33 – The ‘State of Crypto’ Report Unpacked & Can NFT’s Hold Their Value in a Down Market?

Tracey: [00:00:19] Welcome to the Crypto Curious podcast designed to help you navigate the dynamic world of crypto currency. We're here for anyone who is interested in crypto at all. Maybe you've already dipped your toe in the water, or maybe you don't know anything about it. And this for you is a very beginning. But we recommend heading back to the very early episodes to get your footing. However, if you think you're ready to dive headfirst, then let's do it. My name is Tracey and I'm here with my mates, Blake and Craig from the Bamboo App. Hey, guys. 

Blake: [00:00:48] Going pretty well. Tracey, how are you? 

Craig: [00:00:50] Good, thanks, Tracey. Surviving this crypto winter. 

Tracey: [00:00:53] Surviving the crypto winter. Let's get into it today. Look, crypto seems to be all over the traditional news media in the last two weeks. And at that point in the cycle, again, where I'm getting calls from a dear old folks saying, look, we've seen episode of Four Corners and we're really concerned about this crypto space that you're working in. And I think all of this is sparked by the lunar crash and the fact that so many people were caught up in this. And, you know, a lot of people lost a good sum of money. And that's truly unfortunate. And a lot of media coverage that we're seeing right now is asking the question around regulation and consumer protection. The lunar collapse is probably a good excuse for increased looks at this regulation. And I, for one, believe that that's a good thing. After all, regulation aims to add investor protection and make the crypto market a little less susceptible to manipulation. So overall, it's a good thing if carried out the right way. But boy, is that the same take that you have. Do you think that we'll see regulation fast tracked here in Australia now or globally due to what's transpired over the lunar stablecoin in the last few weeks? 

Blake: [00:02:01] Yeah, I definitely think that it's going to obviously piqued the interest of regulators. Obviously, regulators are already looking at the space very closely, but it's these examples when consumers are affected that, you know, it increases the priority of, you know, where they place crypto regulation. The thing is with crypto regulation is that some of these projects simply can't be regulated by design. It's very, very challenging because they might be decentralised in nature, whereas businesses like bamboo or like cryptocurrency exchanges are quite easy to regulate. And generally these are the businesses that are already doing the right thing. So yeah, it's going to be interesting to see what response there is from regulators with regards to, you know, the recent happenings.

Tracey: [00:02:49] What do you think? 

Craig: [00:02:50] Craig Yeah, I think it's important to note that like this is sort of an experiment really like algorithmic stablecoins didn't exist five years ago, you know, was an experiment that, you know, we've seen has failed in this instance. But, you know, there is other algorithmic stablecoins that are maintaining their peg. But, you know, I think it's a fine line between overregulation, consumer protection. But also, you know, consumers need to understand the risks when they, you know, are purchasing some of these alternative coins or getting yields from these stablecoins. 

Blake: [00:03:27] Yeah, and it's not just crypto businesses that are designed to manage their their risk. You know, this happens all the time. And we saw this in 2008 when the euro, during the global financial crisis, when, you know, the banking sector mismanaged their risk and caused a global crisis. So, you know, these things happen. And I think I think it's analogous that, you know, as long as the industry learns from the lessons and moves on, then I think everything's going to just be stronger. 

Tracey: [00:03:55] I think also people lose the onus back on you to make sure that you do have a balanced portfolio, that you are doing some research, you do, you know, understand what you are putting your money into. But I mean, that is hindsight and that is, you know, hoping that everyone is doing the right thing. So but it can I ask again by if if the regulators do come, what is the first thing they're looking at? Are they looking at exchanges first? And is there a lot that they can do there? And, you know, are they already, you know, playing things by the rules? 

Blake: [00:04:23] Well, of course, it depends in which jurisdiction you are. And many of the exchanges are already doing the right thing, I would say most of them. But that's the low hanging fruit, I think, for regulators, because lots of exchanges and businesses that sell cryptocurrency are asking regulators for increased licencing requirements to ensure that consumers have a better user experience in the sector. So yeah, I think that's certainly the first port of call.

Craig: [00:04:52] Obviously we're not an exchange. We have Bitcoin and Ethereum, but I'm sure the exchanges are doing their own due diligence when listing a new coin. And so if some of them had Luna listed, but I think ongoing, you know, they're probably going to be taking a closer look at some of the new ones that pop up. And the regulators might say, you know, if you get a uniswap in Metamask, yeah, that's on you. But we can control, you know, what the exchanges can do, you know.

Blake: [00:05:16] Yeah. And I think businesses that. So these products to consumers should do a certain amount of due diligence. And, you know, I think it might even be a great process for this due diligence to be transparent. So, you know, so the consumers have all the information that the platform has. 

Tracey: [00:05:33] Well, look, we will keep a keen eye on that for you, our listeners, and come back to you when we hear any further information. Moving on, about two weeks ago, there was a very interesting crypto report that came out titled The State of Crypto. This was released by Andreessen Horowitz A16z for short. This is important because A16z are one of the most prolific investors in Web3 from protocols to Nfts. So when they give an update on the market, it's worth looking into what they've got to say. Since this report came out, A16z last week announced their fourth crypto fund. Now, this was monumental because the fund is a $4.5 billion fund. Now this is the largest crypto fund ever. So the boys and I have taken the time to read through this 56 page report for you, and we've summarised it into a few bullet points that really got our attention. So, Craig, kick it off for us. What have you got? 

Craig: [00:06:27] I will start off by saying it's not a rigorous report. It was a lot of pretty photos and graphs, so I'll chuck the link in a description so you can check it out. Yeah, it's an awesome report. Really gives a great macro view of where we are and you know, a16z describe where we are now is the fourth wave. Even though we're in the crypto winter, we've had crashes in 2011, 2013, 2017, and now at the moment they show a really great overview where no matter if there's price chaotic that's happening in the market right now, developer activity start-ups in the space, social media activity are all still rising in the background, which sort of tells me that there is still underlying growth in this sector. And yeah, if you zoom out like I know if you zoom out on the crypto market cap, you say 2017 was just a little it's a little hill compared to the mountain that we are now. And then eventually, hopefully where we are now, we look back and we just say that as a little hill. But long story short, I think is definitely build season for a lot of these start ups, including us. 

Tracey: [00:07:33] Mm I love that point because what it shows is that through these crypto winter periods is that, you know, there's still so much enthusiasm out there. You know, just because the price is down doesn't mean that there's not building happening in enthusiasm going on behind there. So Blake, what did what did you read about the more niche sectors like define in Nfts? 

Blake: [00:07:52] Yeah, so DEFI has gone from $0 in total value locked, which is a metric used to describe the liquidity or the value of Defi. It's gone from 0 to 100 billion USD in under two years, which is incredible growth. And you know, it could go to several trillion or tens of trillions of dollars over the next decades. So it's going to be fascinating to watch that evolve. And and, you know, the A16z report just really highlights, you know, how impressive that is. And, you know, it's not over. And, you know, these projects are building fantastic products. And with respect to Nfts, creators make a lot more from Nfts compared to creators on, for example, YouTube or Spotify. Last year, 23,000 NFT creators made a collective of $4 billion, and that's about $174,000 per creator on average, which is a bit ridiculous really. And obviously that will that will come that will come down over time. And and no doubt it's top heavy and really interesting regardless. 

Tracey: [00:09:02] So I think listening to that, the NFT trend will continue. It's having a bit of a downtrend at the moment. We'll talk about that a little bit later on in the episode. But for now, Craig Ethereum was mentioned as well. 

Craig: [00:09:12] Yes, Chidera Ethereum was mentioned. They do have a little section about layer one blockchains. And long story short here, Ethereum is still king. And as you know, blockchains are only as strong as the developers building on top of them. And Ethereum has got is in the lead. Well, in the lead with around 4000 monthly active developers. But an interesting one is Solana, which is actually outpacing Ethereum from their time of launch. So Solana is around 1200 days old. When Ethereum was 1200 days old, it didn't have as many developers as Solana right now. So that's very interesting for the Solana group out there.

Tracey: [00:09:50] Because the space was very new back then and where it can play different time that yeah, that is interesting. 

Craig: [00:09:55] Is very well what if they continue to outpace chase and then there's more doesn't Solana. 

Tracey: [00:10:00] We'll just see how it goes. I'm interested to see. 

Craig: [00:10:03] Where just to put it into context there's 4000 active developers on the Ethereum and for traces kids favourite game roadblocks they've got 350,000 app developers building. Some roadblocks. 

Tracey: [00:10:20] That is madness. 

Craig: [00:10:21] I feel there is a lot of room to grow here and this doesn't take into account people that are building on top of Ethereum like, you know, of other Ethereum Dapps. The numbers are probably closer to a couple of hundred thousand a month on, you know, on these. Ethereum Dapps. So, yeah, let's see how it goes with Solana. Keep an eye on Solana guys as developers on Solana. 

Blake: [00:10:42] Nice, nice. And I might just touch on one of the components of the report that I thought was really interesting was around adoption rate and often cryptocurrency as a technologies compared to the Internet, as a technology. And their adoption rate is compared over time, particularly the growth curve from 0 to 1000000000 users. So I think crypto has about 2 to 300 million users at the moment and we're certainly tracking the same growth curve that the Internet made. But you know, just a point that I'd like to make is that, you know, with the Internet, there was a there was a slower growth curve because they had to lay fibre optic cables, they had to lay copper, you had to get a modem, and you had to lay all this infrastructure for people to literally dial up. Now, you know, billions of people already are connected to the Internet and making a leap from Web two to Web three requires a lot less resources and a lot less friction. So over time, you know, in the coming years, we expect, you know, the thesis is that the growth rate of blockchain technology should outpace that of the which is which is fascinating to to watch. 

Tracey: [00:11:56] Yeah, yeah, yeah. Definitely. So I think to round out the report and leave you with a few points more creators will move away from using platforms like YouTube, Spotify and Instagram over creating Nfts because they'll see the benefit more top tier gamers and developers will enter that web3 space and launch their own games in the coming months. They mentioned daos and social tokens and decentralised social networks because they're the next line to explode into crypto. So similar to how I define NFT grew over the last few years. That could be the next wave coming through. And just like Blake said, we're super early. So if you're not in yet, don't stress. There's still so much more to come. And that's a good spot for us to take an ad break. And when we come back, we'll ask the question, can Nfts hold their value in a down market? We'll be back. 2021 was undoubtably the year of nfts. NFT sales ramped up to 40 billion while up from the year before when it was less than 100 million in 2020. Celebrities like Madonna, Snoop Dogg, Reese Witherspoon and organisations like the NBA and Adidas all created NFT projects with a super hot market, introducing a whole new wave of people into the crypto space. But as we've talked about, 2022 has been a brutal market for every kind of investor. The S&P 500 is down 13%. Tech stocks like Tesla perimeter are down 35% and good old bitcoin is down 31%. Which got us thinking. What's going on with Nfts in this market? Are people still investing in Nfts? I know that man Craig and cricketing legend Steve Smith are. But what about others? Craig, you've got some stats for us. 

Craig: [00:13:39] You're right, Tracey. 2021 was the year of NFT, but more specifically, it was the year of the Board Appeal Club, because when they minted those 0.2 Ethereum, which was about Ethereum, was, you know, less than $1,000 at the time. And as you wrote it up, you also got the benefits of more Ethereum and Ethereum being worth more. So when they hit 108th floor, Ethereum was like, you know, 3000 US. 

Blake: [00:14:05] Could you just explain the floor price to the listeners?

Craig: [00:14:08] Craig Floor price is pretty much the cheapest ones available. Look at the floor. 

Blake: [00:14:12] So is there a physical floor put in the price in the marketplace? Kind of like you would put a reserve price on an eBay auction. 

Craig: [00:14:19] No reserve price on your eBay auction is up like the seller level, whereas the floor prices at the whole collection level. So if everyone's seen the NFT, it's the cheapest ones that are for sale. That's the floor of the NFT. That's essentially what it means. 

Blake: [00:14:32] Okay, so you can't sell your NFT for below the floor price, is that correct? 

Craig: [00:14:37] You can, but the floor would just go down.

Blake: [00:14:40] So there's an incentive not to. 

Craig: [00:14:42] But there's an incentive to sell below floor. So the sales quickly levels that make it. 

Blake: [00:14:46] Interesting. 

Craig: [00:14:47] In a bull market, you've got the benefit of more theory and Ethereum two X things. So you're like, you know, you're forex ing just off riding the wave, but in a bear market you're getting the double whammy in the opposite direction. So now if your price of your NFT floor price is going down 10% and ethereum's halving, you're getting another double whammy in the opposite direction. 

Tracey: [00:15:09] So I need to say that again, just for all the people out there to get that clear. If I have an NFT of a board and it was an I bought it for a hundred ETH and then the floor price goes down and it's worth it. And at the same time, Ethereum goes down 50%, all of a sudden I'm way down because my floor price went down and my theory and price went down. So. So, you know, if we thought an NFT might hold the value in terms of US dollar, then you know, that's not really the case right now. 

Blake: [00:15:42] What's interesting there as well, Tracy, is that it really depends on what you denominate your portfolio in. Many people denominate their portfolio dollars in USD or Australian dollars. But, you know, many other believers believe that, you know, that's a bit of a mug's game and it should be denominated in your portfolio in Bitcoin or Ethereum because the dollar is being inflated to infinity over time. 

Craig: [00:16:06] That's a good point. I think it's like the bull market. Everyone cares about US dollars and the bear market. People care about theory and stocks. But yeah, I mean, the volume just as a whole chase. The volume is way down on and off takes most of the major blue chips down upwards of 45%. And, you know, the volume is as low as it was in November 2021, which is really, you know, about six, six, seven months ago now. So be interesting to see how it continues, but I know that you're buying a few notes at the moment, Chase, is that right? 

Tracey: [00:16:40] Yeah. I still think there's some decent projects around that are actually quite sure I'm not buying many, I can tell you that right now, but I'm keeping eye. I'm still surprised the amount that are still launching right now in the markets are not great. 

Blake: [00:16:50] I think that's going to happen in a cyclical market because there's going to be projects that were slow to start and had delays. And as a result, they they launch late and, you know, in a sense, missed the party. 

Tracey: [00:17:02] I've seen a few launch with them. They've have the numbers. You know, they've gone from 10,000 down to five and, you know, done different things. But you know what? This just comes down to the fact that you still need to be picking things that you're interested in. Don't just jump on the bandwagon, pick something you like that's got good utility that's going to give you, you know, those added extras down the road. But I still think that there's going to be some bargains to be had out there. We'll keep an eye on the NFT space for sure. Look, there's one more story they'd like to read from last week that I found really interesting and I wanted us to talk about. And it was a big call from our friends at Jp morgan saying that they were taking crypto over real estate. So Jp morgan wrote a note to its clients that made some noise around the crypto sphere. And here are a few things that they said that got our attention. They gave Bitcoin a fair value of 38,000. Now, this means that they think Bitcoin right now is massively undervalued currently and it's probably sitting at a 30% discount. And they've also said that real estate investment has potentially lagged repricing. And what they mean here is that they're predicting real estate will go down in value because of this. JPMorgan has taken it off their alternative assets list, which is a big call. Alternative assets are investments that J.P. Morgan. Things are good outside of traditional things like stocks and bonds. They said digital assets, a.k.a. crypto, are the new preferred alternative assets. So out with real estate and in with crypto. And they're also predicting that this bear market won't last long, as long as B.C. funding doesn't dry up. By the looks of things, that's not going to happen any time soon after, A16z can pull a cool 4.5 billion in a crypto fund. So Boyce, what are your thoughts on this? Because I think this is some pretty big news. 

Blake: [00:18:49] I could probably speak to the VC component a bit, and certainly there's still a lot of chatter with VCs allocating here in the US. They are spending a little bit more time with their portfolio companies if they're having a little trouble through the crypto winter. But certainly money hasn't dried up. So JPMorgan's thesis seems to be on track. 

Tracey: [00:19:11] What are your thoughts on this, Craig?

Craig: [00:19:12] Well, I think, you know, obviously Jp morgan have made a backflip. I remember a few years ago when they were totally anti crypto and anti bitcoin, but now they are Bitcoin bulls and I think more in those buying Bitcoin the better. It's being seen as sort of a inflation hedge in this market. And you know, it's also true that the market is still young where, you know, bitcoin can crash and be undervalued still. So I think it's really good news. Chase Interesting to see how it pans out. 

Tracey: [00:19:44] MM Yeah, I think it is true. Like you said, the institutions are coming and it's going to just add to some more adoption. Look, we're going to leave it there. But as I round out the episode today, I want to take the opportunity to talk about the Equity Mates community. As a regular listener to our podcast. You would hear the crypto Curious is brought to you by Equity Mates Media. Equity Mates is home to some of Australia's favourite podcasts that hit all the hot topics across the finance spectrum. So we just wanted to take this opportunity to give a shout out to one of the show today. You're in good company. They've been running a bit of a crypto theme of late, and tomorrow they'll be dropping an episode about Nfts. So give it a listen and also explore their back catalogue because there's also heaps of stuff there that goes into different types of assets. So if you want to diversify your portfolio, go and give the girls a listen. But once again, thanks for listening to us today. And we love hearing from you guys and getting emails. So keep them coming through at podcast at Get Bamboo Dot IO and follow us on social media. The Facebook community page is up and running, so please join us in there. We're going to try and get in there and get a bit more community with you as well and make sure you hit the follow button whenever you're listening to us like right now so you don't miss an episode and you get notified every time we release a new one. We're also up for new listeners, so please share this podcast with your friends and family. Don't forget to write and review us in your podcast app and we look forward to having you back next week. Bye for now. 

Craig: [00:21:13] Bye, guys. 

Blake: [00:21:14] Bye.