NBA Top Shot Offers Greater Near-Term Upside but Carries Far More Risk Than Bitcoin
Bitcoin and NBA Top Shot moments maintain many of the same characteristics (think: finite nature, blockchain based). Both have also seen their values increase dramatically during the pandemic. Bitcoin is up 450% YoY (including 45% over the last 30 days), while the Top Shot market has run up at least 100x on lots of player moments over the past six months. With both asset classes tracking up and to the right, we wondered if an individual with $50,000 to invest would be better off buying one BTC (cost: $49,893 at time of print) or a rare NBA highlight. A pair of cryptocurrency/NFT authorities agreed the Top Shot moment would provide an investor–or speculator–with greater near-term upside. But the non-fungible tokens also carry substantially more risk. “Top Shot shows the characteristics of being more likely [than Bitcoin] to double [in value] in the next 12 months,” Greg Bettinelli (partner, Upfront Ventures) said. “It is also more likely to go to zero in the next 12 months,” he added.
Our Take: To be clear, any/all investment decisions should be made with one’s risk tolerance and timeline for reaching financial goals in mind. “The more moderate and temperate investment opportunity is in Bitcoin,” Bettinelli said. “[The cryptocurrency] is more likely to rise significantly over time because it has moved to that stage where it is an investable asset,” he added. While institutional investors currently only represent roughly 1% of the $800 billion BTC market, that percentage is increasing. In Q1 of 2018, 80% of Coinbase sales volume was attributed to retail investors. By Q4 of 2020 that figure had dropped to 36%.
Decrypt Media EIC Dan Roberts agreed investing in Bitcoin is the lower-risk play. “The NFT boom is one corner of the larger crypto-adoption boom. While it remains possible the NFT boom will flame out, if NFTs keep growing then surely it means BTC as an investment is going to continue to grow. [Bitcoin] is the macro phenomenon compared to NFTs. So as long as any of this stuff is going to be sustainable, Bitcoin certainly is.” Roberts sees no chance Bitcoin will lose all of its value. “There is short-term volatility [in the market] and certainly [BTC] could have a major correction again. But Bitcoin isn’t going to zero.” The cryptocurrency has sustained for 10-plus years already, he reasoned.
To be clear, we’re not suggesting that Bitcoin is without risk. “[Investing in crypto] is not like investing in municipal bonds, basic real estate or even high-risk equities. [The asset class] is still in its infancy,” Bettinelli explained. The NFT boom has just happened so quickly, and is moving at such a feverish pace, that Bitcoin looks to be a safer long-term investment play on a relative scale. However, it’s important to remember, as Roberts noted, BTC is just over a decade old.
The outsized returns generated by both BTC and Top Shot in recent months have led to an influx of speculators within the cryptocurrency and non-fungible token markets. Both Bettinelli and Jack Settleman (founder, Snapback Sports) agreed investors looking to maximize returns over a short-to-medium period of time–and willing to lose the entirety of their investment–would be best suited buying a $50K LeBron James Top Shot moment than a Bitcoin. “There are [more] likely to be bigger swings in the NFT market than in the traditional Bitcoin market,” Bettinelli said. It should be noted that neither Bettinelli nor Upfront Ventures is invested in Dapper Labs (or any of their competitors). Bettinelli does own some moments that he purchased during the summer of 2020.
While institutional money has begun to trickle into Bitcoin, we have yet to see the same within the NFT arena. Settleman believes that is going to change. “Big money is going to come in pretty soon. I’ve had a ton of conversations with big investors and they all pretty much have the same sentiment–I’m not going to put a ton of money into [Top Shot], if I know I can’t get it out. But the second that kind of opens, the floodgates will open with it.” KYC regulations are currently slowing up withdrawals. The addition of institutional money to the marketplace would certainly keep the value of moments rising.
Even if the institutional money never arrives, Bettinelli says Top Shot moments can be a valuable asset class. “There are plenty of categories that have created tremendous value with only consumers and individual investors participating. The sneaker marketplace has emerged into almost a $10 billion category, and it’s not like there are very many sneaker mutual funds out there.”
Settleman started buying BTC in 2018, says he is “holding all of [his] Bitcoin,” and thinks the cryptocurrency “will continue to rise.” So it’s not as if he is at all bearish on the BTC. But he acknowledges the coin’s “utility is limited. People are not using Bitcoin. They’re not spending Bitcoin.” Bitcoin has turned into a store of value. By contrast Settleman argues there is “a ton of utility to the [Top Shot] product that has not come [to fruition] yet, but is very much in the cards” (think: video games, fantasy games and team integrations)–which explains why he is so bullish on the NFTs.
While in theory the alternative use cases Settleman cited could enhance Top Shot’s long-term value, it is hard to envision the NFTs becoming more than a speculative asset when the product has already priced out the common fan. “Who is going to pay $2,500 for a common LeBron James moment so that they can play in a fantasy league?” Bettinelli asked. It’s fair to assume nearly everyone buying Top Shot moments today is doing so for the potential financial upside in ownership–not because they envision a future where the token serves as an access point for alternative experiences.
There are two main reasons to doubt Top Shot can continue to grow in value. As NFTs become ubiquitous (think: coins for every league/media property), one must wonder if the dollars currently being invested into Top Shot will be spread out among other platforms.
Bettinelli was also concerned with the fact that recent high-profile sales have been nothing more than paper transactions, as many Top Shot moment holders have struggled to withdraw funds. But Settleman says withdrawal is a non-issue for the early adopters with major account valuations (as they have KYC) and the fact those individuals “aren’t selling a thing” is indicative of the confidence they have in the platform’s future.
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