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*Ninepoint Digital Asset Group, is a division of Ninepoint Partners LP.
PRICE SNAPSHOT
(6 Day Change as of Oct 6, 2022 1:30PM ET)
Bitcoin Price: $20,093 3 .90%
DeFi Total-Value-Locked: $55.75B
Ethereum Price: $1,365  2.70%
Crypto Market Cap: $962B
Bitcoin Range: $19,059 - $20,479
BITC.U Close: $6.01 (as of October 5, 2022)
Ethereum Range: $1,368 - $1,384
BITC.U NAV: $6.02
Bitcoin Dominance: 41.62% 1.46%
BITC.U Discount: 0.002%
DIGITAL ASSET COMMENTARY
Mastercard announced a major push into digital assets this week, launching a new product called Crypto Secure that helps banks assess the risk of crime associated with crypto merchants on its network. The service is powered by CipherTrace, a company Mastercard acquired last year.

Analysis: As we wrote last week, enterprise adoption of public blockchains and cryptoassets is likely to accelerate in the coming year, despite the bear market. Great companies plan for the long-term irrespective of market moves. To wit, Mastercard’s president of cyber and intelligence Ajay Bhalla said, “These are market cycles, they will come, and they will go… I think you’ve got to take the longer view that this is a big marketplace now and evolving and is probably going to be much, much bigger in the future.”

Horizon Blockchain Games, a Toronto-based start-up, has closed $40 million financing co-led by Brevan Howard and Morgan Creek Digital. Major game studios including Ubisoft (EPA: UBI) and Take-Two Interactive (NASDAQ: TTWO) participated in the round.

Analysis: Despite declines in overall NFT volumes (see this week’s Quantitative Analysis section), interest in blockchain-gaming, which employs NFTs as playable characters and in-game assets, continues to grow. Gaming is touted as an on-ramp for driving mass adoption of Web3 and NFT’s and digital assets more generally are considered foundational to building an open Metaverse.

Golden, a Web3 start-up building a ‘decentralized protocol for knowledge,’ just closed a USD 40M Series A led by a16z.

Analysis: Most of the early Web3 applications have been in finance, gaming and NFTs but that is starting to change, and investors are taking notice. On this week’s episode of DeFi Decoded Alex and Andrew talk about how the ongoing Twitter saga is raising the profile of protocols and tokens as a better mechanism for building healthy social networks.
STORY OF THE WEEK
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A Framework for Understanding Digital Assets 
By Alex Tapscott

Digital assets give internet users a direct way to participate in the growth of the digital economy, which will soon be the richest of economic realms, thanks to the rise of Web3. A reminder: Web1 (1992-2002) was the Read Web, a one-way medium for presenting and consuming information that democratized access to information. Web2 (2002-2020) is the Read/Write web, a platform for communication and collaboration, which was captured by large platforms and digital conglomerates. Web3 (2020-) is the Read/Write/Own web. Internet users now have digital property rights and can be economic stakeholders in the platforms they use and services they consume. They can also move, store, and manage money and digital assets privately peer to peer.

Understanding the Token Taxonomy 

In past editions of Digital Asset Digest, we outlined the digital assets gaining traction in Web3: cryptocurrencies like Bitcoin, protocol tokens, like ETH, which are platforms for application development, governance tokens, which give users input in the services they consume, securities tokens, which mimic real world stocks and bonds, natural asset tokens which mimic natural assets like carbon, stablecoins, which hold value against the US dollar, and NFTs, which are unique assets used primarily in art, collectibles and metaverse applications. Collectively these types make up nearly 100% of all digital asset values. This is not an exhaustive list, and while we feel confident that these categories of digital assets will continue to exist, we have less confidence over what individual assets will endure in the long run. And, of course, many new categories will doubtless get added over time. Why?

If digital assets are the fundamental building block of Web3 just as the website was the fundamental building block of Web1, then many of today’s digital assets will end up in the same place as the early Dot-com websites – in the dustbin of history.

Some assets will survive and may become multi-trillion-dollar platforms supporting the new internet of ownership, just as some early dotcom’s like Amazon survived to become leviathans of Web2. However, it’s just as likely that the killer app, and thus killer asset, for Web3 has not yet emerged.

What will be Web3’s Killer Asset? 

What should we be looking for in the next crop of Web3 projects? History gives us a guide: new technologies not only make it easier to do something, but they also make it possible to do the impossible. Still, it is common in the early innings of a new technology for emerging innovations to be skeuomorphic- mimicking what already exists: Web1’s early websites looked like magazines, catalogues, and classifieds, but the real power of the internet was its ability to act as a platform for communication and collaboration online. Web3’s early assets look like assets in the real world and even use the same language - cryptocurrencies, cryptocollectibles, stablecoins and so forth. The same was true with Web1’s killer apps of the webpage and email.

Digital Assets Are Just the Latest Way Humans Have Abstracted Value 

One thing’s for sure: Web3 assets will be strange and different to incumbents and old-timers.
This is also nothing new. As our economy has become more complex, assets and wealth have become more abstracted. Land was the most important asset of Feudal Times. This was simple enough: farming was the main industry. In industrial times, oil, industrial plant, and other capital assets mattered, as did bank notes, securities, bills of deposit and other intangibles.

In his influential biography of Vanderbilt, T.J. Stiles explains how Vanderbilt helped usher in modern capitalism: “The imagined devices of commerce gradually abstracted the tangible into mere tokens, and then less than tokens. Money transferred from gold coin to gold-backed banknotes to legal-tender slips of paper and ledger entries in bank accounts.” i “Like a ghost, the business enterprise departed the body of the individual proprietor and became a being in itself.” According to Stiles, the unseen architecture of modern finance which we now all take for granted, came about in Vanderbilt’s time “amid fierce debate, confusion, and intense resistance.” Sound familiar? History does not repeat but it rhymes.

The most important assets to emerge from Web3 won’t simply be digital versions of things we already own, like stocks and other financial assets, just as the most valuable public companies aren’t farmland ETFs. They won’t be skeuomorphic. In the same way Vanderbilt helped push the boundaries of the early industrial world, Web3 will reimagine what’s possible online.

iT.J. Stiles, The FirstTycoon, First Vintage Books, 2010. P 568
DEFI & DIGITAL ASSETS
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On this week’s episode of DeFi Decoded, Alex and Andrew talk about how the Twitter take-over battle has illuminated how the world’s richest people think about blockchains and Web3. In some revealing text exchanges made public because of the civil suit, Elon Musk is seen considering the value of turning Twitter into a protocol, with the urging of billionaires like Jack Dorsey and Sam-Bankman-Fried before concluding, in essence, the technology is not ready for prime time. But is there value in reimagining traditional businesses like social media as web3 protocols with token-holders rather than stockholders? Would that lead to better network health or more of the same? Tune in to find out.
QUANTITATIVE ANALYSIS
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Source: glassnote
Bitcoin Hash Rate Hits All Time High
Despite the decline in digital asset prices and the overall industry trend away from proof-of-work mining, Bitcoin continues to hit new records in terms of hash rate. A high hash rate indicates strong network security and resiliency.
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Source: Cryptoslam
NFT Volumes Down Across all Chains
NFT Volumes Down Across all Chains: Despite the decline in overall volume, NFT-related startups continue to get funding from VC’s who recognize they are foundational to Web3 Metaverse applications
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Source: glassnote
Bitcoin Hovers Around “Realized Price”
This is a rare occurrence that has only happened three times previously, followed by new all-time highs in price.
COMMENTARY & INSIGHTS