Everything is Art! Christie’s sold a piece of digital art by an artist known as Beeple yesterday for $69.3 million, a record amount of money paid for a new but booming category of digital art called non fungible tokens, or NFTs. This news is consistent with our thesis that NFTs will allow programmable royalties for artists, and create scarcity value that never existed before with digital art. We started our company in 2017 on the premise that if Fortnite could make several billion dollars by selling skins (in our view skins = digital art), then everything digital is art. Art will be the first use case. Video games will be the first backdrop. Eventually art-backed by NFTs will be *everywhere* in simulated worlds beyond video games, and all of these transactions will have an invisible blockchain protocol running in the background. With a AAA video gaming lens, we kept hitting mental roadblocks in thinking about how they could possibly run on Ethereum or Bitcoin. So when we stumbled on Polkadot, we were blown away with its potential – not as a _____killer, but as a Layer-0 “meta-protocol” which operates under other blockchains and enables them to talk to each other in a similar role that TCP/IP plays in the Web2.0 version of the internet. Here is our Polkadot Primer if interested!
We’ve included commentary on the Roblox IPO and the Bitcoin mining debate below.
Thanks and have a great weekend,
Angie
Eyes on Epic post-IPO of Roblox this week. Wednesday March 10, shares of Roblox IPO’d in a direct listing on Wednesday. As of Friday’s close, the company has a market capitalization of roughly $39 billion, a steep jump from the $29.5 billion valuation it secured in a private fundraising just two months ago.
All of this led us to think about Epic Games. Like Roblox, Epic Games is also building its own metaverse and boasts a strong hit game portfolio, complete with its own social network and its own store. The Epic Store, which had only been out for one year in July 2020, was already at a revenue run rate of $680 million with 108 million users last year.
But we believe that the real long term value in Epic Games is not in its hit games, but on it potentially licensing their superior technology. Long term, we believe that Epic could make more money from licensing their technology throughout the video games industry than from selling any one game. Epic Games’ game engine, Unreal Engine, has the ability to bring cinematic quality to games - imagine feeling like you are at a movie while playing a video game. Unity and Unreal Engine split the market for game engines, and the latter has not yet been appreciated by the market because other than Metahumans, we haven't even seen the power of Unreal Engine 5, which will be out very soon. We await UE5 with bated breath!
A Word on Bitcoin. This week saw our November 2019 piece, A Fossil Fuel Future for Bitcoin, receive renewed interest as it was cited through Ketan Joshi’s latest blog post, Bitcoin is a Mouth Hungry for Fossil Fuels. Over 1,000 likes and 500 retweets later, it bears addressing why we view ourselves as Bitcoiners when our outlook on its foundational technology, Proof-of-Work, aligns with that of its most ardent critics.
We originally wrote our piece in response to a perceived misunderstanding many in the Bitcoin community held, and still hold to this day. The logic goes something like this: industrial scale mining has been driven by excess hydropower in China to date, and so there’s no reason why Bitcoin couldn’t bootstrap a similar phenomenon of excess solar or wind power elsewhere. The issue with this take is that it focuses on the wrong element; that is, it focuses on the renewable nature of that hydropower, rather than the fact that it is the legacy of decades of excess, government-planned buildout of energy generation. Bitcoin mining has no preference for renewable or non-renewable, it simply rewards those who find the cheapest electricity prices relative to the rest of the network. In our view, the next such energy market will occur in the coming years as onerous carbon taxes, conscientious objection from financial services, and overall negative public sentiment pull the rug out from under the fossil fuels market. It’ll remain far cheaper for miners to pounce on struggling oil majors and petro states than it will be for them to underwrite new renewable power generation, especially when so much of new renewable power still needs to be earmarked for wider decarbonization of the economy. Until nuclear power sees a renaissance, the simplest argument for where Bitcoin mining is headed is thus fossil fuels.
So why then do we support Bitcoin regardless? Because in the game of geopolitics, it represents a significantly more efficient alternative than any of the incumbents. For if you assume Bitcoin represents the potential for a new atomic unit of value, the denominator to rule all numerators of wealth, you do not compare its electricity consumption to that of Christmas lights or Xbox consoles. You compare it against the military-industrial complex that backs the US dollar; you compare it against the environmental damage and human rights abuses that became synonymous with precious metals. Taking it one step further, if one views Bitcoin as the asset that keeps all others honest with its hard-coded monetary policy, its singular dominant Proof-of-Work blockchain is what enables us to have many revolutionary Proof-of-Stake networks that rely on low degrees of perpetual inflation. And so, even if the Bitcoin network would be run 100% on fossil fuels going forward, which we gladly concede that it will not, it would still represent a material improvement over the status quo of monetary policy. Factor in the energy consumption improvements that would come from chip manufacturers catering to this emergent power, and we’re inclined to believe that the consumption arguments of today will go down in history as did those that were volleyed at the internet in its early days.
With that said, we recommend that you check out our friend Yassine’s previous work on this topic for ARK Invest here.
Headlines
Beeple Artwork Sells for $69.4M at Christies Auctions: A piece of digital art sold for $69.3 million at Christie’s Thursday morning, a record amount money paid for a new but booming category of art called non-fungible tokens or NFTs. It quickly places the artist known as Beeple in a rarified world previously occupied only by artists creating physical work. This news is consistent with our thesis that NFTs will allow programmable royalties for artists, and create scarcity value that never existed before with digital art.
BlockFi raises $350M in Series D funding at $3B Valuation
Led in part by Bain Capital Ventures and Tiger Global
Valued at $3B, with over 225,000 retail clients and $15B in assets on its platform
Business model should enjoy a wide moat despite growth of DeFi as it doesn’t suffer from the same tax issues as DeFi lending upstarts do (i.e., DeFi deposits count as taxable events)
NYDIG names New York Life CEO Theodore Mathas to Its Board
Mathas has been CEO of the $700B insurer since 2006
Highlights NYDIG’s aim to provide Bitcoin offerings for life insurance products
Follows a $200M raise earlier this month
Epic Games sues Google for Anti-Competitive Conduct in Australia
Accuses Google of violating the country’s Competition and Consumer Act of 2010
Addresses the 30% marketplace fee Google levies on app developers
Epic Games now has ongoing suits against either Google or Apple across the EU, UK, US, and Australia
Signum Growth Capital Team
Angela Dalton | Founder and CEO | angela@signumgrowthcapital.com
Max Fiege | Head of Digital Assets | max@signumgrowthcapital.com