First Mover Asia: The crash of three arrows capital’s starry night portfolio shows NFTs' lack of staying power

The collection, now valued at $840,000, is worth a fraction of the $21 million that the troubled hedge fund spent in assembling it; BNB falls after reports of an exploit.

Good morning. Here’s what’s happening:

Prices: Bitcoin fell below $20K in its ongoing tango with the psychologically important threshold.

Insights: Three Arrows Capital's Starry Night NFT collection is worth a fraction of what the now bankrupt crypto hedge fund paid to assemble it. The crash underlines a bigger problem with the NFT market.

Prices

• Bitcoin (BTC): $20,002 −1.7%
• Ether (ETH): $1,357 −1.4%
• CoinDesk Market Index (CMI): 978.18 −0.9%
• S&P 500 daily close: 3,744.52 −1.0%
• Gold: $1,720 per troy ounce +0.5%
• Ten-year Treasury yield daily close: 3.83% +0.07

Bitcoin, ether and gold prices are taken at approximately 4pm New York time. Bitcoin is the CoinDesk Bitcoin Price Index (XBX); Ether is the CoinDesk Ether Price Index (ETX); Gold is the COMEX spot price. Information about CoinDesk Indices can be found at coindesk.com/indices.

Bitcoin, Other Cryptos Slog Through Another Flat Day

By James Rubin

Bitcoin tip-toed around $20,000 on Thursday in its weeks-long minuet with the psychologically important threshold.

The largest cryptocurrency by market capitalization was recently trading just above $20,000, down about 1.7% during the past 24 hours as investors returned to more of the macroeconomic wariness that has shaped their attitudes for most of the past year. BTC spent part of the day below this level after a surprising spike in weekly jobless claims. For one of the few occasions in the past few months, a poor economic indicator discouraged markets instead of spurring them higher.

Ether was recently changing hands over $1,350, also slightly down from the previous day, same time. Other major altcoins were mixed, although tilted slightly more red than green.

By early Friday (UTC), Binance Smart Chain's native BNB token tumbled about 4% after the blockchain with ties to the world's largest crypto exchange suffered what it called a "potential exploit" that on-chain evidence suggests could be in range of $500 million. In a tweet late Thursday, Binance founder Changpeng Zhao wrote that the breach on "a cross-chain bridge, BSC Token Hub," had "resulted in extra BNB, and that the company had "asked all validators to temporarily suspend BSC."

An exploit on a cross-chain bridge, BSC Token Hub, resulted in extra BNB. We have asked all validators to temporarily suspend BSC. The issue is contained now. Your funds are safe. We apologize for the inconvenience and will provide further updates accordingly.

— CZ Binance (@cz_binance) October 6, 2022

Embattled crypto lender Celsius' CEL token was recently off about 18% after CoinDesk reported earlier in the day that former top executives, including founder Alex Mashinsky cashed out $17 million before filing for Chapter 11 bankruptcy protection.

SUSHI was among the biggest gainers, rising more than 3% at one point a day after the announcement that asset management giant GoldenTree had invested about $5.2 million in DeFi protocol SushiSwap's governance token. The CoinDesk Market Index (CMI), a broad-based market index that measures the performance of a basket of cryptocurrencies, recently rose by 0.26%.

Equities

After climbing promisingly earlier this week, equity markets returned to a more familiar slog with the Nasdaq, S&P 500 and Dow Jones Industrial Average (DJIA) falling 0.7, 1% and 1.1%, respectively. Investors will be eyeing Friday's U.S. unemployment and labor participation reports for September, although the former is widely expected to remain in the neighborhood of its current 3.7% rate, increasing the likelihood of the U.S. central bank continuing its current monetary hawkishness and a so-called hard economic landing.

In a speech at the University of Kentucky, Federal Reserve Governor Christopher Waller noted surprisingly strong employment data earlier this week and the expectations that the U.S. economy will have created 260,000 new jobs last month – both signs that the economy has not slackened enough to consider more dovish policies. "A jobs number in this range along with the job openings rate reported on Tuesday would show that the labor market is slowing a bit but is still quite tight. As a result, I don't expect tomorrow's jobs report to alter my view that we should be focused 100 percent on reducing inflation."

Biggest Gainers

Biggest Losers

Insights

The Crash of Three Arrows Capital's Starry Night Portfolio and Bigger Problems With NFTs

By Sam Reynolds

Have non-fungible tokens (NFTs) been a good investment? So far, the data says not at all. Is there anything we can do with the technology, if it's a terrible way to hold value?

According to blockchain analytics firm Nansen,Three Arrows Capital’s Starry Night NFT is now worth a whopping 0.04% of what it was last year when the troubled crypto hedge fund spent $21 million assembling the collection. While Ether and other digital assets have also tumbled in the previous 12months, NFTs led the decline as market liquidity evaporated.

The drop-off offers compelling evidence that NFTs have yet to prove their usefulness or engage audiences long-term.

NFT’s nature of preserving claims to create digital scarcity was touted as a perfect fit for the booming metaverse. These digital worlds that were supposedly the future, according to crypto VCs, needed land titles so buyers could have a sense of ownership.

As with all things crypto, there was a boom but also a bust: Land prices have cratered because it turns out that nobody cares for these crypto worlds with 1990s-era graphics. In the last 30 days Decentraland has 501 users according to DappRadar.

Gaming tokens' decline

Play-to-earn gaming was another advertised use case. Axie Infinity and its contemporaries were supposed to be a way to make money and game, with crypto VCs claiming it also represents a new way for low-income earners in Southeast Asia to get a leg up. But that mirage has evolved and all we are left with is a form of “digital serfdom” where gamers in the Philippines end up making less than the country’s minimum wage. And in the West, gamers don’t care about the idea of virtual ownership; Ubisoft, which aped in last year to NFTs for its Ghost Recon franchise has suspended its efforts after the market showed minimal interest.

Data from Nansen shows that its index of the top 50 gaming tokens is down 91% on-year.

“The NFT Gaming sector has seen the largest drawdown in value and volume throughout 2022. Certain critics would argue this is reflective of the prioritization of financial incentives by NFT gaming projects instead of the focus on enjoyment,” the firm wrote in a recent report.

What about ticketing? Resale fraud is a huge headache for organizers of live events. In September, TicketMaster announced it was partnering with DapperLabs to explore NFT issuance for tickets. But it’s tough to see what this solves above and beyond TicketMaster’s existing marketplace and the company’s new policy for certain events to use dynamic QR codes via an app instead of paper tickets. After all, any sort of ticket sales will still be controlled by TicketMaster.

It looks like we have a technology without a use case.

Important events

8:30 a.m. HKT/SGT (00:30 UTC) Reserve Bank of Australia's Financial Stability Review

6:30 p.m. HKT/SGT (10:30 UTC) Bank of England's Quarterly Bulletin

8:30 p.m. HKT/SGT (12:30 UTC) Unemployment Rate from US Bureau of Labor Statistics (Sept)