Top Crypto Trends (September 2023)

The most expensive painting ever sold was priced at nearly half a billion dollars, yet it’s free to look at for anyone with an internet connection. This is because there is, and will only ever be, one true version and because scarcity drives value. To date though, there hasn’t been a tool to create scarcity for digital products. Blockchain allows this and NFTs (non-fungible tokens) are the new asset class everyone is now talking about, exemplified by the explosive growth of NBA Top Shot and the recent $69M purchase of a piece of virtual art at a Christie's auction. Since digital assets can be freely copied and viewed, everyone has access to them, but NFTs represent a secure, verifiable way to give exactly one person ownership.

Sorare is a company that produces licensed NFT-based sports cards for fantasy sports. This combines the addictive nature of fantasy sports with the speculative excitement of buying, selling, and trading scarce digital assets.

Because NFT transactions are recorded on a blockchain, they can be viewed and tracked by anyone. This creates a market for data aggregators adjacent to every major NFT. Soraredata.com is growing as fast as sorare.com, albeit from a smaller base, and alongside the widely-talked-about NBA Top Shot is the domain topshotdata.com, which has already been registered and is awaiting a landing page. There's a precedent for this working: CoinMarketCap.com, a site that tracks cryptocurrency valuations, is one of the 400 most-visited sites in the world. Data sites use the picks-and-shovels-in-a-gold-rush model: while any given NFT might be under or overpriced, the aggregate behavior of all of the NFT buyers and sellers creates business opportunities.

In-game spending is a massive market, estimated at $65B.

But in-game assets have traditionally been very illiquid. Millions of gamers spend hours every day accumulating everything from swords to custom skins. Though unlike in the real world, where work often can be traded for value, gamers are usually unable to monetize this work.

But converting the assets to NFTs finally brings liquidity, likely growing the market even more, as millions of gamers can start to monetize the hours they spend.

And with the growth of NFT renting, there’s even more liquidity.

More broadly, new products and services are constantly making previously-illiquid markets more liquid – like Hipcamp which brought liquidity to millions of landowners who were land rich but cash poor, by letting them rent their land out to campers.

Intuit and H&R Block run ads to make the public feel like taxes are not complicated, but behind the scenes, tax prep companies spend millions every year lobbying the government to make taxes more complicated so they can keep their business. In fact, in many other countries, taxes can be incredibly simple—in Sweden, for example, they can be paid by text message.

The complexity of taxes is partly a function of lobbying, partly a function of the cat-and-mouse game of closing loopholes, and, in the case of cryptocurrency, partly caused by new assets that are bought, sold, and traded in novel ways.

Koinly is a crypto-focused tax product that helps users navigate difficulties like tax lots, airdrops, DeFi interest payments, and trades across multiple exchanges. It sells its software both to individual users and to accountants who need crypto help. Koinly imports lists of transactions and outputs the taxable income that resulted from them, saving people the tedious and error-prone process of running the numbers themselves. One way the company maximizes margins is to charge based on the number of transactions. This number doesn't affect Koinly's own costs in any meaningful way, but it's a good way to identify customers who can afford the product—and probably can't afford to spend hours manually navigating their numbers.

Koinly’s relationship with the rest of the tax industry is both as a service and a source of leads: for complicated cases, they refer users to CPAs.

With the growth of alternative assets like cryptocurrency and NFTs, there’s room for a tax preparation service that can displace the legacy incumbents in this $100 billion industry, first by solving specialized problems and then extending their service to the entire tax prep process. Cryptocurrencies collectively have a two trillion dollar market value, and since the prices for most of them started close to zero, and are extremely volatile, many holders have large capital gains—which means a healthy budget for doing their taxes, and a lot of paperwork if they try to do taxes themselves.

Moonpay is building Stripe for cryptocurrency: a simple way for merchants to let users either spend cryptocurrency or buy it, through just a few lines of code. Moonpay's fees are slightly higher than standard transaction processing fees, but in the case of crypto there's more risk from fraud and regulation. In fraud terms, since cryptocurrencies are easily transferable, they're a potential way for credit card thieves to extract money from stolen cards. On the regulatory side, Moonpay needs to comply with Know Your Customer frameworks and Anti-Money Laundering rules. First-time spenders need to verify their identity with government IDs, utility bills or other proofs-of-identity.

If Moonpay is trying to be Stripe, it raises a simple question: why isn't the Stripe of cryptocurrency. Stripe? Stripe actually offered support Bitcoin payments but ultimately dropped it. Their reasoning was that merchants who accepted Bitcoin were not used to the high volatility: a customer might spend $100 on a product, but the merchant could end up receiving $80 if the price of Bitcoin fluctuated during the transaction. Since payment processing is low-margin, and customer service is expensive, the small number of Bitcoin transactions didn't justify the complexity of explaining Bitcoin to customers. Moonpay's crypto-only approach obviates this problem; they focus on the narrow set of merchants and spenders who are already comfortable with crypto volatility. In the long run, Moonpay is banking on volatility falling as cryptocurrency adoption increases. And given the friction of setting up verification in order to be able to use any crypto payment option like this means consumers will want to stick with the first one they use. This dynamic gives the space a strong first mover advantage.