These were my exact words when I first learned about Bitcoin: “That’s the dumbest shit I’ve ever heard of.”
My Grandpa told me to buy it in 2011. You read that correctly…my Grandpa. He was into a lot of conspiracies—at that time, he was also tracking lottery numbers because he just knew it was fixed and he’d inevitably crack the code—so when he told me that Bitcoin would be the future, I just wrote him off.
“Uh, I don’t get it.”
I’m also pretty sure he just casually mentioned Bitcoin as part of a larger argument as to why the moon landing was a hoax, so he didn’t exactly have me rock hard to check out this new magical internet money.
Well, it turns out it didn’t matter that I didn’t “get it.” And in many ways, the fact that it was gaining popularity even though I—and so many others—didn’t get it was exactly why it should have been on my radar. I was too young to recognize it at the time, but that period between “I don’t understand so I’m just going to dismiss it” to “Oh this looks like it could be kind of cool” was likely the greatest investment opportunity of my lifetime, and I missed it because I was too stubborn to be bothered to do any research.
Everyone says they want to be contrarian. They want to get in early on the next big thing. They want to be ahead of the curve. Well, by definition, you sort of have to have conviction on something others are dismissing or overlooking, right? If you’re not okay being on an island, you’re not going to do anything worthwhile.
You have to be okay being wrong and being thought a moron. If you’re not okay with people thinking you’re an idiot—sometimes because you make giant mistakes and sometimes because they’re the morons not seeing what’s obvious to you—you can’t achieve unconventional success.
If it were easy and obvious, everyone would be doing it. As Ronnie Coleman might say, “Everybody wants to get rich, but ain’t nobody wanna take no big-ass chances!”
My initial reaction to the recent rise of various forms of alternative investing—and specifically digital collectibles—was the same as with early Bitcoin: “LOL, what…this is stupid.”
This time, though, I tried to not make the same mistake as I did in overlooking Bitcoin in 2011. Well, this seems dumb as shit to me, but there are a lot of smart people involved, so maybe I should take a deeper look.
There’s something incredibly interesting going on in the world of digital collectibles—specifically with NFTs (non-fungible tokens)—and this time, I’ve tried to embrace my initial hesitation as opportunity.
Ja One Asset to Rule Them All
Long story short, I (along with friends Peter Jennings, Jeremy Levine, Adam Levitan, and Adam Lefkoe) just spent $35,000 on a digital collectible: a highlight of NBA player Ja Morant dunking that you can see all over the internet.
I bought it on Topshot—an NBA-licensed product that lets users purchase digital packs of cards (or what they call “moments”), then instantly buy and sell them (for real money) through a marketplace.
Here’s the dunk, which you can view for free on YouTube:
Now let me tell you why I got the deal of the century in stealing this moment for the low, low (record-setting) price of $35k.
My Investment Philosophy
If you’re a Lucky Maverick reader, you might recall I recently wrote about alternative investments and the types of characteristics I was looking for in identifying the next big thing. That post also has a story about the time I snuck into the locker room at AT&T Stadium and pretended I was former NFL quarterback Jake Delhomme’s son that I think is funny so please read thx.
Anyway, here are some passages from what I wrote in late November:
Over the past decade, I’ve worked primarily in sports gambling and have mostly made money in unconventional ways: crypto, DFS, push-up bets, etc. Gamblers pride themselves on finding edges, one of which—maybe the biggest—is to uncover opportunities before others: to be first. When it comes to all forms of alternative investing, identifying which trends/industries will grow—and doing it before most others—is a pivotal part of success.
A few weeks ago, my buddies and I lost an auction for the most famous sports card ever:
There were a few reasons I liked this card. Some of those:
As a vintage card, there’s guaranteed scarcity; it can’t be reproduced.
In many ways, sports cards are new-age art, which I believe, along with another type of art I’ll discuss in a bit, will be collected more so than traditional fine art as younger generations get money.
Of the few dozen known Honus Wagner cards, I think a large portion will never be up for sale (some are in museums, some owned by ultra-rich who don’t need an extra $1mm, etc.). The actual number of cards available is very low.
High-end alternative assets could explode with the growth of fractional investing.
It would just be cool af to own a Honus Wagner.
Anyway, as we were discussing the merits of owning the card, I found this aspect of the investment interesting: I was probably never going to see the card. It was to be placed in a vault and, hopefully, never touched again until sold. I recently met up with one of my good friends and entrepreneur Jeremy Levine (he founded StarStreet, DRAFT, and now Underdog), and he has jumped head-first into sports card investing. He also mentioned he never actually sees any of the cards; he has them sent thousands of miles away where someone else handles them. In that way, what he’s looking for isn’t really a piece of cardboard, but something even less tangible.
A lot of smart people are seeing the bright future of alternative investing.
My background is in DFS/betting, but I’ve been known to dabble in trading cryptocurrencies. My company FantasyLabs made a push to get into esports after bringing on Mark Cuban as our lone investor; we ultimately decided there were better opportunities for us given we knew fucking nothing about video games but had lots of upside (and work to do) in continuing to build tools in DFS.
Recently, I bid on a piece of digital art that went for record-setting numbers. There’s a great explanation of the story behind this piece here.
I’m completely willing to admit this might be the biggest blunder of my life, but I think the future of art is digital. Not only should ownership of actual physical paintings be tokenized—fraud is a big problem!—but there are a variety of benefits to art that exists solely digitally as compared to physical art (the collector/artist relationship can shift and even become aligned, the art itself can change over time, you can quickly buy/sell without storing it, ownership/prices are transparent, and so on).
The concept of digital art and similar areas are so new, which is what is attractive to me. Could I be the dumbest motherfucker on the planet? Perhaps. But I think the idea of people buying internet money a decade ago probably looked pretty dumb as well. To me, it’s a smart gamble because the potential payoffs are unbelievable. The fact that there’s a movement toward things similar to digital art—and digital art itself over the past 6-12 months—and my natural inclination is to dismiss it should be even more reason to be bullish, similar to the idea of Bitcoin years ago, as people initially writing it off is what allows for the big payoffs that accompany being first.
A lot of these new concepts will look ridiculous at first. As Chris Dixon has written, the next big thing will start out looking like a toy (h/t Ezra Galston, who linked to this post in his blog, which I recommend):
“The reason big new things sneak by incumbents is that the next big thing always starts out being dismissed as a “toy.” This is one of the main insights of Clay Christensen’s “disruptive technology” theory. This theory starts with the observation that technologies tend to get better at a faster rate than users’ needs increase. From this simple insight follows all kinds of interesting conclusions about how markets and products change over time.”
Trading cards might very well become a stock market for athletes. What was once play—kids trading physical sports cards with friends—could transform into something completely different.
When you start to go down this rabbit hole, you inevitably end up asking “Why does this thing need to exist in the physical world at all to have value?”
As I examined the sorts of areas to which I’ve gravitated from an investment standpoint, I noticed a trend. Digital art, cryptocurrency, esports, trading cards—they’re all a continuation of this inevitable trend of moving the physical world online.
And if you notice, they’re all widely rejected by older generations but overwhelmingly accepted by younger ones. I remember learning how much money kids spent on digital items in video games and thinking it was so stupid, but why? It’s so easy to write off what’s different or what we don’t naturally understand as silly, but it’s exactly those things we don’t naturally understand or agree with—yet are popular—that we should spend the most time figuring out.
And so, when it comes to finding the next big thing, I think you’re on the right track if you’re asking these questions:
What are kids (high school/college-age) interested in?
Which things that exist physically will move digital?
How will the democratization of ownership change the investment landscape?
When you add all this shit together, you end up trying to pay six figures for a jpg of Vitalik Buterin.
But really, I think this trend of physical-to-digital and democratization of ownership will lead to a lot of really cool opportunities. Places like Dibbs.io—a new marketplace for sports card trading—will continue to pop up and redefine what it means to collect, own, and invest, breaking down barriers to entry as well as a lack of both liquidity and transparency. My guess is that either they or someone else will eventually do this with blockchain.
The future is digital. Look to youth and find ways they’re transforming age-old concepts like money (crypto) or athletics (esports) in a digital world.
When I wrote that mere weeks ago, I had heard of Topshot but not yet really experimented with it. Since getting started about a week ago, I invested around $45,000 prior to purchasing the Ja Morant moment.
I’ve been trying to make a big move in trading cards. I’ve collected a bunch, but like I said, I’ve been specifically looking for ultra-rare, high-end cards—for the same reason an art collector might want to buy one Picasso as opposed to 100 paintings from lesser-known artists. Despite the cost, I think a Wagner card is the type of asset that’s pretty unlikely to see a steep (or any) decline in value, yet possesses some upside and lets me get out of the increasingly worthless dollar. In many ways, sports trading cards are new-age art; at the high end, they’re Picasso for millennials.
My interest in the bizarre and beautiful emerging industry of digital art is the door that really opened me up to the world of non-fungible tokens. NFTs are tokens whose purpose is to generate verifiable scarcity and ownership. I’m not going to turn this into a technical article on NFTs, but there’s something very interesting going on in this space, specifically in regards to art and collectibles. Here’s an intro to NFTs and a discussion about NFTs and Topshot (from the seller of the Ja Morant moment—NonFunGerbils—whose podcast is an amazing deep dive into the NFT world).
Can we stop for a second to recognize the absurdity of this all? I was on the phone last night with someone named NonFunGerbils, waiting on a $35,000 transfer of Ethereum so I could purchase a video of Ja Morant you can view anywhere on the internet for free.
And the best part? I think $35k was a deal!
The Ja Morant NBA Topshot “moment” that my friends and I purchased is a unique mashup of all the areas in which I’ve been looking for an investment.
Trading Cards
Art
NFTs
Super high-end
Industry bound to move from physical to digital
Liquid
Antifragile elements
But Why Digital?
There are signs across the entire trading card industry that these assets are moving from being a physical collectible to more of a conceptual sign of value, possessing worth when one can prove ownership and scarcity. Increasingly, I see less and less interest in holding physical cards, and more and more in the idea of trading agreed-upon scarcity in a more conceptual manner.
As mentioned, my buddy Jeremy has probably spent seven figures on cards and doesn’t ever see them. So what exactly are Jeremy and others actually buying? Why do people believe physical trading cards hold value? I’m interested in sports trading cards from two perspectives: as “fine art” at the high end and as a “player stock market” across the entire industry.
In both cases, when you really dig into it, you inevitably start to ask “Why do these things need to exist in physical form?”
The answer: they don’t. Gold is to Bitcoin as physical trading cards are to NFTs.
And let me be as clear as possible about my view: you can think what I bought has no value whatsoever, which is fine, but if you believe physical trading cards have value, then you absolutely must recognize the value of digital assets; if you don’t, you’re being stubborn and/or short-sighted.
Physical trading cards are valuable because people agree they’re valuable. I’m telling you right now, the younger generation is blurring the line between the digital and physical worlds. We might not fully grasp it, but from items in video games to virtual real estate, it’s being proven again and again that existence in the physical world is not a prerequisite to holding value in the minds of many; they believe it, and that’s enough.
Think about how awful the process is to buy and sell cards right now. Buy the card on eBay. Wait for it to ship. Send it into a grading company to determine its worth (the grade determines its scarcity…sort of…but we don’t know for sure because the entire industry is so scattered). Wait months. Hold it and hope nothing happens to it or sell it and be forced to ship it out.
Now let’s look at how this compares to NFTs, using Topshot as an example:
Ownership: Provable and unfalsifiable.
Authenticity: Unlike with physical art and other collectibles, NFTs make fraud mathematically impossible. Topshot has an exclusive license with the NBA, too.
Scarcity: Every card has a serial number. Supply is known and even ordered. Instead of an unknown number of potential “Graded 10” cards, there’s just a single #1, a lone #2, and so on. Remember all those cards you collected as a kid? They’re fucking worthless now because they just kept printing them. That’s impossible with NFTs.
Transparency: How much is a specific physical trading card worth? Do you have any idea how difficult it is to get an accurate consensus on this in an ever-shifting market? This does offer somewhat of an edge in traditional trading cards, I think, but the overall lack of transparency is absurd. Everything is completely fragmented and difficult to assess.
Liquidity: Despite being early, the liquidity—fueled by the digital nature of the asset—is incredible. Here are a few sales I’ve made.
Overall, the average return has been somewhere around 50% with an average turnaround of about 2.5 days.
My strategy thus far has been to buy and sell as a way to learn the platform, reinvesting all of the proceeds into more moments. My thinking is that it gives me more opportunities to find value as I collect data and learn, hopefully accumulating better and better assets along the way. Outside of purchasing the Ja moment, which we plan to hold, I’ve found this superior to buying and holding because, frankly, I just didn’t know what I was doing in the beginning. The buy, sell, reinvest strategy sort of de-risks my portfolio without limiting the upside.
From provable ownership, authenticity, and scarcity to immediate liquidity, I believe digital trading cards are superior to physical in nearly every way. For the record, I have no deal with Topshot, nor do I make money from them in any way outside of trading on the platform.
I simply think this opportunity possesses the final trait I seek in an investment: antifragile elements and asymmetric upside. Nik Bonaddio summed it up well:
I full-heartedly believe in the future of digital assets and collectibles. Will Topshot win in this space? I have no idea—and my guess is, statistically speaking, they won’t—but my personal belief is that someone will, and they have a huge lead. If that’s the case, I own a premier asset—the #1 of the first moment of the top rookie—that’s likely to be worth far in excess of $35,000, yet with what I think is an underappreciated short-term floor in a growing industry.
And if not, I have a cool story about the time I could have bought a car but instead bought a free video clip.
Final Thoughts
You should take this article as an explanation of how I tried to take an investment philosophy I outlined a few weeks ago and turn it into reality when I saw an opportunity, not as an endorsement to use Topshot. In fact, due to how speculative it is, you probably shouldn’t get involved in this or with other NFTs if you don’t already have a healthy appetite for risk.
My hope is that what’s valuable here is an example of how I go about thinking about risk and finding new opportunities such that you can implement the same principles in identifying asymmetries in various aspects of your life.
What are the areas in which you have vast specific knowledge? What things do you know that others don’t yet realize? If you’re okay being thought an idiot, these areas are the best opportunities for asymmetrical payoffs. I might be wrong about NFTs, but if I’m right at a time when most don’t agree, then I’m really right.
And in terms of the overarching thesis behind this move and others I’m making—that many elements of the physical world will move digital—I totally understand the initial reaction of “I don’t get it” or “this seems stupid.” But guess what? There’s a whole generation of young, smart people who’ve grown up in a fundamentally different way from me and you, so whether or not we “get” the future is irrelevant to how it will transpire.
My prediction is that over the coming years we’ll see the consensus shift on digital items, from “these are worthless and not real” to “this is the best way to prove ownership, scarcity, and authenticity.”
I’m convinced NFTs are the future of collecting. The most exciting aspect, to me, is that the party is just getting started.
UPDATE: Just months later, the perception of NFTs has completely shifted since I wrote this post. Knowing people will need amazing data, tools, and analysis of NFTs as they’ve exploded, I’ve since launched the platform LuckyTrader.com.
This is really interesting. I buy into the value of digital assets in video games and digital art that someone creates, but I’m having trouble wrapping my head around the value of owning a sports video. What does ownership really mean here when you didn’t create the video yourself and it’s not unique and is reproducible? What am I missing here in understand this? Thanks!
This is really interesting. I buy into the value of digital assets in video games and digital art that someone creates, but I’m having trouble wrapping my head around the value of owning a sports video. What does ownership really mean here when you didn’t create the video yourself and it’s not unique and is reproducible? What am I missing here in understand this? Thanks!
How about nfl and mlb??