The sports industry and crypto industry - a match made in heaven

29.08.21 01:43 AM By Stormrake

Welcome to the Stormrake Monthly Australian crypto market & education update.
For sophisticated investors who want to expand their crypto knowledge.
Written by Michael Milmeister, Doug Hemingway and the Stormrake Team

Summary:

If you are a busy investor that doesn't have time to read this whole newsletter here is a brief summary:

* Bitcoin continued its climb passing $50,000US before a slight correction to $47,000US at the time of writing.
* U S Congress passed some nasty legislation as part of a huge omnibus bill for infrastructure
* Ethereum supply squeeze is possible with less and less ETH available to buy.
* Cuba is set to recognise and regulate crypto to allow crypto payments

or read below for all the detail.

Sport as an early adopter of CryptoCurrency

The Olympics are over along with the NBA, NBL, and NHL Playoffs. The AFL finals are starting and the EPL is in action. All this sport has made me start thinking about how sport is financed. How is it that some clubs are financially deeply underwater, suffering from not being allowed to sell tickets to live games, while other clubs can pick up the worlds best players (Messi)?

Hmmmm.

Wait a minute? Looks like Messi's new club, PSG (Paris Saint-Germain FC) is paying part of Messi's contract in cryptocurrency (Fan tokens). The club has partnered Chilliz (CHZ) to offer their fans a more intimate fan experience and has even attached tokens to contracts to attract the best talent. It's early days, but PSG is the only unbeaten team in the French League. So with that in mind let's take a look at how and why Sport is being influenced by Crypto.

For crypto companies, crypto tokens, and crypto exchanges, sport is an opportunity to not only drive brand recognition and sales, but also to create much wanted legitimacy. 10 years ago the crypto world was in basements around the globe. Now it is out in the worlds biggest arenas. Don't ask me how it works but seeing a brand on a shirt seems to build trust.

For clubs, players and leagues its about funding and opportunity. Those that are open to new technology, ideas and money can strike it rich and rise to the top. PSG seems to be benefitting massively.

Football has been the early adopter but it seems that every sport on the planet is catching on in a preview of what we will see in other industries.

Sponsorships:

1) Football / Soccer - Take a look at the player above. That's Watford FC in the English Premier League and that's Doge coin on their shirts due to a sponsorship by Stake.com which acts as a cryptocurrency exchange amongst other things. A swathe of football clubs now have sponsorships with crypto related companies.

2) AFL - For something closer to home - The Demons and the Doggies have had stellar seasons with Melbourne taking out the minor premiership last weekend for the first time since 1964. What do these two teams have in common? Crypto Sponsorships. Melbourne signed a deal with CoinJar, while the Dogs signed CoinSpot as their principle partner.

3) Indianapolis 500 - Jack Mallers and a number of bitcoiners donated money to sponsor Ed Carpenter in the Indy 500 this year.

4) Formula 1 - Crypto.com signed a $100M USD deal with F1. How about this for a concept car?

NFL, UFC and many other leagues have direct sponsorship money from the crypto industry.

Player Payments & Wages:

1) In 2018, Harunustapor, a Turkish football club, became the world’s first football team to purchase a player using Bitcoin. The player, Omar Faruk Kiroglu received Bitcoin and Litecoin as part of the deal.

2) NFL (Gridiron) - Sean Culkin of the Kansas City Chiefs became the first NFL player to have his entire salary paid out in Bitcoin. It was a big call for the Tight End who is likely to become one of the richest sportspeople despite not making the first team. He is paving the way for all employees - does your employer offer you Bitcoin as a wage?
.... also the Carolina Panthers are paying half of a players $13M USD salary in Bitcoin.

3) Olympics - Canadian speed skater Ted-Jan Bloemen became the first Olympic athlete to be paid in crypto after signing a sponsorship deal with cryptocurrency social network onG.social and virtual reality developer CEEK VR.

Fan Engagement:

Clubs all over the world have started playing with fan engagement via crypto tools. Again it's Football that leads the way but word on the street is that it's spreading fast and even coming to Australia soon.

Cryptocurrency blockchain based applications can allow clubs to engage better with fans by monetising the ability for fans to directly impact the club. As a fan you can go from yelling at the TV to actually helping make decisions that might in some small way impact the club.

PSG already has such a program and several NBA clubs have also experimented with the tech. All I can say is that being a sports fan could look very different in 10 years time.

Let's get into the report:

Video of the Month

One senator's speech on the infrastructure bill got noticed worldwide and went viral. Here is what Ted Cruz said when the USA Senate came up with unworkable and confusing legislation for regulating the cryptocurrency industry from 2023. Here is Ted Cruz.

Markets

Bitcoin is currently trading around $47,250 USD heading back towards the ATH of almost $65,000 USD 4 months ago. Cardano (ADA) has been the big mover. It has more than doubled in value and become the 3rd largest crypto by market cap. A system upgrade and multiple partnerships have helped the growth.

* Top 8 Coins by Market Cap thanks to Coin Gecko

In the NEWS

1. Ethereum supply squeeze coming

Ethereum 2.0 seems successful and more and more ETH is being staked. That is having the effect of removing coins from exchanges. On top of that the supply is reducing through burning coins under ETH's new supply rules with almost 100,000 ETH burned already. On top of that, investors seem to be buying and taking coins off exchanges. That is all leading to a perfect storm where supply is too low and price will likely follow. Make sure you are happy with your ETH holdings.

For a detailed look at ETH's attempt at becoming sound money, checkout https://ultrasound.money/

2. US Congress passes crypto laws as part of infrastructure bill

The US Congress passed a raft of legislation in one massive infrastructure bill. The bill will have an impact on many industries including cryptocurrency.

It seems congress has regulated cryptocurrency even though they clearly don't understand in a confusing and possibly unworkable way. Here's what Ted Cruz had to say on the issue:

"Let’s recognise that if we gathered all 100 senators in this chamber and asked them to stand up and articulate two sentences defining what in the hell a cryptocurrency is, that you would not get greater than five who could answer that question," he said.

The legislation doesn't go live until 2023. The industry feels there is plenty of time to make an amendment to the legislation by then.

3. Cuba to Recognise Crypto

Cuba has made steps to legislate allowing payments to be made in cryptocurrency on the Island. Its another step in central and South American countries' growing adoption of cryptocurrencies. The current monetary system is not serving small countries well and they have everything to gain from moving to the Bitcoin Standard.

Education - Game Theory

Game theory is the essential ingredient of blockchain

In today's education piece, I'd like to go into a little more depth on the breakthrough invention with the birth of Bitcoin. It's important to prefix, that Bitcoin was not the first attempt at a "digital currency". We had previously seen projects such as DigiCash, HashCash, BitGold make tremendous achievements towards this problem, however any technical success was always doomed to be ended by the state such as the case for E-gold. Governments are very happy to keep their monopoly on money and will stop any competition with a "throat to choke".

Show me the incentive, I’ll show you the outcome
- Charlie Munger

The insight and power of this statement cannot be overstated. The failure of so many systems (governments, companies, networks) can often be boiled down to a misalignment of incentives.

Bitcoin succeeded as a digital currency because it was able to launch in a decentralised manner. It did this by aligning the continuation of the network with incentives of it's users. There was no centralised entity that the government could shut down, instead there was a community of people peacefully incentivised to keep the network running.

The study of incentives within a system is called "Game Theory" and if not familiar, I'd recommend looking at the Prisoner's Dilemma as an example of how incentives often cause a system to produce a poor outcome.

Bitcoin successfully incentivised all it's users as follows

Bitcoin miners

Use/Spend electricity to participate, by computing cryptographic puzzles on the latest bitcoin transactions.
Are rewarded with bitcoin for being honest. (They receive block rewards and transaction fees)
Are penalised if dishonest. (The are removed from the network and receive no bitcoin as compensation for their electrical cost)

Difficulty rate

Every 2016 blocks (~two weeks), the difficulty rate for miners is adjusted so that the block time remains an average of 10 minutes.
This governs the rate of (bitcoin) return miners receive for their electrical input and adjusts supply/demand of miners who can join/leave the network freely.

Bitcoin users are incentivised to buy and hold bitcoin because

The consensus rules limit supply, based on a fixed schedule, with never more than 21 million.
The honesty of the system is protected by the miners incentives
Bitcoin is the hardest, sound money (in complete contrast the inflated fiat currencies)
The speculation of this growing network drives massive price growth as it becomes the global monetary system

Due to these incentives, bitcoin is unstoppable.

Stock to Flow Valuation:

This month I have replaced the normal Stock to Flow model with this graph generated by clockworkpartners.com. This graph has completely blown my mind. It always amazes me how someone can take something that everyone is looking at and see something that no one else picked up. This graph is incredible in its simplicity once you understand it but it shows a very clear path.

The scale is a log scale and the price of Bitcoin is the pink circular line. The incredible part is how perfect the result is on this graph. Polar coordinates fit perfectly with the bitcoin halving cycle every 4 years and it seems entirely inevitable that the trend will continue in ever increasing prices by a factor of 10. Take a good look and tell us what you think.

Monthly Memes

1. Excuse the language but we don't create these things. Investors need to know that volatility is unavoidable and there may be struggles along the way but - there's no other option if you want to invest in the fastest growing asset class. Strap on your seatbelts.
HODL=HOLD

Until next month, Happy Investing!

Stormrake Team

custody@stormrake.com

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