy hedge fund. Funds, funds, funds, funds, capital, capital, capital, capital, capital, capital, capital. NIDIG sponsors this podcast and they're integrating Bitcoin into everyday life, not only for Wall Street, but also for Main Street, because NIDIG is built for Bitcoin and Bitcoin is built for everyone.

Learn more at NIDIG.com slash NLW. That's NYDIG.com forward slash NLW. Then of course there's Michael Saylor himself, Micro Strategy, purchasing 7,002 Bitcoin for $414 million at an average price of 59,187. Marathon Digital raises $650 million of convertible debt at a 1% interest to buy Bitcoin and mining equipment. We talked when we were covering that story previously about how significant it was that near the all-time highs, this miner was effectively pulling a sailor and doing a speculative attack on the US dollar by using USD-denominated debt to go buy more Bitcoin and to buy the means to go mine more Bitcoin. On a technical level, one of the big things that happened, of course, Bitcoin activates taproot upgrade, something that has had a ton of chatter about how it is the biggest upgrade to the

Bitcoin Protocol since Segwit. The Digital Currency Group raised a $600 million credit facility. That was, by the way, just a couple weeks after announcing a big traditional round. Citigroup alum Matt Zhang launching a $1.5 billion crypto fund. I want to pause here just because there's an underlying story that wasn't necessarily highlighted in some of these, but the talent flow from traditional tech and traditional finance into crypto and crypto-related things. is enormous, and this is a great example. Microsoft to debut Metaverse apps and games next year. Coinbase users can borrow up to $1 million using Bitcoin as collateral. New York mayor will take his first three paychecks in Bitcoin. This wasn't on there, but remember, that whole mayor

taking his first three paychecks in Bitcoin thing wasn't just New York. There was a fun-friendly competition between the mayors of New York, Miami, and even some other smaller cities around the country to be the most Bitcoin and crypto-friendly. FtX, Lightspeed, Leadspeed $21 million fundraise in Gaming Studio Farroway. Paradigm co-founder Matt Huang joins the board of Stripe. Former Ikegai researcher Phil Bonella to launch a crypto hedge fund. Congrats Phil. Brave partners with Solana to integrate into browser and make default for DAP support. Tim Cook personally owns crypto, but Apple has no plans to accept crypto payments. Let's pause on Tim Cook just for a minute. To me, the most interesting

thing about this story was that although it was fun and exciting, it didn't have the same air of previous famous or rich person outs themselves as a crypto owner because it's just kind of expected at this point, and I think that's the real story. Decentralized identity platform, Spruce, raises 7.5 million from electric capital. UA.E-based Phoenix Technology Consultants places order for $650 million of mining rigs. Constitution Dow raises $40 million to buy physical copy of Constitution, gets outbid by Ken Griffin, returns part of the money. RIP Constitution Dow, I think we're going to continue to look back at that story. I think it's way, will be felt for some time. El Salvador. Oh, El Salvador, here you are. Just planning Bitcoin

cities funded by Bitcoin bonds continuing to make people go crazy, either because they're so excited or because they're so aghast, and I'm here for it. Comprehensive bipartisan bill is introduced in House to fix current infrastructure bills' crypto tax provision. Senate Banking Committee sends letters to stablecoin issuers, Coinbase Gemini Circle Paxos Trust Token Center and Binance U.S. about general business practices and safeguards. U.S. Treasury releases Stablecoin Risk Report and NFT named Collins Dictionary Word of the Year. There are two things that I want to highlight. The first is just the amount of capital flowing into this industry. Paradigm raising $2.5 million. Pantara raising $600 million. Gemini raising $400 million. Consensus $200 million. Fundraising can be a lagging indicator in the sense that

rounds take a long time to come together, and they may in some ways reflect in enthusiasm from a few months back versus where things are now. That said, funding isn't just a fun number to report on on podcasts. They represent treasuries that can be tapped into and hold companies afloat during potential long bare markets where things aren't moving. It's not an accident that the companies that raised a lot and managed it well at the end of 2017 and early 2018 were some of those who were best able to weather the long winter that came next. The fact that there is so much dry powder for so many of the companies in this space is a major mitigating force on the potential impact or the potential slowdown that a crypto-bear market would represent when it comes to

innovation and even financing. Paradigms going to deploy that $2.5 billion whether things are bad or good. Same with Pantera and there are $600 million. Consensus is going to use that $200 million to keep building things whether the markets are good or bad. In short, more dry powder in the space means less of a devastating impact of a potential big downturn in overall market prices. Second, it's hard not to notice the clear trend in terms of where part of that investor interest is. Metaverse, Web3, Gaming, Play to Earn, Metaverse, NFTs, Metaverse. There is a clear, clear trend here. And I think even for the skeptics out there, something to consider is that part of what has made past bare markets extended in this industry.

has been the correlation of everything, the idea that everything in crypto is all just one big basket. I think in many ways we now have a diversity of theses at work for why someone would walk in this door. You have the D5 folks, the NFT folks, the Metaverse folks, the Web3 folks, the Play to Earn folks, and all of those things seem like they're pretty similar. But then, how similar are those to the people who are focused on layer one? The people who are focused on yield generation, the people who are focused on Bitcoin and digital gold, and censorship-resistant stores of value. All of these things give different pools of investors,

different access into the space. And I think the fact that there are multiple feces now competing for investors' attention actually makes it less likely that all of them go down together all at once. So the point that Travis was making and that I'm going to reinforce here is that November shows just how bare market-proof the crypto industry is. That doesn't mean there couldn't be a lot of pain coming,

but even if or when it does, there's going to be a lot of significant players who still have the capital to weather the storm and keep the whole thing moving forward. So that is my take on November. Until tomorrow, guys, be safe and take care of each other. Peace.