The Saturday - 3/6/21 Edition
Volume 2, Issue 8
Good morning,
I used to lament the fact that markets are closed on weekends, but after this week, I welcome the two-day break. What a roller coaster!
At one point, Friday, IPOE (soon-to-de-SPAC into SoFi) was down 17%. A few hours later, it finished the day up 10%. Opendoor was down 28% midday, but finished 6% down. Shopify was down 11%, but finished only 2% down. QQQ, the popular Nasdaq ETF, had intraday swings of about 6%. You get the point.
The running theory is that all this is due to a rising 10yr treasury yield, but I’m not sold on there being a single, rational explanation. This is 2020: The Sequel, after all!
I’m just glad it’s the weekend.
It’s Saturday March 6, 2021.
NFTs
No one wants to be the guy (or gal) that’s constantly running around calling market tops but, sometimes, you come across things that just scream out: TOP! Let’s talk about non-fungible tokens.
NFTs, as they are more commonly known, are blockchain-based tokens representing ownership of specific digital assets.
Whereas any dollar can be replaced by another dollar (or any bitcoin by another bitcoin), each NFT is unique; owning one digital kitten is not the same thing as owning another digital kitten, hence their non-fungibility… and six-figure price tags…
Anywho, a little over 5,000 days ago, an artist named Beeple (real name: Mike Winkelmann) set out on a mission to create one piece of digital art per day. After producing a five thousandth consecutive daily computer-generated image, Beeple made a collage of his work and - my friends in the art world will hate me for saying this - it kind of looks like a Jackson Pollock:
Except, of course, that Beeple’s work is not a physical piece of art, but rather a JPEG saved somewhere on a blockchain.
Still, if you’re into this kind of stuff, you’re in luck: thanks to famed-auction house Christie’s, you can now bid on a digital token (i.e. an NFT) representing ownership of this JPEG until Thursday next week. Sure, the top bid was $3.5M as of Friday evening, but a 10-second Beeple video sold for $6.6M a week ago. Get your bids in!
The NFT craze makes me feel old and outdated, but I also (kind of) get the appeal to a New World, digital-native generation.
The best analogy I heard - though it undoubtedly has its shortcomings - is the following: you can go to the Louvre and take a picture of the Mona Lisa or you can go on Amazon and buy a print of the painting, but that doesn’t mean you own the Mona Lisa.
From this perspective - that NFTs are a high-brow “flex” - I guess they makes sense?
I am intrigued by the commercial applications though.
The NBA, for example, recently partnered with Dapper Labs to sell highlights as NFTs, pocketing a portion of the proceeds for each token and presumably also retaining licensing rights to the underlying plays. So far, it’s worked, with a LeBron James dunk selling for $200,000.
From CNBC:
The bet for traders is that in 2051, a LeBron James NFT could be worth what a 1952 Topps Mickey Mantle card is worth today -- one of those rare cards recently sold for $5.2 million.
If trading cards can trade for millions, why not NFTs? It’s niche and eccentric, sure, but there’s a market for weird and eccentric stuff.
Other use cases are also intriguing. The art world, for example, has long debated whether artists should earn royalties on resales and how to best monitor these transactions. NFTs (in theory) address this issue; they are digital tokens that could be customized to automatically and perpetually collect commissions every time a token is transferred and distribute those commissions to the digital wallet that first owned the token.
Yesterday, doing away with iTunes and other “normal” music distribution channels, rock band Kings of Leon released their new album as an NFT. The token grants its holder a digital copy of the album, plus the right to receive a vinyl copy of the album, and the opportunity to purchase front row tickets at all future concerts.
And then, there are also mind-numbingly stupid applications, such as YouTuber Logan Paul recording himself unwrapping Pokémon cards and selling the sub-10 second clips for $20,000 each. In case you’re wondering, those all sold out.
That’s your primer on NFTs. It’s all very confusing.
Electric Motors
Every week, it seems, investors bestow new multi-billion dollar valuations on zero-revenue EV companies and air taxi SPACs. Unless Iron Man is backing these projects, I’d rather invest in tulips!
Well…
On Wednesday, Tech Crunch revealed that Bill Gates and Robert Downey Jr. joined forces to invest in Turntide Technologies, an electric motor-maker that has now raised over $100M in the last 6 months to help cars and buildings run more efficiently.
Per Tech Crunch:
Turntide’s basic innovation is a software-controlled motor, or switch reluctance motor, that uses precise pulses of energy instead of a constant flow of electricity. “In a conventional motor you are continuously driving current into the motor whatever speed you want to run it at,” Morris said. “We’re pulsing in precise amounts of current just at the times when you need the torque… It’s software-defined hardware.”
Taking on a single component - here, the motor - seems less ambitious than trying to reinvent the automobile all at once, but improving electric motor and battery efficiency is the biggest challenge for this growing industry.
If anyone can pull it off, it’s probably Bill Gates and his superhero friend.
Square
Well, it’s been an interesting week for Square. Many know that I am massively bullish on the company, so this is as good a time as ever to remind everyone that nothing contained herein is financial advice - and for good reason too, given my portfolio’s performance over the last two weeks.
Anyways, on Monday, Square completed the FDIC charter approval process and announced the official launch of its banking division. This is a major milestone for the company and aligns well with its core business.
For years now, Square has been a leader in payment processing. Beginning with cellphone credit card readers, the company has since also developed iPad-like terminals that have become ubiquitous in brick-and-mortar retail locations.
Banking operations are admittedly complex, but small business lenders are likely mostly concerned with two things: credit underwriting and collections.
Conveniently, on the underwriting front, the proliferation of Square terminals has given the company unrivaled data about businesses’ historical and current sales. Insofar as collections are concerned, as a processor, Square handles incoming payments and is thus uniquely positioned to collect on its debt. Check and check.
In addition to business clients, Square’s Cash App - that allows individuals to transfer money to each other and also to buy stocks and cryptocurrencies - now boasts over 30 million monthly active users.
Payment processing, small business lending, peer-to-peer money transfers, and a securities brokerage. Adding banking infrastructure to the mix makes a ton of sense.
On Thursday, however, Square also announced that it acquired a “significant majority ownership stake” in music streaming company Tidal for $297M. This I don’t get.
CEO Jack Dorsey explained that the acquisition allows Square to be a “platform for creators,” which is nice and all, except for the fact that Square is first and foremost a financial institution. I’m having a hard time understanding how this complements the company’s core business.
Will the deal convince record labels to bank with Square? Or artists to trade through Cash App? Forbes thinks it has something to do with NFTs… I don’t know. If anything, this deal would make more sense for Dorsey’s other company, Twitter, who is already in the content distribution game.
I guess we’ll find out, but for the moment, Square just bought a marginal music streaming service with a ton of competition. Soundcloud, Amazon Music, YouTube Music, SiriusXM, Stingray, Pandora, iHeartRadio…
Oh, and two other players you may have heard of…
A New Podcast King?
Last November, we discussed Spotify’s relentless podcast acquisition spree. Now, the bet might be paying off.
Benefitting from being pre-installed on every iPhone, Apple Music has long been the standard bearer for podcasts. In 2021, however, Apple will relinquish the #1 spot to its Swedish competitor. From eMarketer research:
Apple was the de facto destination for podcasts for a long time, but in recent years, it has not kept up with Spotify's pace of investment and innovation in podcast content and technology. Spotify’s investments have empowered podcast creators and advertisers through its proprietary hosting, creation, and monetization tools.
Podcasts are increasingly big business, with ad spending expected to increase by 41% this year. More significantly, according to the same study, podcasts will account for more than 50% of audio streaming in 2021. In other words, podcasts will be bigger than music!
The streaming wars rage on and, for now, Spotify is winning a key battle.
Have a great weekend!