The Digital Assets Newsletter: Week 7
The TLDR Summary:
Market Update
The geopolitical crisis we are experiencing right now due to fear of Russia invading Ukraine hasn’t seemed to have made the crypto market too uncomfortable (so far). However, the overall crypto market continues to struggle to find upwards momentum towards all time highs.
Despite the lack of substantial movements in the crypto market, a lot has happened in the world of digital assets. The adoption rate is implicitly increasing while regulatory frameworks are becoming more prevalent. Meanwhile, trading activity for NFTs has decreased during the last weeks, although the creativity connected to utility of NFTs shows no way of slowing down. Last but not least, is it the super bowl or crypto bowl?Read more below!
Concept of the Week: Tokenomics — The Economics within Crypto
A fascinating aspect of crypto assets surrounds its tokenomics. This is a concept surrounding the characteristics and flow of a crypto token for a certain protocol (e.g. Ether for Ethereum). When researching certain crypto assets and potential investment decisions, an understanding of their respective tokenomics is essential. This is because it plays a significant role in evaluating how the given asset generates utility and value. Learn more below!
Investor Joe Updates:
This week investor Joe has developed a deep interest into NFTs and would like some exposure in them. However, with his limited budget he is unable to purchase individual NFTs so he looks to $WHALE to get exposure into “blue chip” project. Read more below!
The ArtxTech Event and Our Podcast
As you may know, the grand finale of the ArtxTech: Future of Art event will include a panel discussion with some of the most prominent profiles within the space. There will also be a QnA at the end so we want to give you guys the opportunity to ask any questions you would like to these experts. Click the link here and enter as many questions as you have! More information regarding the event and the link to its livestream can be found here.
Our third podcast has dropped on Spotify! Here is our podcast page.
The Market Update
Micro View:
Although still far away from its all-time high, the crypto market has recently bounced back after a severe market correction, with BTC currently trading at around $44,000. However, the overall FUD (Fear, Uncertainty and Doubt) remains relatively high. Hence, in wait for potential positive catalysts, we may continue to see the crypto market struggling to approach its all-time high.
Macro update:
Slowdown in NFT-trading:
After reaching astronomical heights during the start of 2022, the NFT-trading activity and overall interest (Based on volume traded and search for NFTs online) seems to be slowing down. However, this is of course a relative measure since it is compared to the previous all time high at the end of January. In addition, it is too early to draw any reasonable conclusions as to whether it is a temporary change or the beginning of a down trend. Hence, the NFT- frenzy, or hype if you will, still remains prevalent for now. Read more here.
Blockfi gets fined 100 million USD!
BlockFi is a crypto bank which is trying to build a bridge between traditional finance and cryptocurrencies. More specifically, BlockFi allows you to borrow with your crypto assets as collateral whilst also allowing you to deposit your holding and receive interest. Now, however, they will have to open up their wallet since they have failed to register the offers and sales of this crypto lending product in an appropriate way to the SEC. The “fee”? Well, just 100 million USD.
This implies that although the dream of a bridge between traditional finance services and the world of cryptocurrencies is intriguing, the cost of not complying with the regulatory frameworks is high. This is the first crypto lending platform to get fined officially, but probably not the last.
Read more here:
Additional short take-aways from this past week:
Super Bowl or Crypto Bowl?
- The crypto-related companies were all intensively trying to steal the show and catch the viewer’s attention with FTX, Coinbase and Crypto.com just being some of the crypto advertisers during the Super Bowl commercials. Read more here
The adoption rate (or rather implications of adoption) continues to increase.
- For instance, Uber recently stated that cryptocurrencies will absolutely be accepted in the future, although the timing is not right now due to different reasons. Read more here
The first ever property backed by a NFT was sold in the US!
- “First ever” implies that this is something historical. Yes, but the question is why? What does this really mean?
- Read more here
/Victor Svensson
Concept of the Week: Tokenomics — The Eonomics within Crypto
A fascinating aspect of crypto assets surrounds its tokenomics. This is a concept surrounding the characteristics and flow of a crypto token for a certain protocol (e.g. Ether for Ethereum). When researching certain crypto assets for potential investment decisions, an understanding of their respective tokenomics is essential. This is because it plays a significant role in evaluating how the given asset generates utility and value.
To understand tokenomics, it’s important to first know what a crypto token is. A Crypto token is a tradable asset linked to a blockchain which allows holders to use it for economic and investment purposes. Think of it as the shares which represent an investor’s stake in a company which can also be used as a medium of exchange (currency). Ultimately tokens can serve various purposes throughout the ecosystem. For example, Ether is the token linked to the Ethereum network. By acquiring and holding Ether, you are essentially investing into Ethereum and betting its network will grow in the future. However, you can also enter a defi platform and deposit your Ether to earn interest or use your Ether as collateral for lending. As you may have seen crypto tokens serve a number of interesting purposes within the crypto ecosystem. Despite this, within the individual crypto project, tokens can serve a variety of important purposes through how its Tokenomics is governed.
Tokenomics refers to an umbrella term for everything regarding the mechanics of the inner workings of the crypto asset as well as the psychological and behavioral forces that affect its long-term value. Similar to economics but on a smaller scale, this concept involves implementing various incentives and mechanisms within the supply and demand side of a token to create user utility.
The supply side primarily composes of supply-regulation mechanisms which dictate the maximum amount of tokens that can ever exist (the supply cap), the amount currently existing and how their distribution and release will work. As a result, this side of tokenomics allows one to identify inflationary and deflationary pressures inherent within the crypto project when assessing its value. For example, Ethereum has approximately a circulating supply 118 million Ether tokens but does not have a a supply cap on this. This may create inflationary expectations and pressure but Ethereum has instituted a burn mechanism which maintains supply at 110–120 million; forming a deflationary environment.
The demand side involves creating value for investors whilst also making use of psychological and behavioral forces. This can be summarised by primarily composing of Return on Investment (ROI) and Game Theory. ROI is about how much people expect to gain from holding the token. This includes price increases as well as income generation such as being able to stake one’s tokens to earn interests and rewards. Another form of ROI is through the supply distribution where as supply is released it is distributed to stakers as a form of reward. Staking is where game theory comes in. Game Theory primarily involves considerations of additional aspects of tokenomics design which may help stimulate demand for the token. This is can get highly complex so is a topic for another day. However, staking is a perfect example. Many crypto projects offer an is incentive to ‘lock up’ or stake your tokens for a predetermined amount of time into a smart contracts in order to gain rewards.
Ultimately, tokenomics is just one of many aspects you need to analyse when making an investment decision on an asset.
Hopefully you learned something new from this article and I will see you next week!
/Alexander Ekberg
Investor Joe Portfolio Updates
Who is Joe? We explain everything here.
Previous positions remain unchanged. This week Joe continues his DCA strategy with 100$ split as:
50$ into BTC — why
45$ into ETH — why
5$ into — WHALE Read an in depth why here
Quick Look at Whale ($WHALE)
Given this week’s craze around ARTxTECH Joe wanted to get some exposure on NFTs, but with his 100$ weekly investment it’s not enough to buy an NFT let alone a top tier project. Even if he could, he sees that there’s a huge risk in just holding one NFT. His solution is $WHALE. $WHALE was launched on May 18, 2020 as an Ethereum ERC20 token with the aim to allow anyone and everyone to become a “whale” through buying up bluechip NFTs and distributing a token to back the underlying NFTs. Think of it as a crypto ETF for blue chip NFT projects. Here are some links to read and learn more about this project:
Investor Joe’s Current Portfolio:
This is NOT financial advice, and is purely for educational purposes only, always DYOR!
/Erik Gunnarsson
DISCLOSURE: SOME DIGITAL ASSETS SOCIETY MEMBERS ARE INVESTED IN CERTAIN TOKENS AND COINS WHICH MAY HAVE BEEN SPOKEN ABOUT ABOVE. THESE STATEMENTS ARE INTENDED TO DISCLOSE ANY CONFLICT OF INTEREST AND SHOULD NOT BE MISCONSTRUED AS A RECOMMENDATION TO PURCHASE ANY COIN OR TOKEN. THIS CONTENT IS FOR INFORMATIONAL PURPOSES ONLY AND YOU SHOULD NOT MAKE DECISIONS BASED SOLELY ON IT. THIS IS NOT INVESTMENT ADVICE.
