#14 – What is NBA Top Shot?

A few weeks ago I stumbled upon a youtube video where a guy opened a pack of Pokemon cards that contained what he claimed to be a card worth $10,000.

What?! People still trade Pokemon cards? I remember collecting those when I was 9 or 10 years old. If I can find them, are they worth anything?! Are my old baseball cards (or beanie babies) worth anything? Will someone buy my playing cards?

Enter NBA Top Shot. A collaboration between the NBA, the NBA Player’s Association, and Dapper Labs that may forever change the memorabalia and collectibles market, NBA Top Shot allows people to purchase sports “moments” (think slam dunk highlights) that are considered digital assets. Below is a 13-second Top Shot clip of Joel Embiid.

Since it’s launch, TopShot has gained +50,000 users, done almost $300 million in sales, and daily sales are now well over $5m, according to cryptoslam.io. ESPN recently noted a 13-second Zion Williamson clip that sold for $100,000. The buyer, a self-proclaimed, “early adopter”, says he’s hoping the video will eventually jump in value. “It could go 10x, 100x or go to zero.” A Lebron James clip sold on February 22 for $208,000. Mark Cuban has also invested in Moments created by players on his NBA team, the Dallas Mavericks, and said he’d pay $1 million for this game winner made by Luka Doncic, but in NBA Top Shot licensed form.

Not every Moment is worth millions or even thousands. Upon a new release, purchasing a pack can cost between $9 and $99 and will include three Moments. Every NBA Top Shop drop thus far has sold out – there are no new packs currently available. This exclusivivity/scarcity factor is why some owners are able to make a quick profit, and Moments are often valued based on their rarity.

Buying a pack is only the first step. The peer-to-peer market within NBA Top Shot is actually where larger trades happen, and people can trade Moments with each other, 24/7, similar to an Ebay auction. I just checked the value of the most recent p2p transactions for single Top Shot Moments, and they range from $15 to $900.

NBA Top Shot Uses Blockchain Technology – What does that Mean?

Blockchain is a public record of transactions, such as the one used by Bitcoin. A digitized record of accounts is useful when it has multiple parties (in this case, Buyers, Sellers, the NBA, the NBA Players’ Association, and Dapper Labs) that each must verify not only some part of each transaction, but also some part of every transaction prior to that. This creates a synchronized, trustable and transparent database, or “ledger”. Details recorded in the ledger will generally include a history of ownership and are traceable and trustable due to the encryption and verification involved by each relevant party. This is the first time the NBA has entered a licensing deal backed by blockchain technology, and in some way, this is a new form of intellectual property ownership.

What Gives Them Value?

The owner of the Top Shot Moment does not own the copyright to the video itself. After purchasing a clip, it can still be broadcast on national television or even YouTube, where I could watch it for free! So what gives it value? Value is a tricky question when dealing with a security with no cash flows, because, well, what gives anything value? The value people place on it.

Whether this is just another sign of the everything bubble or this is blockchain technology disrupting the collectibles market forever, one thing is certain, this technology unlocks a secondary marketplace for the NBA and NBA players in a period of decreasing viewership and television ratings. Top Shot creator Dapper Labs takes a 5% transaction fee on sales in the marketplace, and the NBA and its players union get a cut of the peer-to-peer sales.

NBA Top Shots, Mark Cuban and his Dallas Mavs, Elon Musk and his Tesla, and a growing number of businesses would love to acquire your bitcoin, as they now all accept payments in cryptocurrency. While I currently have no plans to sell or spend my Bitcoin, maybe, just maybe I’ll consider “investing” in a NBA Top Shot Moment. It’s just a cooler, cleaner version of an old-fashion playing card.

Will you be investing in Moments or any other form of Digital Asset? Check it out at NBATopShot.com, and tell me what you think. Reply below or shoot me a message.

#jk

#13 – Atomic Habits: An Easy and Proven Way to Build Good Habits and Break Bad Ones by James Clear (Book Review)

This weekend I finished a book that I’ve been putting off reading for at least five years, Atomic Habits by James Clear (link). I put it off because I knew that after taking a thorough examination of the small but countless subconscious actions that deter me from becoming who I want to be, I would have no choice but to attack them. After all, the process of behavior change starts with awareness.

Being one of the most flawed people that I know, I have many bad habits. These range from not getting enough sleep, prioritizing spending over saving, drinking too much on occassion, and/or procrastinating (including reading this book). Other common bad habits include aimlessly scrolling the internet, nail biting, smoking, etc… The list goes on.

My Major Takeaway: Getting 1% better every day counts for a lot in the long-run. Small actions are significant because they are part of a compounding system. Small changes then, may seem unimportant initially or by themselves, but will compound into remarkable results over time – like the slightest change to the trajectory of a golf ball. Be more concerned with the trajectory than with the current results. Are your habits putting you on a trajectory for success?

We have to understand the motivation of our habits. The cues and cravings that lead to a response and reward. We do not crave a cigarette, but we crave the relief it provides. We do not crave brushing our teeth, but we crave having a clean feeling mouth. We do not crave turning on the TV, but we crave being entertained. Bad habits don’t exist because I want them to, but because my brain is wired to seek comfort and avoid displeasure.

You don’t tell your heart to beat or your lungs to breathe, and this is proof that our body operates beyond the conscious mind. We fall Into habits and patterns without even realizing it. The more we repeat these patterns, the less likely we are to question them.

“Habits are a double-edged sword. They can work for you or against you, which is why understanding the details is essential.”

James Clear, Atomic Habits: An Easy & Proven Way to Build Good Habits and Break Bad Ones

Problems that get measured get fixed. The importance of keeping a journal can’t be understated. Several studies have shown that people who keep food journals are more likely to be successful in losing weight. Journaling is my form of meditation. I use penzu and the 5 minute journal.

Forget about setting goals. Winners and losers have the same goals. A great analogy from the book – imagine playing in a competitive game but never taking your eyes off of the scoreboard. You would never score. You can’t win the game if you’re only focused on the results. Focus on the process instead.

“You do not rise to the level of your goals. You fall to the level of your systems.”

  • “Your outcomes are a lagging measure of your habits. Your net worth is a lagging measur eof your financial habits. Your weight is a lagging measure of your eating habits. Your knowledge is a lagging measure of your learning habits. Your clutter is a lagging measure of your cleaning habits.”
  • Goals are the results you want to achieve. Systems are the processes that lead to those results.”
The Plateau of Latent Potential
When you break the plane of results and what you think should happen, people will call it an overnight success. You will know otherwise

Your habits shape your identity and vice versa. There are three layers of behavior change: a change in your outcomes, a change in your processes, or a change in your identity.

“Every action you take is a vote for the type of person you wish to become. No single action will transform your beliefs, but as the votes build up, so does the evidence of your new identity.”

James Clear, Atomic Habits: An Easy & Proven Way to Build Good Habits and Break Bad Ones
Three Layers of Behavior Change

John and Jane are both trying to quit smoking. Someone walks up and offers them each a cigarette. John replies, “No thanks, I’m trying to quit.” Jane replies, “No thanks, I’m not a smoker.” Which one do you think has the better chance of succeeding? Jane has channelled her identity in order to change her process and then outcome; John is stuck focusing on the goal.

What is your identity? Not “what do you do?”, but “Who are you?”. I am smart. I am fit. I am successful. Embracing this as my identity makes me less likely to do those things that produce results counter to this identity. Keep your identity flexible, but decide what it is today.

One Easy Step to Start Breaking Bad Habits: Point and Call

Japan’s railway system has a reputation for being among the best in the world. It is an extensive network of tracks moving over 12 billion passengers per year with a precisely-on-time performance and near-perfect safety record. The Japanese developed a system called “Point and Call“, in which train operators point at indicators and yell their status out loud. While seemingly simple, pointing-and-calling is known to reduce workplace errors by up to 85%. The method has been adopted worldwide and is now used in the New York City subway system today.

In Atomic Habits, Clear argues that pointing and calling works well for habits too. Next time I reach for the jar of cookies, if I say out loud, “I am grabbing the jar of cookies and I don’t need those”, there’s a good chance that by bringing awareness from a nonconscious level to a more conscious level, I can break the cycle of an old habit.

How to Build Better Habits:

  1. Make it obvious.
    • If I want to read before bed, place a book on my pillow before leaving for work that day.
  2. Make it attractive
    • Engage the dopamine system. Link an action that you want to do with an action that you need to do. If you want to play video games but need to exercise, do 10 pushups before and after you play. Bundle fun stuff with new habits.
  3. Make it easy
    • I pack my gym bag every night for the next day so that I have no excuse as to why I didn’t stop at the gym. If you’re forced to spend energy deciding when to workout, where to eat, etc., then you have less time for free thinking and creativity. The Mark Zuckerberg Hoodie.
  4. Make it satisfying
    • Reward yourself after you finish. You deserve it.

“Motivation is overrated. Environment matters more.”

It’s easier to build new habits in a new environment because you are not fighting against old cues. Environment is the invisible hand that shapes human behavior. Breaking a bad habit is like uprooting an old tree, and creating a new habit is like cultivating a new flower.

If I want to create a new habit or rid myself of a bad one, it boils down to putting in the work, and that’s why I avoided this book for so long. If I want to be on the right trajectory for success, I need to become aware of my systems and hold myself accountable to them. This isn’t news, and it’s probably not what you want to hear, but its the truth. Run from it or stare it in the face and make it your bitch. This is the only way.

Go to Atomic Habits author James Clear’s website, where he provides media and other visual templates including habit trackers, cheat sheets, and you can download a free chapter of the book. Check it out and let me know what you think!

#jk

# 12 – The Case Against Bitcoin Part I: Bitcoin is Only Used for Illegal Activity

What attracted me to Bitcoin almost ten years ago was the concept of disrupting the current banking system to bring financial liberty back to individuals. Since then, I’ve immersed myself in white papers, podcasts, books, youtube videos, MIT courses, and anything else I can find to help me understand this exciting new technology; yet, I still discover something new each week. I have a long way to go.

One thing I’ve struggled with is a credible answer to the question, “why won’t it work?”. I believe that Bitcoin is anti-fragile, a term coined by Nassim Taleb, author of several financial market related must-reads, to describe the phenomenon of something that actually gets stronger when you’d expect it to get weaker. An easy example in the context of bitcoin would be a an instance where the price of Bitcoin appreciates as it is targeted by government regulation (TBD!). This post and its updates will serve as an iterating attempt to summarize the best arguments against bitcoin that I have seen. Please share more if you find them!

“Bitcoin is only used for illegal purchases and aids criminal businesses“. European Central Bank President Christine Lagarde published a report recently noting Bitcoin should be regulated and blasted its role in aiding money laundering. I must be getting old because I remember when Christine Lagarde was the chief of the International Monetary Fund. In 2016, she was convicted for dirty money stuff around her role in a payout, but to focus on that would be a diversion. Let’s forget that the U.S. dollar is the favorite currency of criminals, and that the banks themselves have been the largest supporters of money laundering since… forever. Just this week it was confirmed that Australian banks “washed” $500 million for South American cocaine cartels.

“I think many cryptocurrencies are used, at least in a transaction sense, mainly for illicit financing and I think we really need to examine ways in which we can curtail their use and make sure that anti-money laundering doesn’t occur through those channels.”

U.S. Treasury Secretary, Janet Yellen, January 19, 2021

Of course the Honorable Janet Yellen, owner of the quote above, has a personal vindiction against BTC. In 2017, during her congressional testimony, somebody did a thing:

The company Chainanalysis focuses on using high powered analytics to track and trace transactions on the blockchain. This may seem strange for those of you who misperceive bitcoin transactions as being “anonymous” (via Bitcoin.org). Bitcoin’s ledger, the blockchain, is a permanent public record of all transactions that is accessible by anyone at any time. The transactions are encrypted (hence, “cryptocurrency”), so they are psuedyonymous, but not anonymous. In short, tying an encrypted transaction to an individual is possible.

As early as 2015, the FBI published an article noting that, “While considerable challenges exist, many traditional tools and investigative methods remain effective… investigators can follow the money through decentralized virtual currency systems… Decentralized systems offer public transation ledgers, which record every transaction that crosses the network.”

-investigative challenges and opportunities, by Brett Nigh and C. Alden Pelker (FBI.gov)

The Chainanalysis’ 2021 Crypto Crime Report noted that, “The use of Bitcoin and cryptocurrencies for criminal activities has been halved in 2020 compared to 2019”. Criminal activity represented a miniscule 0.34% of all Bitcoin transactions for 2020.

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The report breaks down the illegal activities detected, and it’s clear that scams and the darknet market account for the bulk of transactions related to those crimes. There was also a notably sharp increase in ransomware attacks in 2020.

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Let’s compare this to the U.S. Dollar. An estimated $10 Billion was transferred by criminals via the bitcoin network in 2020. By contrast, our banking system is so fragmented and secret by design that we don’t really know what that figure is. The most recent report by the United Nations Office on Drugs and Crime noted “suspicous transactions” amounting to $2 trillion in 2019. Hey – its an improvement. What disappoints me though, is the way I see banks and public companies simply absorb “punishment” for their laundering or otherwise ethics-related crimes by paying slap-on-the-wrist fines and going back to business the next day.

  • For every $1 used for illegal activities through the bitcoin network, more than $200 is laundered in U.S. Dollars
  • Roughly 2% of the global money supply is used for money laundering evey year
  • For every roughly $1 used to launder money, less than $0.005 is used for illicity activities through the bitcoin network

So, what is the favorite instrument of criminals? How does this case against bitcoin hold up?

#jk

#11 – Inflation

January 13, 2021 – The U.S. Government, via the U.S. Bureau of Labor Statistics (BLS) released monthly inflation data this morning that showed inflation slightly above expectations. What is inflation? How do we measure it? Dangerous implications lie ahead if we ignore inflationary pressures building today.

What is Inflation?

Inflation is when the value of money declines relative to the goods and services that money can purchase. High inflation (like in Venezuela) occurs when the supply of money is greater than the demand for money. Prices go up when inflation is happening, but not all inflation is bad. When the outlook is for prices to modestly appreciate in the near term, this can encourage consumer demand investing, and optimism; hence, many argue that low (but above zero) inflation is actually beneficial.

How we traditionally measure inflation

The Consumer Price Index (CPI) is an index that captures the change in prices paid by consumers for a group of goods and services. The CPI is based on prices of food, clothing, shelter (rent), fuel, Rx/healthcare, transportation fees, and “day to day living”. For whatever reason, the index is based on prices of those items as they were from 1982 through 1984. Therefore, a CPI reading of 100 means inflation is equal to the level it was at in 1984, and today’s current reading of 260 (see below) means that inflation has risen 160% since 1984.

CPI Index 1970 – 2021

CPI Index – 1970 – current

Outlined by the red box below you can see that today’s report shows the Year-Over-Year (YOY) change in the CPI for December was +1.4% (in green) vs. a forecast of 1.3% and a previous reading of 1.2%. This means that prices in December 2020 were 1.4% higher than they were in December 2019. That is modest (but above expected) inflation.

Jan. 13, 2021 Investing.com Economic Calendar

Taking a look underneath the hood at the actual components, we can see that there were significant moves higher across the index between Nov 2020 – Dec 2020, reflecting higher inflation month-over-month.

What’s wrong with the CPI?

To calculate the monthly CPI, a group of statisticians estimate what percentage of a “typical” household budget is spent on certain items. The higher the percentage, the more weighting the statisticians assign a given item’s price change index. There are many other criticisms of the CPI; the index is an incomplete the truth at best. Fiscal (tax) and/or monteary (interest rates) policy, such as the Federal Reserve flooding the economy with newly created dollars, can have tremendous impacts on the price of goods and services.

Inflation Outlook

Today’s report also included an inflation outlook: the U.S. central bank does not see inflation rising above 2% until at least 2023. The Fed has an inflation target of 2%, and the Fed wants inflation sustained above that level before raising interest rates. In other words, according to the Fed, record low interest rates are here to stay. The impact that this has is that people are disincentivized to save money (because we earn no interest on it) and are thus forced to either spend money (this is the Fed’s goal: to “stimulate spending in the economy”) or to allocate savings to riskier places for returns. I personally don’t understand how inflation stays near record lows with the creation of new dollars (supply).

A history of Interest Rates – Federal Reserve

Stimulus checks and higher unemployment benefits pushed household incomes higher even as economic output shrank – a rare combination. Rising stock and housing markets helped add more than $5 trillion to the net worth of U.S. Households in 2020. This chart shows total U.S. household income, broken down by wages/salaries (black) and benefits (blue). The more blue and the less black, the more of a welfare state we are.

Meanwhile, the St. Louis Fed’s data shows M1 Money Stock, including dollars in circulation, having gone parabolic in the last 2 years. This chart should be very alarming to anyone monitoring inflation.

fred.stlouisfed.org Source: Board of Governors of the Federal Reserve
Recommended Reading

A Historical Analysis of Monetary Policy – stanford

Interest rates and the conduct of monetary policy

Interest Rates, 1914 – 1965

Update 3/1/21:

The Commodity Price index ($GSCI) has experienced its’ second strongest start of any year since 1973 (only behind 2003)

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Google trends data for search term “inflation” on the rise (below).

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In Conclusion

What’s your take? Where do we go from here now that the Fed is Normalizing Trillions, and printing money faster than ever? We’re heading down a potentially perilous path for macroeconomics.

Success breeds complacency. Complacency breeds failure. Stay paranoid!

#10 – The Best is The Enemy of The Good

“The best is the enemy of the good.” – Voltaire

“Better a diamond with a flaw than a pebble without.” – Confucious

“Striving to better, oft we mar what’s well.” – Shakespeare

I’m a perfectionist. An enneagram type 1. It comes with its pros and cons – pros being that I am diligent and deliberious in most that I do. A con being that I procrastinate things that I know I’m not good at out of fear of failure.

I received constructive professional feedback almost a year ago, and I’m revisiting it today because, despite constant attempts to de-clutter my life, I still struggle to find time to do all the things that I want to do. When I don’t think I can do something well, or in its entireity, I tend to avoid doing it altogether, or even worse, quit.

When it comes to journaling my thoughts, which is what I do here, perfection in my mind looks like a well-researched, long article that is thought provoking and inspirational; yet, today I’m able to see that there’s something special about the short post too. It’s here, it’s progress, it’s done. Check.

I encourage you to complete a small task today as a reminder that small progress is important too. Whether it’s making your bed, taking out the trash, going back to the gym for the first time in a while, or re-visiting the “draft posts” folder for this blog, which currently has over 35 un-published, incomplete thoughts… Yikes!! Small steps can make a big difference. So here’s to that.

The lofty goals we set for ourselves are important, but when they become overwhelming or seem too distant, focusing on the small things can be the change in perspective that we need to overcome and move forward.

jk

#9 – Bitcoin, Decentralized Applications, and Internet 3.0

As we sit at the intersection of finance and technology, or how we use and store our money, I’m energized by the potential for both disruption and profit. The monetary system that we currently have in place today is outdated due to new technology, and is broken due to corrupt politics and crony capitalism.

I believe in principles of personal liberty, and I am thankful to have been born in the U.S. where we, at least for some time, have experienced more political, religious, and financial liberty than most if not all of the world. However, our system is obviously not perfect, and bitcoin and/or an array of new digital assets have the potential to be financial freedom in the truest form that we have ever seen.

As interesting as it is to me, and although none of the information in this post or those that follow should be taken as investment advice, the real reason for sharing my thoughts is the potential impact it can have for my friends and family. I know real people whos real lives have changed because of investments they’ve made – both for better and for worse. I know multiple people who have made and lost tens of thousands (and more) of dollars trading bitcoin over the last 10 years. Yet, as I write this today, I still believe that the potential for mass adoption of digital assets in the internet age is worth a hard examination, if not more. After all, as the price of Bitcoin sits above $39,000/BTC today, anybody who purchased bitcoin at any time and held it to now has seen a positive return on the investment (as is the case with many stocks making new all-time highs today, not that bitcoin is a stock). Note: Past performance is not indicative of future results.

I’ve provided links below to some of the more basic themes and factors that contribute to my view. If you’re not new to bitcoin, the links below will bore you. As time goes on, I will share more technical and complex articles, including where and how I have considered acquiring BTC and developments in price action as it relates to forecast. I will always do my best to simplify (as much for myself as for anyone else). Tread at your own risk.

Where to Begin

  1. The Bitcoin Standard – audiobook – I can’t find a non-audiobook version, and it doesn’t matter. Find a way to read/listen to this. My favorite part of the book is about the History of Failed Government Money and why we went onto (1879) and then left (1971) The Gold Standard.
  2. There will only ever be 21 million bitcoin. Around 20% of that amount is expected to have already been lost forever.
  3. What is inflation? Ever wonder why the cost of your rent increases each month? Or the cost of many of your subscriptions, goods, or services rise, regardless of whether your paycheck rises with it? Or how your grandpa filled up the gas tank of his old truck for $5?
  4. The current supply of U.S. Dollars floating around, as shown by the U.S. Federal Reserve Bank (m1 money supply)
  5. The History of U.S. Monetary Policy and Fiascal Policy, AKA the tools the government use to try to speed up, maintain, or slow down the economy. These tools include interest rates, tax policy, stimulus checks, money supply, etc. For example, U.S. Monetary Policy currently targets inflation of 3% per year (prices rising 3% per year) and has implemented record-low borrowing rates with the intended purpose of stimulating consumer spending by disincentivizing saving (near zero returns). Check out this chart on the history of interest rates.
  6. The American Institute for Economic Research released a paper, “Why Does Bitcoin Have Value” – written at $20,000 BTC in December 2020
  7. I’ve tweeted about bitcoin/money markets for +6 years. I’m not a genius, but I follow some sharp people who put out great educational content and context. I will share what I learn @jbtckingaling.

Good luck!