We Crashed
We Crashed
Reminiscing on the passion technology, why we loved it, and still do
“This market will make macroeconomists out of all of us”
“What does that mean”
“The money supply is tightening. It means no more stimmy checks for you to buy more golf clubs and ape pictures.”
“Damn, well at least I still have my golf clubs and ape picture.”
“Sure you do, but a nickel ain’t worth a dime anymore.”
“Gradually, then suddenly” - Hemingway
Was it all make believe, magic internet money?
After a week of meetings in New York, I sat down with a close friend who heads one of the largest asset management firms in the world. The first three words he uttered hit me over the head:
“Is it over?”
Even I had to stop and think… Have some conviction, they said. Nothing has fundamentally changed, they said…
I always thought if you got rich enough, gloating was unnecessary, but even Bill Gates couldn’t help but gloat:
I wasn’t able to write a word of the newsletter until June 1st. People reach out to ask me what the market will do almost daily. “What’s it like on the inside?” they ask.
The only way I can describe it: it’s similar to how I feel when I go surfing, which I do roughly twice a year. In an effort to try and catch a wave, I end up tumbling in a washing machine, not knowing which way is up, until finally the set of waves subsides, I get back on the board shivering from fear and low temperature, and ready myself to try again.
At that moment, I have some time to sit on my board to reflect on my skill (lack thereof). “Bad luck!” a neighboring surfer exclaims. I feel like an English soccer player being calmed after missing an empty-netter: luck has little to do with it.
This market will make macroeconomists out of all of us
This market will make macroeconomists out of all of us, meaning we have to pay attention to the fact that the U.S. printed so much money during COVID that everyone gathered around the fire and started buying the same assets, inflating the price of those assets. It wasn’t just the NFT bros; even the smartest people on Wall Street like Tiger Global are down over 50% YTD.
With freshly printed cash, everyone wanted to buy stocks like Netflix, trading at 70x sales, and when that got too crazy for people to stomach, they went to earlier stage investments - crypto had a lot of these (e.g., Blockfi). A frothy asset class like crypto getting crushed isn’t surprising. It was the perfect anti-FOMO asset to buy with all of that excess paper.
Now, it’s June 17, 2022 (Happy Birthday to me). It’s choppy out there to the point of extreme sea-sickness-induced-nausea. It feels like only way out is to get off the surfboard, paddle to shore, vomit on myself (bad luck), and ponder “why did I paddle out in the first place?”
So, pondering, my favorite form of pandering, is exactly what I did. I had to think back to why I joined this “movement” in the first place.
In it for the community?
“COMMUNITY,” they said, come check out the community. Remember? (pronounced “MEMBERRR” in our lingua franca crypto-tweet-speak, which we use to reminisce on the good ole’ days).
What does “community” even mean? Community feels like a place where people come to “shill,” another word for pump and dump. Community feels like a place for lonely individuals in their basements to swap JPEGs, evangelizing the message of “power to the people” even though most can’t tell you what that means when you go one layer deep. “We’re all early”, they scream.
Early? How felicitous of you, good sir. Those getting in today, June 16th, 2022, are earlier than I am, who got in February, 2021. Maybe we’re actually late, and we threw the party for those who showed up early, ate all the hors d'oeuvres, and scrammed.
Community sounds like a nightmare, it can’t be that, that wasn’t what got me excited. I had friends IRL (in real life), and I didn’t need group chats in the form of Discord to spend my time during COVID with misanthropes waiting for “mints” (AKA new NFTs).
In it for the money?
If you asked people a few months ago “why do you like NFTs” they’d tell you “I love the artwork” or “creator economy, man.”
**Cough cough BULLSHIT. My 4 year old nephew can Crayola better than most of the NFTs people show me that they’ve purchased (no offense to the nephew, you know you’re my guy ). The picture at the beginning of the newsletter is actually a Nephew Original, not a $2.3 million sale, but what’s the difference? Art is context, I suppose.
It’s funny how NFT “artwork” is great when the number goes up, but how it was “just for laughs” when the number goes down. Let’s see how many people like NFT “art” and the “creator economy” in July of 2022. Most of them will go back to their respective industries and leave NFTs in the rearview mirror to reflect on the time when prices were reasonable, politicians were noble and children respected their elders.
To be fair, I was lured by money-signals. I was traveling in February 2021 with a close friend who quickly became my business partner in En Passant Digital. At the time of our travels, he had created a new category of asset that quickly ballooned to $250M in value. I stood stunned, watching the number go to the moon, Alice Kramden style.
In it for the tech
Big numbers were fun. It was certainly what got my attention in the first place. But it wasn’t enough to get me to switch careers. I figured I would start investing on the side and keep on living off-chain (AKA anything not in crypto).
But then I started playing with the ecosystem, taking out little loans just to see the efficiency of smart contracts, the code that is essentially a string of “if-then” statements that make the technology work. I was earning interest by lending my assets to others, and watching as new applications (dAPPs) sprung up daily. I even had 24 little words on a piece of scratch paper that were the key to my magic internet money. This felt different.
And then, there were these “things” that could uniquely identify anything in the world, digitally, and you could prove who owned what. We care about culture and most of culture has moved digital. Anything that was exciting in the digital realm could now be owned, bragged about, and transferred.
Freud once said “the first man to hurl an epithet instead of a stick created civilization.” The first man to sell an NFT monetized internet culture without relying on advertising dollars. The blockchain houses culture and money under one roof.
That was it… I was in it for the tech… it’s a meme crypto-enthusiasts use to say “you’re money hungry and don’t care about anything else” but the reality is that they go hand in hand. I felt like I was watching Jobs hold up the iPhone: it felt like the future, and I needed to be a part of it.
“There are only two ways to make money in business: One is to bundle; the other is unbundle” - Jim Barksdale
I thought back to my days of technology investing due diligence with EY-Parthenon, where I was an avid reader of tech writer Ben Thompson. One of his lynchpin beliefs is that everything goes through unbundling and bundling phases throughout time. What do I mean by that?
Music: One of the most common unbundling examples used is the music industry, where listeners went from having to buy the entire album for $15 to only buying the 2 songs they liked for $2 on iTunes.
TV/Movies: TV/Movies were bundled into cable, where we only liked a few channels but had to pay for hundreds. Then, cable was unbundled, allowing us to rent or buy individual titles on iTunes / on our TV. Then, streaming services accumulated and produced more and more content and re-bundled, so we can watch 100s of TV shows/movies under one umbrella.
Golf: Golf is now unbundling, with the PGA TOUR and LIV Golf both existing simultaneously amongst other smaller tours, allowing viewers to choose their favorite players / favorite format (credit to Joe Ogilvie).
The problem with bundles is that they generally give you a lot of stuff you don’t like, and even when you do like some of the stuff, it’s hard to separate the signal from the noise. It’s like walking into a super mall: nothing in there is amazing, but it all just feels, well, average, except for a few “gems” you have to dig to find (example cred to Peter Chernin).
The same fate is happening to streaming services: there’s so much content you could drown, and most of it isn’t what you want.
Many of us enjoy being a part of the major film/tv events, like the NBA Finals or Top Gun. We also have specific interests that we indulge in by following, reading, and watching our favorite people / subjects. It looks like this:
The above boils down to this: we have passions that drive us to very specific content. People want to connect directly with their favorite brand, creators, and content. Big bundles are starting to feel like distractions from the crème de la crème.
Enter stage right: Blockchain.
NFTs: The unbundling technology
NFTs are the “passion hack”, allowing brands, creators, and content to go DTC (direct to consumer) without necessitating bundles.
It’s the next version of subscriptions to unbundled content (e.g., Substacks / blogs, gated content), but with the added benefit of allowing the purchaser to share in the financial success of their passion.
This shared financial incentive of fan and their favorite brands/creators used to be something companies had to pay for out of pocket via referrals (e.g., PayPal famously gave every referred customer and their referrer $20 in their PayPal account).
That was the ultimate NFT utility: people and brands can sell non-dilutive equity to their biggest super-fans, aligning incentives, enhancing the total “passion” in their ecosystems, and turning passion to dollars.
The more popular those people / brands become, if the NFTs are correctly designed, the earliest supporters can reap the benefits in the form of connection and financial upside should they choose to sell it.
NFTs are the passion technology, built for the digital age.
Correctly designing NFTs to encapsulate and monetize that passion isn’t easy. Many of the tools haven’t been built yet or aren’t user friendly enough to facilitate this at scale. Here are some of the areas we are helping companies build out that we’re excited about:
Gated content / membership NFTs
Gamification, keeping users engaged with content even while they aren’t consuming the content itself
Governance NFTs that allow super-fans to become decision makers
Physical goods represented / tracked by NFTs
SO…. what’s next?
What’s next?
Do you have fans / customers that are passionate?
Call us, we know how to wield the passion technology.
The time to build is now - there’s a plethora of talented people ready to put on a hard hat and build.
Website: enpassantdigital.com
Email: bryce@enpassantdigital.com
About the author: Bryce Baker is the co-founder of En Passant Digital, which designs and leads Web3 strategy for businesses.
Our other co-founder, John Tabatabai, has led investments for Crypto VCs and consulted for projects across the NFT space. He orchestrated one of the largest grossing NFT projects, kickstarting the first NFT bull run in early ’21, creating over $200M of value. John is designing one of the most influential Metaverse Community projects ($243M valuation at time of writing) which launches shortly.