Regardless, very key ratios were looking to reach their Dot Com level highs:

• QQQ/DJI

• SPY/DJI

• XLK/SPY

• SMH/XLK

• XLK/IWM

• SMH/SPY (1.618 fib level)

Other levels were stagnant or sideways:

• High Beta : Low Vol

• Junk : Investment Grade

• Inflation : Treasuries

• Crude

• USD

Some may say the signs were there, but on the positive side:

• Russell 2000 broke the 38% retracement after several attempts (may have been an exhaustion rally)

• Homebuilders (XHB) had a false topping pattern and a strong rally from there

• QQQ and SPY had not been oversold since the ‘22 highs

My thoughts were that the bull market could not end with XLY and XLU below previous ‘22 highs, XLC/XLB/XLF/XLE/XLP all at ‘22 highs. No way we could end when we’re about to have the tailwind of rate cuts coming. The rally in staples and utilities had to be broadening breadth.

To see market leaders sell off so hard, despite dip buying and being stopped out of all trades from the Thursday sell off was hard. I felt like i was reacting emotionally and closing the trades on Friday, expecting it to rip in my face after seeing my portfolio drop more than 30% from my personal highs back in March.

Turns out, selling was the best thing I could have done. Panic carried over the weekend. Bitcoin fell from a pivot high of $70,016 to a low of $49,557 in less than a week. This was the fear I was expecting to see in Bitcoin (not the easy dip back in July). This was the shake out of the paper hands that has always been talked about. Despite the VIX opening on Monday triple where it closed on Friday, over fears of Kamala, Japan’s crash, higher-than-expected unemployment, etc.), I bought a 2x levered Bitcoin ETF with the expectation that it will be first to rebound. This may be a revenge trade, as I have consistently been bullish with high values and sold into low values.

At this point, I want to see some stability. It may take months or until the end of this year, but I would rather be late, I would rather protect against the downside carefully. From this, there will be a face ripper and I want to be a part of it.

But if you missed that move, what comes next? MAG7, which had worked so well the last month, and were the only stocks working, have taken a nosedive. Semis, the strongest industry group by far this bull cycle, is in correction territory. Is it time to buy? Or is it time for the stagnant sectors to step up?

I haven’t done the work, but I would have trouble believing this bull cycle ends with cyclical sectors like financials, materials, and consumer discretionary all below the ‘22 highs. Does this mean jumping into those groups? I would assume so. The tailwind that appears to be lower interest rates, lower dollar, and a more business-minded president on the horizon should help.

Now for actual tactics. I had been going off the textbook move trying to capture the stage 1 to stage 2 thrust. I was being patient for the breakout, only to see it thrust through the level I wanted to enter and then trace back to that level while I was stuck holding the bag. Now using TradingView, I am jumping the entries by using VWAP. I am trying to be more patient and wait for the pullback. I have been meaning to leg into trades, rather than binary entries, but have not done so.

My most profitable trades have been short-dated call options looking for false breakdowns in a bull market. Homebuilders offered a great opportunity recently. Apple’s false top was another good one a few months ago. Do I just buy the common and wait for these ‘cute’ options trades? If only I had the self control.

Many winemakers complained about the higher-than-normal temperatures during the summer reducing the number or surviving grapes. The smaller yield that had survived were of much higher quality than the usual output.

One winemaker, who had no intent to become a wine producer, bought the land nearly a decade ago from another winemaker. He did not even know if the vineyard had survived the harsh winter, as it was assumed that the roots were too shallow and the cold surface temperatures would have been deadly to the crop. To his surprise, the roots were much deeper than they had anticipated and they continue to produce grapes to this day.

Another tour revealed that the watering of grapes is carefully controlled. If you spoil the plants with too much water, they are not forced to grow, but too little and they die. But just the right amount and the plant thrives. It will be forced to grow roots deeper into the soil, where the soil is more moist and experiences less variation in temperatures with changing seasonal conditions.

Tying this into a podcast I heard some time ago, this is also the argument made for organic food: the more stressful the environment, the lower the survival rate, and the stronger the produce is as compared to food grown in climate-controlled environments. Organic produce is typically more nutrient-dense because it needed to grow in order to survive.

Finding analogies to human biology, muscles need to be tested in order to grow. Muscles tend to lose mass over time at a rate of nearly 1% per year after the age of 30. To combat muscle loss, they need to be put in a stressful environment. Simply showing up to the gym might not necessarily help; the effort has to be there. When working out, muscles need to be pushed to their limits to grow more capillaries and nerve endings. These deeper roots help maintain muscle strength into older ages.

This was all a long-winded way of saying that Web3 needs a similar test. The growing popularity attracts easy money that is not sticky in times of trouble; the capital is very much fleeting. It’s easy to look at a chart and pick points where the bottom will likely land based on certain metrics. One thing is always true: markets bounce off the bottom when everyone has lost hope, call it dead, and swear to never invest again. I am not sure we are there just yet. I hope this is the drought that is needed to make this community grow its roots deeper and come back stronger for the next crypto summer.

To play STEPN, you first need to visit their marketplace to purchase an NFT sneaker. The sneaker types depend on the speed at which you will be moving: walking, jogging, or running. The fourth sneaker option is the “trainer” model, which is a “one size fits all” in that it encapsulates the entire speed range from walking through running. Rewards are only received if you are travelling within the speed range of the equipped sneaker, so choose your sneaker wisely.

Next, you equip your sneaker and move. Your movement is tracked by GPS for distance and consistency of speed. Your energy bar is a cap of your daily rewards and determines how long you can accumulate tokens while moving. Purchasing more sneakers or more rare sneakers will increase your energy bar.

At the end of your walk/jog/run, you accumulate GST (Green Satoshi Tokens) coins, the ecosystem’s inflationary token. GST can be used for upgrading your sneaker, minting new sneakers, or for exchanging for SOL. After upgrading to a certain level, you can choose to earn GMT tokens, the ecosystem’s deflationary governance token, instead of GST.

Sneakers come with different rarities and attributes including more efficient rewards per step, greater probabilities of a mystery sneaker box, and slower degradation of the shoe during use. Sockets can be used to upgrade to your sneaker’s attributes and burning five sneaker NFTs of the same rarity, will produce a more rare offspring.

The roadmap includes the ability to rent out a sneaker to another user so that both the renter and rentee earn GST. Marathon mode will be weekly and monthly events of varying distances where users compete for prizes and all participants receive a POAP. Background mode looks to use the phone’s Health Data app to pull daily steps and reward NFT owners even if their movement is not trackable by GPS.

The other notable feature is STEPN’s vow to donate profits to carbon credits in the fight against climate change. Notable early investors include Binance, Sequoia, and Folius Ventures. I only covered the basics of this project, so to read the more comprehensive whitepaper, visit here. I cannot wait to see more innovation starting in the move2earn space

The crypto losses make some sort of sense with inflation spiraling out of control and equity markets teetering on edge of a “recession”, although it has felt like a recession for months now. The macro picture is bleek at best, with many people happy to hold cash on the sidelines, losing purchasing power at a 10% rate.

Crypto is all correlated, so nearly everything is down. If you prescribe to crypto being a large-beta play, then it makes sense that equity markets down 20%, means crypto markets down > 20%. Bitcoin and Ethereum are at bargains if you are still a believer. The funny thing is that NFTs (priced in Layer-1 currency) are also down. It’s almost like a double discount, NFTs down relative to crypto and crypto down relative to fiat, which doesn’t make sense to me.

You may be hearing this everywhere, but this is the period to start your empire. If you are new to markets, you should know that you should be buying when others are fearful. The conviction shown at this time will be reflected in your wealth years down the road. If you were a believer in a project at 5 Eth when Ethereum was at >$4,000, you should be a believer at half that price.

This just goes to show that a large group of the Web3 community are here for the good times only. The names and faces of Web3 are still here, as they have been for crypto winters in the past, and will still be here for crypto winters of the future.

Now onto the NFT space: how did goblintown and WAGDIE become the talk of the town? Both were essentially just a social media page and a smart contract. No roadmap. No Discord. Pure hype. The nice thing underlying both projects is that by offering free mints, they are not selling anything and, as such will not be considered a security. While they won’t be able to make any mint profit or royalties, they created a network for free. Now, they can sell merchandise or monetize in some other format that will not tip off the SEC.

Pure network effects is said to be the Holy Grail. The cost of creating this hype was essentially zero (before paying the developer and graphic designer). It should be interesting to see the adoption of free mints in the future and what these two projects will be able to offer to their holders.

“You can’t spell crypto without ‘cry’ ”

It seems like every investable asset is in a drawdown of some magnitude lately. As inflation in the Unites States hovers around 8%, the highest year-over-year rate since the 1980’s, and rapidly increasing interest rates combating inflation, but contributing to red screens in nearly every sector and country.

Crypto is also negatively affected as Bitcoin is about half of it’s all-time high and Ethereum about 60% down from it’s highs earlier in 2022. While crypto, particularly Bitcoin, should theoretically be a hedge to inflation given it’s deflationary tokenomics, this large of a drawdown has many investors cashing out and heading towards the exits. Crypto has generally been highly correlated to equity markets as you will usually see the majority of major coins move locked step with global equity markets.

This discrepancy can be partially attributed to margin, ie. borrowing to invest. As assets are locked up as collateral and funds are borrowed against it to invest, investors will increase their market exposure, particularly in a bull market. The issue comes when asset prices decrease and the ratio between the amount borrowed to the amount of collateral increases to the point that the lender requires more collateral to be contributed to meet the margin requirement, otherwise the collateral is sold. So while Bitcoin should act as a hedge, investors borrowing to to invest will inevitably bring correlation to all investable assets as they will sell whatever is liquid when their margin call arrives.

Another contributor to crypto market losses is the recent stablecoin drama. By this point, you may be aware of the stablecoin Terra Luna that has essentially gone to zero, erasing hundreds of millions of dollars. Luna is different that other stablecoins in that it is the largest algorithmically controlled coin by market capitalization. It allows investors to arbitrage the two currencies until parity is met.

In what appears to be a coordinated attack, one wallet borrowed Bitcoin and made a large trade buy the stablecoin UST. The subsequent sell of UST flooded the blockchain’s bandwidth causing FUD in the market. The Terra team attempted to sell their backstop of Bitcoin and AVAX tokens to soak up some liquidity in UST, while centralized markets stopped withdrawal and sell requests. Bitcoin price took a plunge awaiting the additional liquidity to hit the market. Unfortunately, it was too late and investor sentiment was through the floor. After a mere four days, UST had dropped from $1 to $0.004.

It came to light that the creator of Luna, Do Kwon, had previously attempted to release an algorithmically-controlled stablecoin which ended up failing. There was also some speculation that he purposely tanked his own project, while other theories point to Blackrock and Citadel funding the exploitation. Either way, this appears to be a coordinated attack that is having ripple effects in the crypto markets.

Other stablecoins like Tether are also experiencing a de-pegging as investors seem to be withdrawing anything and everything. Questions had previously arose regarding the vault of US dollars backing the stablecoin and now those fears appear to be recurring.

To my surprise, everyone headed towards the exits at the first indication of failure, not unlike some of the NFT projects I mentioned in previous posts. About three weeks back, I read a Twitter thread calling out Luna’s potential failure via a death spiral that could occur. The author received a lashing by the so-called “Lunatics” only to be proven right. I personally see no reason that UST can’t eventually recover by sacrificing Luna’s price, but at least the ecosystem would return to being functional. If investors don’t want to give the Terra team another change, this project will be thrown in the graveyard as one of the most epic failures seen in the Web3 space.

While you should always DYOR, I am not sure that any amount of research could have prepared us for what has transpired. It is a rude reminder that we are still in the early days, with little to no regulation and we should only be dabbling in this space to learn, using money that we can afford to lose. Crypto markets being open 24-7 leave little time to rest and digest news and will seemingly emphasize instant, emotional decision-making. This bear market will separate those with conviction from those paperhands looking to make a quick profit.

A similar point in history was the Dot Com bubble in the late 90s. While early adopters could see that the internet would be a huge revolution. They looked for ways to invest in the internet, leading to large amounts of money being raised for these so called “internet companies” with little to no revenue. Hindsight might show that Amazon or Microsoft were considered cheap during that period of time, but many companies were nothing more than cash grabs. These overvalued companies would contribute to the bubble bursting, leading to losses of ~80% peak-to-trough . It took almost another decade before the birth of Web2, which was the first really investable form of the internet.

Unfortunately, when it comes to evaluating a project, there is no way to guarantee that a project will be a success. Often doxxing of founders is a good sign, in that they should be more incentivized to produce a good project if the public can hold them accountable. Likewise, a project is more likely to succeed when the creators have completed a similar project previously. I would suspect that these remain the most likely indicators of a successful project, as least until people are able to rely on a digital resume or portfolio of Web3 projects.

In the absence of doxxing and a resume, we can analyze the history of the project: what the founders and mods say in a Discord or in a townhall. As discussed in previous posts, there are red flags to be wary of when analyzing any project and as red flags become more documented to investors, scammers will create a new way to scam. While I wouldn’t necessarily blame the scammers for finding ways to scam, we need tools to identify them early and to find a better way to incentive long-term cooperation.

At the end of the day, we must assume that everyone will work towards their own self-fulfilling incentives. Celebrities like Floyd Mayweather have defrauded the public on multiple NFT projects and yet is still releasing another NFT project named “Mayweverse”. This is after his role in the Bored Bunny project, along with his own previous release Floyd’s World. The sad thing is that Mayweverse will likely scam thousands of newer entrants who aren’t aware of Floyd’s history in the NFT space.

The only thing you can be sure about is that people will always act in their own best interest and if there is a potential conflict of interest in a project, stay away. Approach each project with a healthy level of pessimism. As a born-pessimist, I have a certain level of anxiety that everyone is trying to screw me over, so I try to find ways to minimize risk of being a bag holder ;) In the next post, I will talk about some game theory relating to NFT incentives, Nash equilibrium in particular.

A lot of institutions today are based on being a trusted entity (think custodian who holds your stocks, escrow accounts, banks and other lending companies, Ticketmaster, etc.). These institutions add complexity to transactions, but people will prefer to go the safe, trusted method.

For example, think about want to attend a concert. A ticketholder simultaneously wants to sell a ticket to the concert. You likely wouldn’t trust a stranger as they may have created a fraudulent copy of the ticket, so you defer to paying slightly more to purchase from a trusted entity like Ticketmaster. The ticketholder, having not found someone to purchase their second-hand ticket, resorts to returning the ticket to Ticketmaster, being charged another service fee in addition to the service fee charged for originally purchasing the ticket. In total, the original ticketholder paid Ticketmaster two service fees and the new ticketholder paid a service fee to purchase their ticket.

This is the result of a centralized world where we cannot trust each other, so these trusted third parties must mediate for us. While there are pros and cons for both centralization and decentralization, society is moving towards decentralization as a response to the pitfalls of a centralized system.

The underlying issue that I have with centralization is the seeming imbalance of incentives. While people with morals would know not to insider trade (and there has not been much issue in the past), it is becoming more and more common for this to take place as the punishments are light, if any. As such, insiders seek the positive risk-reward profile of insider trading as the benefits exceed the penalties. We would ideally like to have our leaders uphold ethics in their decision making, but a misaligned system will eventually be broken.

The best outcomes in Web3 result from protocols where everybody’s best interest is to upkeep the protocol. This can be best exemplified in the Prisoner Dilemma theory. While one would like to trust their partner, the stable equilibrium of this particular example is that everyone will act in their own best interest and avoid jail time as much as possible, resulting in both prisoners trying to sell out the other for a promise of decreased jail time.

The reason blockchain is such an important technological innovation is the method in which strangers can trust each other. On the Bitcoin blockchain, the miners are incentivized to upkeep the blockchain because they are paid in Bitcoin. Bitcoin’s value is directly related to how well the protocol is maintained. A well-maintained blockchain attracts new users, and the circle continues.

Liquidity pools incentivize those with inventory to stake both sides of a trade. This allows traders to engage with the decentralized exchange to complete their trades for a small fee. The liquidity providers receive that small fee for their service. As the ratio between assets change, arbitrageurs are incentivized to enter and return the ratio of the two assets in the liquidity pool such that the prices of the two assets are returned to their market values. They earn a risk-free profit for doing so. In this model, everyone involved is incentivized and so the equilibrium will result in a successful protocol.

Going back to the Ticketmaster example, if the tickets were sold as NFTs on a blockchain, the ticket purchaser could see that the second-hand ticket was legitimate by looking at the blockchain, the trusted third-party source. The fee to transfer the ticket would compensate the miners upkeeping the blockchain.

I have thought a lot about incentives and human nature over the last little while, particularly in the context of Web3. The next blog post will discuss the misaligned incentives in NFTs.

Following up on last weeks post about supply and demand forces in markets, we will ask the question why does supply and demand change over time by travelling one level deeper and focusing on human biases.

Biases can be divided into two subcategories: Cognitive biases and Emotional biases. Cognitive biases are the erroneous processing of statistical information (aka blind spots). Emotional biases are the illogical or distorted reasoning errors humans tend to make. We will look at the cognitive biases: availability, anchoring, and hindsight biases, as well as the emotional biases: loss aversion and endowment biases.

• The first of which is availability bias, where known probabilities seem more likely to happen . This can easily be seen with lotteries and gambling around the world. Very small probabilities are hard for humans to process and with the help of media, we perceive these winning outcomes to happen more often than they actually do.

• Anchoring is the attachment to an initial, default number. Whether setting the sale price to a round number or trying to squeeze a small profit above the cost the asset is bought, we set a reference point and have a difficult time adjusting our bias when factoring in new information.

• Hindsight bias: everything in the rearview mirror is 20/20. Nothing bothers me more than the misrepresentation of “flipping” NFTs. Videos claiming the owner bought an NFT for $X00 and flipped for $X0,000, making a 100x gain in a short period is infuriating because the odds of this happening are near-zero. For every successful project that 100x, there are thousands that go to 0.

• Loss aversion is the impulse to avoid losses more so than to acquire gains. Famously coined by Amos Tversky and Daniel Kahneman, they empirically showed that humans feel, on average, about 2x more pain for an equivalent unit of gain. In other words, the average person would feel about twice the pain losing $100 than the joy of finding $100. This is evident when we are hesitant to realize a loss and will hold a losing position.

• People who are subject to endowment bias place more value on the asset they own than the equivalent asset they do not own. A rational person should value the asset equally whether one is buying or selling it.

In a typical hype NFT project, hopefuls enter with the dream of minting a rare item due to the hindsight bias from social media videos claiming 100x returns in a matter of minutes, creating a FOMO-type emotional reaction. Pre-reveal items are held with the anticipation of minting and flipping a rare item. With the help of availability bias, holders irrationally expect a larger probability of a the once-in-a-lifetime payout than what is realistic. Once the reveal takes place, the common item-holders see a drastic fall in expected value and may try to sell the item to avoid the discomfort of holding a loser. Whether or not the item actually turns out to be valuable, holders will value their item more than the going market price (as per endowment bias). Others will undercut the floor price, but some may not sell as they are anchored to a higher price. As the floor price continues to drop, loss aversion kicks in and most holders will post their item for the anchored price at which they bought it, to avoid the pain of realizing a loss. The price may then continue to drop below the mint price. Owners may never actually realize a sale unless the price picks up again very suddenly, like when a whale sweeps the floor.

Hopefully, by being aware of your biases, you can make more rational decisions and realize profits.

In the short run, the market is a voting machine, but in the long run, it is a weighing machine - Warren Buffett

Buffett theorizes that supply and demand are the dominant forces in the short-term, and I would tend to agree. Thinking about investor psychology, particularly with the supply and demand in the short-term, these themes become very apparent. In researching a number of projects for quantifiable metrics, there are some obvious trends:

• Social media followers: more discord followers generally equals more twitter followers which generally means more hype and anticipation behind the project. There is a 10:1 ratio of discord to twitter followers typically, although I doubt that number has any significance in the long run.

• Quantity minted: Empirically, there is also about a 10:1 ratio naturally between discord followers and items minted. Quantities that varied significantly from 10:1 were concerning as it raised questions as to whether the followers were “bought”. Again, not a trend that I expect to stick given the variety of marketing methods and project styles.

• Whitelist alpha: In getting early access to the project, when the demand exceeds the whitelisted supply, the whitelist could then mint multiple items and quickly flip them on the secondary marketplace for a profit. As non-whitelisted members can gain access to the project in the secondary market, the price skyrocketed, and the whitelisted members clipped a quick profit.

• Revealing a common item: Over the next few days come the public sale and then the reveal. Here you will see an increase in price as the hype continues to grow. Newcomers see the price appreciate since the mint and extrapolate the profits from the mint price. The hopes of revealing a “rare” item is at its peak. After the reveal, the price almost certainly drops as the majority of hopefuls unveil their common item. The expected value of their items sink along with the price.

• Mass exodus: Owners will rush towards the exits, undercutting the floor price to rid themselves of the terrible experience they just had. New holders will enter at the discounted price and hold for the long-term.

• Long-term hodlers: The depressed price rarely increases for any significant period following the sell off and often bleeds slowly over time. I found that things that can help price in this stage include projects with extensive roadmaps and projects with doxxed members or famous artists/celebrities.

In a public market, the point where supply meets demand is the market-clearing price. This is only partially true for a 1/1 market, like NFTs represent, but lets assume that only the rare items are considered “art” and all other items are equally invaluable.

If we analyze the life cycle of a project’s public offering, one will see the quick swing in emotions. See it enough times and you’ll notice a pattern and hopefully can extract some alpha. In stock markets, I will typically sell on the hype and buy on the dip if I truly believe the security (see Buffett’s friend, Mr. Market). This is easier said than done, of course, but requires a strong will power to do so. Unfortunately, this market doesn’t have the same vehicles as the stock market does, and so extracting any alpha may be difficult for the average person while the current architecture exists.

We will look at the emotional biases in markets next week.

I thought a lot about what an NFT offers to the holders other than just a jpeg. Looking at successful projects, one notices the community of the Bored Apes, their future Yacht Club parties, and how they seemingly look out for one another. Mutant Cats were staked to earn $FISH tokens that reflected fractionalized ownership of the collection of NFTs collected by the Mutant Cat DAO. I noticed the value of breeding from CyberKongz and other projects thrived on offering a video game or metaverse character that was owned by the NFT. I even found that I could own part of a DAO that would donate to baristas in New York and also partially own a brick-and-mortar coffee shop. So let’s discuss different utilities:

• Community is an intangible quality of a project. Community cannot be measured, but it’s a feeling that is innate in human beings going back to our ancestors who lived in small, tight-knit tribes who shared common beliefs. One can also argue that community is the basis of this space. If not to bring together like-minded people, what is the point of these projects?

• Staking is the act of locking up your asset from being sold for some reward, usually in the form of a project-specific token (not to be confused with cryptocurrency staking on a Proof-of-Stake blockchain, where your staked coins represent your vote in the governance of the blockchain). The actual mechanics are that you move the NFT to the community wallet. As such, you will not be able to list the asset for sale (until you unstake it) and as a result, the project will generally see a smaller number of owners. As a reward, you receive a token that can be redeemed for some other form of utility like upgrading your metaverse character or earning a larger portion future project sales. The token may or may not be tradable on a decentralized exchange, like UniSwap.

• Breeding NFTs requires owning two or more items (often in multiples of 2) to receive a free NFT later, either through a free mint or an airdrop. In the case of CyberKongz, you can breed a Baby Kong by spending their native $BANANA token. These Baby CyberKongz go on to sell for quite a lot as well.

• Metaverse utility can be in the form of roaming around land purchased by the DAO or as a free avatar representing the artwork of the NFT. There are also play-to-earn (P2E) applications where you can earn some form of remuneration for your time. The most popular application to date is Axie Infinity, where players can earn more money playing this game than they would in working jobs in their native country. With Sandbox and NFT Worlds offering a P2E environment, this utility will become an ever more popular offering.

I started to track these utilities along with a number of metrics that would hopefully help me pin a value on each individual metric and hopefully draw some parallels to stock markets.

Within one discord channel, there are dozens of different chats, classified by the topic of discussion. I jumped onto one NFT project’s discord at a time to gather more information and keep up with the daily announcements and changes in a project’s deliverables. Admittedly, once you join a few Discord channels, you realize they are structured similarly and gathering information on a new project is relatively simple. Almost all Discords will have a handful of truly useful chats:

• Official links: find the official social media accounts, website, secondary marketplace, and blockchain contract address

• Roadmap: A guide for project deliverables and timelines

• FAQs: information regarding the mint (number of units to be sold, price, whitelist requirements etc.)

• General chat: gather sentiment from other project followers

A mint can be thought of as the Initial Public Offering (IPO) in the world of business. The contract owner receives a large portion of the mint proceeds and the purchasers receive the asset at a fixed price.

Project minting can be accomplished a number of different ways, with the most common being the whitelist presale at a fixed price. Another common method is the Dutch Auction.

A whitelist is like a nightclub guestlist. Only here, the whitelist is able to gather the NFT at a presale price, often with lots of time to mint to prevent FOMO and gas price surges (aka Gas Wars - when the demand on the blockchain exceeds the supply of miners/validators to authenticate the transactions).

How does one get on a whitelist? Depending on the project, a certain number of non-bot invites is the most common method. Being active in the general chat, producing media for the project to use, and raffling systems are other methods. In general, if you give the project what it wants (invites = popularity through word of mouth, general chat grinding = sense of community, media = relatively cheap marketing material, etc.) it gives you what you want (the option to get in early).

I will start to monitor a number of projects and their Discords in an Excel spreadsheet, tracking a number of metrics, including social media followers, assets to be released, mint price, celebrities involved, and doxxing. This should give me an idea of how to predict the success of future projects.

As any curious person (or degenerate) does, I go to Google. “What is an NFT”. Enter.

An NFT is a Non-Fungible Token.

What does “fungible” mean?

“The ability to be replaced”.

Ok…what does that mean?

Non-fungible must mean not being able to be replaced, sort of like a 1/1 art piece that lives on the blockchain? While a $100 bill is seemingly identical to another $100 bill and 1 bitcoin is identical to another bitcoin, one Picasso does not necessarily equal the value of another Picasso.

Opensea is the main secondary marketplace for NFTs, similar to how the the stock market is the marketplace for secondary equity sales. Two things stand out immediately:

1. the different types of transactions (sales vs. offers vs. auctions), and

2. the different colored ethereum logos.

• Sales where the seller sets a fixed price (ie. new Apple computer costs $2000, so I pay Apple $2000) are shown under the “Buy Now” filter. In this type of transaction, the buyer meets the seller’s price in [black] Ethereum and, therefore, initiates the transaction and has to pay the gas fee.

• Sales where the buyer makes an offer to the seller and the seller accepts are completed using the pink Ethereum, also known as Wrapped Ethereum (WETH). WETH is just Ethereum “wrapped” in a smart contract, which is a program that knows to custody the transaction if the seller agrees to the terms by signing with his/her private key. Converting from ETH to WETH can be done in your wallet for a small gas fee. The accepted offer is initiated by the seller in this case, so the seller pays the gas fee for this type of transaction.

• Auctions are time-based English-auction-styled transactions (ie. highest bid when time expires, think eBay) that can be filtered under the “Auctions” filter. Because potential buyers must bid Ether for some point in the future, WETH is used to bid on an item. Opensea pays the gas fees for auction transactions.

You may be wondering about the purple Ethereum icon as it wasn’t covered in the different transaction types. The purple Ethereum is the Polygon sidechain. Polygon offers much lower fees to transact on its blockchain.

**Be cautious of popular NFTs that seem way too cheap on the Polygon network as it may be a copy of artwork sold on the Ethereum blockchain that costs the seller almost nothing to post.

Now that I have a grasp of Opensea, I come across some of the more popular projects like Cool Cats, Doodles, CyberKongz along with a lot of recently released ape projects like Fat Apes, Desperate Apewives, Strong Apes, Angry Apes United... you get the point. With all of these successful ape projects, it can’t be that hard to make money in this space.

Best to try to absorb the culture and the content first before making any decisions. Let’s jump onto each project’s Discord to learn more.

At this point, I was familiar with Bitcoin and Ethereum being the main blockchains and I knew how a blockchain worked. (If you aren’t sure how a blockchain works, here is a link for a video I watched several times). Working with dinosaurs in the financial services space, cryptocurrency was seen as a Ponzi scheme or an example of Greater Fool Theory.

This mammoth of a company known as Facebook, recently changed its name to Meta. Now this may be related to the negative PR they had received over the past several years, but Zuck could easily have thrown some money towards a Web3 project, much like the Libra coin project. To me, changing the name signaled (aka social signaling) their dedication to be recognized in the Web3 space.

But what is a metaverse? Let’s check Google. Looks like it could be a video-game-like environment where avatars interact and/or play games with one another. It could be an augmented reality yoga class where you participate with your friends’ holograms. We could even take work meetings in a metaverse…interesting.

The key of Web3 is decentralization. While I can play a video game on a phone or on a game console, where is a metaverse stored? It’s not stored on a device’s memory. Well, to answer that question it is stored on the Ethereum blockchain. The Ethereum blockchain is public and applications and tokens can be created and stored there.

Now cryptocurrency makes sense to me: Imagine playing in the metaverse, say Sandbox or Decentraland (both on Ethereum) and I want to buy a cool hat or camo skin for a gun. In Web2, I can buy a Fortnite gun skin by sending money to the app store or to Fortnite, essentially kissing that money goodbye in the event that they stop production tomorrow or I choose to no longer play that game. In Web3, I would buy the skin from a creator or another player, who has stored the asset on the Ethereum blockchain. To purchase the asset, I would need to pay the creator/player in some form of cryptocurrency and then I would need to pay an Ethereum miner in Ether to store that transaction on the blockchain for me.

It is starting to come together…