🌞 Why we're bearish short term but MEGA-bullish long term
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Hey everyone! Here’s what we got for you this week:
Something strange happened with CryptoPunks…and now we know why
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Why you should be worried about Celcius and 3AC going under
Three Arrow Capital (3AC), the crypto-focused, Singapore-based hedge fund is rumored to be insolvent. 3AC backs many highly notable crypto projects and Vincent Van Dough’s $100M NFT fund.
Crypto lender that has come under fire after it froze withdrawals last weekend, citing "extreme market conditions.”
Both 3AC and Celcius’ troubles are linked to the discount between Lido Finance’s Staked Ether (stETH) and the spot price of Ethereum - the two are supposed to be pegged 1:1. 3AC and Celcius both held (and dumped) A LOT of Staked Ether.
So why should you be worried?
*FYI, the $ amount of 3AC’s liquid portfolio (prior to the crash) varies greatly. $9B is the number that we’ve seen the most.
3AC borrows from every major lender (BlockFi, Genesis, Nexo, Celsius) thus every lender will and has taken a hit because of this.
Their $9B liquid portfolio is at least down an ultra-conservative ~70% —> Now $2.7B
Rumors are their portfolio is closer to <$1B meaning they would be unable to meet their margin calls
3AC is one of the biggest borrowers of crypto lenders globally.
The lenders will face a huge P/L difference between how much they are owed and what they will get from liquidating 3AC’s collateral
Operating a 10/20B portfolio with a 5% equity buffer - these lenders are massively ill-prepared meaning defaults will cause a significant equity erosion.
A major lender and a major fund both collapsing is no bueno. ETH and BTC and by proxy NFTS (in USD at least) would get continue to get rekt because people will be forced to sell what they can (no liquidity in alts.)
OpenSea’s Seaport upgrade cuts gas fees by 35%
OpenSea officially moved to the open-source Seaport protocol on June 14th. They estimate it will save users a combined $460 million in total fees each year.
Things to note:
You can now make offers on items in an entire collection or by items with a specific attribute
New accounts will no longer require the one-time setup fee OpenSea had previously charged
Listing multiple NFTs in a single transaction
Multiple payout addresses
Stanley Druckenmiller’s updated worldview
Stanley Druckenmiller is a billionaire hedge fund manager as well as a bitcoin bull, albeit not overly verbose about it. He has been signaling inflation worries for over a year now and just updated his worldview in a talk with Stripe co-founder John Collison at the Sohn conference.
He was surprised by:
The magnitude of inflation
How aggressively the bubble burst
Valuations have reset as a lot of good (public) companies are down 60-70% without a significant change in their fundamentals
The fed was really slow to recognize the problem
he thought they were slow in April of ‘21 but they didn’t pivot verbally until November and were still buying bonds in March ‘22!!
He said that in his 45 years, he has never seen a combination where there is no historical precedent.
8% inflation into a weakening economy with bond yields at 3%
Kinda obvious but Druck says there is a high correlation between BTC & the NASDAQ and that there is a high overlap between the asset class owners.
His advice to 20-year-old tech investors would be to spend as much time in the crypto, similar to the internet.
Why we’re bearish for the next few months
SuburbanDrone (an account that we quite like for macro commentary) predicted how Fed tightening will play out this summer in the Nasdaq. The crypto markets are closely correlated to the Nasdaq.
4x tightening means 3 rate hikes and $45b QT in June
5x means 3 rate hikes and $60b QT in July
6x means 2 rate hikes and $90b QT by September
Arthur Hayes also brought up an important situation in his most recent blog post.
By June 30 (second quarter end), the Fed will have enacted a 75bps rate hike and begun shrinking its balance sheet. July 4 falls on a Monday, and is a federal and banking holiday. This is the perfect setup for yet another mega crypto dump. There are three ingredients to this humble pie:
Risk assets will again rediscover their dislike for tightening USD liquidity conditions sponsored by the Fed.
Crypto funds must raise fiat to satisfy redemption requirements by continuing to sell any liquid crypto asset.
No fiat can be deployed until Tuesday, July 5.
June 30 to July 5 is going to be a wild ride to the downside.
Why we’re bullish long term
The metaverse is real and it's happening now.
Crypto = money of the metaverse
NFTs = all the goods in the metaverse
No matter the prices of crypto, the metaverse is not going away
Something strange happened with CryptoPunks… now we know why
Something unusual was going on with CryptoPunk volume. The highest number of sales in the last year+ occurred in a condensed timeframe.
Turns out insiders were front-running the news that NonFungibleNoah would be leaving Christie’s to take over as the CryptoPunks brand lead.
Important takeaways from the announcement:
No Punks on lunchboxes or in movies
…thats about it so far.
Noah wants to make sure that, for the most part, less is more. He wanted to ensure the community understands that the Punks ethos will remain unaltered by him or Yuga.
Total Punks listed has also dropped a ton!
Truth Labs is revealed as the team behind Goblintown
As many had suspected, Goblintown was launched by an experienced team. Truth labs are also the team behind The Illuminati Collective and The 187.
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Merit Circle DAO vs YGG
A resolution has finally been reached regarding the Merit Circle DAO vs YGG drama.
Backing up a bit - Merit CircleDAO wanted to cancel Yield Guild Games SAFT, refund their initial investment, and theoretically cut them out of a 30X (after the completion of a 4-year vesting schedule) return for “not providing any value.”
A proposal laying this all out hit the Merit Circle DAO forum on May 20th and was met with resounding support 👇
YGG snapped back in their blog 5 days later basically stating that they were under no legal requirement to provide anything but $$$
…none of the seed investors are obligated under the legal documentation of the SAFT to provide any specific value add services. Further to that, there is no provision for Merit Circle Ltd to unilaterally cancel the contract regardless of how this has been presented by them to the community.
Although the Merit DAO core team (Merit Circle Limited) said that they would prefer to “honor all agreements,” the DAO itself legally held the authority of the tokens via the investor agreement.
The official vote passed with flying colors on May 28th.
The Merit Circle Core team stepped in and renegotiated to allow YGG to take a “reduced return” on their investment.
A proposal passed for Merit Circle DAO to buy out all of YGG’s locked tokens for $0.32/token. This would net them $1.75M instead of the ~$5M (or more) that they would have received following their vesting schedule.
YGG formally agreed to the buyout on June 14th.
The team behind Words with Friends is building an NFT game
Words with Friends developer Playful Studios has raised $46M to build out The Wildcard Alliance NFT game. Playful Studios thinks by building Wildcard Alliance to be easy, accessible, and fun., they can onboard the next billion gamers to web3. The game will feature elements similar to Hearthstone or Magic: The Gathering where you manage card decks. It will also include the gameplay of a multiplayer online battle arena (MOBA) game or an arena game like Rocket League.
🌐 Virtual Worlds
Why the metaverse needs crypto
The legendary Punk 6529 wrote another great thread. This time on why the metaverse needs crypto.
Here are the takeaways:
The metaverse is an abstract layer of the internet - but still the internet
The visualization layer of the internet
4k Video & global video conferencing —> Functional extended and mixed reality
Most time will be spent in augmented reality (partial augmentation) not virtual reality (fully immersive)
FYI some people like Sam Lessin ( VC and one of Zucks best friends) disagree and think it’s going to be the other way around
The movement to AR/VR will be seen as a lifestyle improvement and will make physical locations irrelevant for business other than the social aspects (drinking & eating)
The most important questions for the health of the internet/metaverse/human society will be decided now.
Who stores the definitive ownership records of those digital objects?
There are two answers: a company's database OR a blockchain
If it’s a company’s database, that will lead to the same problems seen in web2..but worse.
Rent-seeking platforms like Facebook
47.5% fee on metaverse sales - higher than a socialist tax regime
If the metaverse is your digital reality and you can be banned based on an algorithm, that is terrifying
The persistence and ambiance of the metaverse would make its impact on elections, et al 100x worse than Facebook/Twitter
Global national security
What if the video that was captured by augmented reality glasses was hosted on a company’s database?
(insert important person)’s private moments are sent to these databases
It is obtained by hackers, etc.
If the ownership records are on public blockchains, these problems are avoided.
NFTs > private company databases
🎙 Zima Red
Kevin is the founder of Atmos an upcoming game universe that combines sports, lore, and crypto-economics to create an engaging and competitive virtual experience
In this episode we chat:
Being a crypto founder in 2013
Attempting to build a fantasy NFT basketball game in 2019
Sports as the ultimate trojan horse to crypto mass adoption
Balancing skill-based gameplay with crypto-economics
Creating a competitive game combined with a virtual world
Atmos initial core game loops of Mining - FGabricating - Racing
And so much more