The Breakdown - Snoop Is Medici? The Mainstream Infiltration Continues

Episode Date: September 23, 2021

Today on the Brief: BlockFi gets another extension Chainalysis’s secret data honeypot Robinhood crypto finally gets transfers In our main discussion, NLW talks how crypto has mainstreamed over the last year, including: Bitcoin for hedge funders Bitcoin for El Salvador NFTs for NBA fans NFTs for crypto OGs and celebrities  He specifically looks at what rapper Snoop Dogg’s anon account disclosure in the space means for the future.  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 “The Breakdown” is written, produced by and features NLW, with editing by Rob Mitchell 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 “Tidal Wave” by BRASKO. Image credit: Gary Miller/Getty Images Entertainment, modified by CoinDesk.

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 Wednesday, September 22nd, and today we are talking about the mainstream infiltration of crypto continuing. First up, however, let's do the brief. First on the brief today, New Jersey Grants Block 4th. another extension. By way of recap and apologies, if you've heard me give this recap a bunch of times

over the last few weeks, BlockFi started to be in the sites of securities regulators over the last month or two. New Jersey, Texas, Kentucky, Vermont, Alabama, all have had issues with BlockFi's interest accounts, their BIA product, which is their flagship product, saying that it is an unregistered security in their state. New Jersey was the first to make this designation and accusation and asked that BlockFi stop allowing new New Jersey residents to sign up for interest accounts. Initially, the order was supposed to go into effect on July 22nd, but then it was delayed until September 2nd, and now it is postponed until December 1st. As I said, this is specifically the enforcement on the ban of the creation of new BlockFi

interest accounts, and this doesn't affect current account holders in New Jersey. Here's what the company's tweet said about this. Following ongoing discussions with the New Jersey Bureau of Securities to provide more details about the BlockFi interest account, the Bureau has again postponed the effective date of its previous order this time to December 1st, 2021. We are in an active dialogue with regulators regarding the BIA, and we firmly believe that it is lawful and appropriate for crypto market participants. We remain steadfast in our commitment to fight for consumers' rights to earn interest on their crypto assets. We welcome discussions with regulators and believe the appropriate regulation of this industry is key to its future. success. Now, the optimistic take on this is that it suggests that New Jersey is still deep in discussions

with BlockFi around the actual specifics of their interest account. And obviously, it would be a major shift and something potentially really positive if New Jersey decided to reverse this order, saying that it wasn't, in fact, a security. It's interesting to me because I had perceived the tone as kind of shifting. Previously, there seemed to be some of this cooperation, but then last week, Zach Prince of BlockFi basically said that the SEC needed to get involved because they weren't going to make policy based on any one state or another. Either way, certainly a delay of an order to stop signing up new participants for a product is better than not, so we'll just have to keep watching and see what happens. Next up on the reef today, chain analysis and their secret

data honeypot. Blockchain surveillance companies occupy a complicated spot in this industry. On the one hand, they feel completely inevitable, right? There is, so much information available based on the transparent nature of blockchains, and there is, frankly, a history of crime that takes advantage of these new peer-to-peer permissionless systems. Can't deny it. It's just a part of the legacy, and it's a part of the present. On the other hand, for some, these companies which effectively weaponize blockchain transparency in the service of past and current controllers of the universe, are, in a word, detestable. We've had a couple of stories recently that have aroused people's ire in a major way,

on blockchain surveillance. First is that Coinbase signed a deal with the infamous and much-tested ICE, the Department of Homeland Security's Immigration and Customs Enforcement Branch. That was for analytics software. ICE, for those of you who are not familiar, are the office that have been widely seen to rip kids away from their parents on the borders and put kids in cages and all these sort of really horrible things, which obviously it's beyond the scope of this show to discuss the politics and the specifics of. The point here is that they are a not popular office. In fact, I have seen many say that it is not an office that can be reformed. It has to be done away with and something new built in its place entirely. This is not the first time that Coinbase have done a deal

with ICE. They signed a smaller deal with ICE for 29K in August. This deal is worth $455,000, but can go up to $1.37 million and is a three-year deal. They also signed deals in April of this year and May of last year with the U.S. Secret Service. In one of the telegram chats that I'm in that has numerous people from the crypto industry. I saw someone who was involved with Coinbase defending the decision saying basically someone was going to do it, so shouldn't it be them who are a comparatively better actor in the space? Others in that chat basically said, it doesn't matter if someone's going to do it. That doesn't mean you should want your company to do it. As I said, as I introed, I think this is complicated, but I just wanted to give that picture of what the conversations are like inside the

industry. Still, there was another cause for anger yesterday. A coin desk scoop showed that Chainalysis owns a site called Wallet Explorer.com. Wallet Explorer is a Block Explorer site, so it lets people view the history of public crypto wallets. The thesis chain alice had was that bad actors would use it so as not to, quote, leave a footprint on crypto exchanges. Pointeus got this information from a set of slides that were presented to Italian authorities and which were translated. So anyways, unbeknownced two users of Wallet Explorer.com, Wallet Explorer.com, was owned by Chainalysis, and indeed it scrapes the IP addresses of suspicious users. The result, quote, using this data set, we were able to provide law enforcement with meaningful leads related to the IP data associated with an address. It is also

possible to conduct a reverse lookup on any known IP address to identify other Bitcoin addresses. The outrage side of this is that any time someone is secretly using some innocuous thing like a block explorer to gather data surreptitiously, it's going to raise hackles. A counterpoint, of course, is that this has provided, quote, usable leads and that a lot of the things chain alysis has helped unlock are things like child porn rings, things that we all basically find beyond the pale. As always, the issue with surveillance and law enforcement tools isn't that they don't get bad guys. It's that they infringe on the rights of others as they do so. That is the central trade-off that societies have to debate and ultimately make.

This is going to continue to be a fraught conversation as the very nature of blockchains makes them so powerful a surveillance tool. Indeed, I remember reading somewhere about a month ago that there is some rumbling that FBI and other law enforcement offices in D.C. kind of like the state of blockchain regulation right now, because they've gotten pretty good at using it to actually be a tool rather than a hindrance for law enforcement. Last up on the brief today, Robin Hood has new crypto features coming. There's no denying that Robin Hood has brought a ton of people into the crypto space. Over the last few years, Robin Hood has been a major force in exactly what they tried to do or say they try to do in their mission, democratizing finance. Particularly during

the pandemic, Robin Hood brought a whole new set of newly available day traders into the market. However, Robin Hood's relationship with its users hasn't always been peachy keen. There was intense tension around GME this January when Robin Hood actually shut down trading of key meme stock assets and indeed Dogecoin based on pressures from outside. I did a ton of shows back of few months ago about that, which I really loved doing, and I highly recommend if you're interested in this. Look up Robin Hood, look up Mem Stocks, look up GME. One of them even started with a sea shanty. Either way, for crypto people, the big issue with Robin Hood has been its withdrawal and transfer policies. In other words, you couldn't really say it was your crypto because you could never

take it out of Robin Hood. You could only sell it. Well, Robin Hood is now finally announcing that they're rolling out wallet and transfer features. This is obviously too little too late for some, but for many people, it means that they will fully be participants in the crypto industry, even if their only access point is Robin Hood. Currently, Robin Hood has seven cryptos. It's sort of a particularly weird and out-of-date set. But either way, crypto is clearly a big business for these guys. Revenue between quarter two of 2020 and quarter two of 2021 was up 4,282%. 62%. 62% meanwhile of Robinhood's attributable revenue from crypto was from Dogecoin. Which is perhaps a perfect segue to our main topic, which is mainstreaming.

2021 is undeniably the biggest year for crypto mainstreaming in history. And when I say mainstreaming, I mean context in which people who wouldn't natively or previously have been crypto users having a reason to interact with some part of the industry. In many ways, I think we can argue that 2020 was a mainstreaming year as well, specifically for Bitcoin and specifically with institutional investors. From the moment that the March crisis happened, and Bitcoin bounced back quicker than anything else, and then Paul Tudor Jones came out with his great monetary inflation thesis, and then that was echoed by people like Bill Miller and Stanley Drucken Miller,

and then it became a treasury asset, and then more hedge funds started getting in, and then more institutional investors started getting in. This was a mainstreaming moment, undeniably. This has, of course, persisted this year for Bitcoin. You have so many examples of previous holdouts, big wealth managers, big banks, all coming to the Bitcoin space. Nighting this show's sponsor has been on an absolute tear, getting millions of community banks and local financial institutions

the capacity to offer Bitcoin directly from people's bank accounts, for example. What's more, there is obviously the biggest example of Bitcoin mainstreaming in the world this year, which is the grand experiment that has now started in El Salvador. It'll soon be time, I think, for a check-in on how that's going now that we have, a few weeks to get away from the immediate buzz, hum, frustration, complications around Buckele, etc. But I think regardless of what one thinks, there is no denying that it is the most significant Bitcoin mainstreaming experiment that we have ever had. This podcast is sponsored by NIDIG, an institutional Bitcoin firm that sees Bitcoin as a gateway

to financial security for people around the world. Find out more at NIDIG.com slash NLW. That's NYDIG-FORDS-N-LW. There have been other areas of mainstreaming as well, however. Crypto exchanges and service providers are pushing hard into sports, for example. FTX, who, as I frequently disclose, I help with marketing, has been one of the biggest players in this space, securing the naming rights to the Miami Heats Arena, which is now called FTX Arena,

doing deals with Major League Baseball, doing endorsement deals with Tom Brady, and more recently Steph Curry, and so on and so forth. FTX, however, has not been close to alone. Crypto.com has done a ton of deals as well. A massive deal with UFC, a deal with Paris Saint-Germain, who you've got to argue have a strong claim to be the most dynamic and exciting soccer team in the world right now. And then their latest is with the Philadelphia 76ers. They just announced today a crypto ad patch deal on the Philadelphia 76ers jersey. It's a six-year deal. And interestingly, this will be the second Jersey patch deal in the NBA.

StormX, a crypto e-commerce site, was the first to break. this seal doing a patch deal with the Portland Trailblazers. So why is there so much going on with crypto and sports? Well, a morning consult poll, as shared by Axios Sports this morning, paints the picture pretty clearly. They asked a question, are you familiar with cryptocurrencies? Among non-sports fans, 23% said yes. Among sports fans, 47% said yes. Among avid sports fans, 66% said yes. And among sports betters, 72% said yes. Put differently, sports fans are more than two times as likely as the average person to be familiar with cryptocurrencies. Avid sports fans and sports betters are more like three times as likely to be familiar with cryptocurrencies as non-sports fans. Still, sports has

another interesting part of the mainstreaming story that is not related to crypto buying, trading, and selling, but is related to NFTs. The NFT mainstreaming story also started last year, and it started with NBA Top Shot from Dapper Labs. It launched in beta at the end of the summer, and by the seasons beginning in October, it had started to become a thing. And tens and then hundreds of billions of volume later, it was clear that sports collectible NFTs, at least for this group in the NBA, were a thing. And importantly, it was not just crypto people who were buying these Topshot NFTs. In fact, it really wasn't crypto people. Depper Labs has discussed how the more that they messaged around crypto language, the less successful the marketing was.

At the beginning of this year, we started to see a divergence. NFTs in general started to have a breakout moment around February, March, April. There was NBA Top Shot on the one side and the whole idea of sports collectibles, the new type of baseball card for a digital era, but there was also crypto punks and the Avatar NFTs or the profile pick NFTs. These have different audiences. They have different value propositions. One is more of a traditional collectible, but reimagined for the digital age. One is more of a status symbol reimagined for the digital age. They had a big peak in March and then tapered off a bit, cooling down healthily, I would add. But then over the summer, especially the avatar and profile pick JPEGs, started to heat up again. The floor on collections like

Cryptopunks, like the BoredApe Yacht Club, went up and up and up and up and has seen. just kept going up, leading to an August that blew away the previous volume in the space. We're talking a 10x volume jump on a site like OpenC, and for the space as a whole, between July and August, just two months. But let's talk about Cosimo Medici. This is a Twitter account that came on the scene a couple months ago. He was notable for two things. One, having a big-ass collection of NFTs that was worth tens of millions of dollars and included nine cryptopunks, but then also for writing really interesting threads on their theories for why. This is obviously an anonymous account, and let's look at what they wrote about crypto punks.

Why did I just invest in a crypto punk when I already have significant exposure? If you study networks, you find the focal point of a network tends to accrue a disproportionate amount of the value. This is why Michael Jordan earned 100x the money of the next best NBA player, why Beyonce earns 50x more than the next best R&B singer, and why J.K. Rowling sells 10x more than the next children's author. Why? When you are the focal point, you accrue the most exposure and the most opportunity. This equals a halo effect that makes dethroning the number one nearly impossible. When it comes to NFTs, Cryptopunks are the prime

focal point of the network. For those of us who are in deep, sure, there's a hot new project every week. It's impossible to keep up with the penguins, the ON1s, the loot, and the toads. But the punks are always there enjoying the OG status. At the focal point of the network with the strongest community, highest profile holders in the most intriguing story, the most exposure, the most opportunity, which, as in most networks often leads to the most money. And all roads typically start with punks too. I'm sure you saw celebs like Jay-Z, Jason Derulo, and OBJ enter the NFT scene via punks. And think of the last time you told a friend about NFTs. What project did you tell them about? I don't see celebs stopping buying punks anytime soon. I don't see me stopping telling friends

about punks anytime soon. I don't see the OG's abandoning punks. any time soon. I don't see the lending protocols deciding to no longer start with punks any time soon. Right now, fractionalization is not really a thing yet. You can tell by how low the prices are on some fractionalized assets. They often don't match the true value. But as fractionalization gains in popularity, everyone will soon realize that they too can own a part of a punk. We'll see fractionalized floor punks, alien punks, 3D punks, beanie punks, and shares of punks could one day be as widely held as Bitcoin. Love you, Bored Apeyot Club, but I don't see this widespread desire to hold happening with your apes anytime soon. And BordApe Yacht Club

is an extremely successful, extremely awesome project, but it's hard to compete with the king, and BordApe Yacht Club holders know punks are king. The focal point of the NFT network, the first stop, and the last stop. This is why I feel a properly balanced NFT portfolio should contain a minimum of 50% crypto punks. But that doesn't mean I personally won't go to 80%. Not investment advice. Follow me, Cosimo Medici, for more threads on which projects I feel are created. new network effects, how I think about which punks to buy. My plan I'll announce soon to get crypto punks in front of hundreds of millions or billions of people. Your friend, CDM. So this is relevant to read in whole because, as I mentioned, they said they had a plan to get crypto punks

in front of millions. They also started to intimate soon that they were someone of some renown, some repute. On September 20th, they said, dear friends, since I announced my docs, events have transpired. Most would not believe nor understand. What I can share is I've received an outpouring of is here on Twitter. And many say they prefer to know me as Cosimo and no one else. So here's what I've decided to do. Shortly, as promised, I will docks from my personal account. As my fame is considerable, the tweet will no doubt be discovered. Those who are curious to my identity will soon know it. Those who do not care or simply prefer to not know the source of my vast fame and fortune may simply not research. I will keep this account focused on NFTs and not mention this here again.

People guessed many of these celebrities that Cosmo had mentioned before, Jason Derulo in particular, but it was the dogfather himself, Snoop Doggy Dog. He revealed this via tweet from Snoop's verified account that he was Cosimo de Medici. Now, there is a lot that I think is interesting about this. NFTs as a status symbol even for old school folks who come from a different world, the celebrity interaction and markets that that sort of interest creates, the articulation of the power of network effects, which is the central thing I believe to understand everything that happens in crypto and to have a sense about how things might change and what the factors might be. There is nothing more important in this space than network effects.

But I also think it's fascinating from the standpoint of anonymity. It feels plausible to me that we're increasingly entering a world where if people won't be anonymous by default, they will have an anonymous alt account by default so they can be their full self. Social media is so viciously punishing for revealing and giving of one's self. you are forced to fit into a tribe to find the people who agree with you, or else be castigated, left aside, broken apart, et cetera, et cetera, et cetera. Why wouldn't more people choose to engage with communities that they were interested in through an alt account, through an anon account, where they could actually be their full self,

or at least the part of themselves that relates to that community, without having to bring all the baggage from every other community and every other part of their life into that space? I don't have an anonymous account yet, but I guarantee you at some point I probably will. Now, the last thing I think is important is that Snoop has also released his own NFTs, and that's not what he's out here focused on. The thread couldn't be clearer. So to me, it brings up the question about what is the future for NFTs? Is it status symbol art? Will these early things be the main things, the store of value assets of the NFT world, as Snoop articulates?

Will celebrity or brand NFT collections actually ever be a thing? Or will they be a thing, but not until everyone has a digital wallet or something else? What about sports collectibles? will NBA Top Shot have a good second year? On that front, we have to wait and see till NBA season begins, but some dapper details. Dapper Labs has raised a new $250 million round at a $7.6 billion valuation.

This gives them a lot of room to expand and expand they are. Separately today, they also announced that they are bringing the Topshot style experience to La Liga, which is Spain's biggest soccer league, and includes Real Madrid and Barcelona. So Rare also raised 680,000. million at a $4.3 billion valuation for their fantasy NFT marketplace yesterday, which is the largest raise in NFT history. So clearly, we are going to see some more shots on goal in the months and

years to come. For now, the mainstream infiltration continues, and I think it's pretty exciting to watch. Until tomorrow, guys, be safe and take care of each other. Peace.