When memes and reality collide — Three Body Capital

Source: Larva Labs, CryptoPunk 7804 aka the 'digital Mona Lisa.' — *Source: Larva Labs,* CryptoPunk 7804 aka the 'digital Mona Lisa.'

What happens when the unbelievable world of crypto twitter meets the real world? We’ve already seen the first signs of that: the cover of Fortune magazine’s August/Sept 2021 edition adorned (yes, that’s the word of choice) with the avatars of the great iconic personalities of crypto twitter.

But no, we’re not talking about professional headshots or grand family insignias of the great dynasties of our time. What do we actually get? Well to name a few, amongst others, we have a cat in a yellow space suit, two frogs, a dog, a wolf, a fox, a ghost, a rabbit, a punk, a killer whale, a pair of Bitcoin tinted shades and a green wassie – the last one the “smol ting”, the record-keeper of crypto twitter as the inhabitants of that realm would call it. The designer of the cover itself is a digital artist that goes by “pplpleasr1”.

And the headline: “Crypto vs. Wall Street”.

We all know the giants on Wall Street – films have been made about the firms they run, and they frequently show up on TV. But the giants of the crypto world are not only anonymous, but they have also crafted for themselves online personas that border on the ludicrous, while completely hiding their true identities. For all we know, we could have bumped into one of the on the street and we’d be none the wiser.

Participants in crypto twitter would identify them by their twitter handles immediately, but for everyone else, this cover of Fortune magazine is outright confusing, a who’s who of a world that remains completely foreign to the vast majority of people.

For years now, while the value of the crypto space has grown exponentially, many of these individuals have stayed out of the limelight, building their fortunes in secret, forging a community on Twitter that effectively has its own language, protocol and values. This world of crypto whales and the communities around them has so far existed apart from the “real” world – until now.

The giants of the crypto world are coming into the real world, and they’re bringing with them their wealth as well as their values.

Is this the real life? Is this just fantasy?

One of the greatest criticisms of crypto is that it’s all just a game, and that it’s not real money. The early bitcoin maximalists sought to use the fact that Bitcoin was used to buy a pizza to emphasise how Bitcoin really was worth money. That “Bitcoin is money” narrative continues to be echoed by today’s Bitcoin maximalists, although “Ethereum is money” is a similar trope.

In the early days of crypto, this was a basic point of contention: was this internet money made up by an anonymous individual actually usable? Proving that it was indeed more than just computer game money was an existential requirement.

Fast forward to today and that problem has largely disappeared: while some banks remain reticent to take withdrawals from crypto exchanges, many others are happy to do business with the crypto world – by popular demand. As a result, the days of paying north of 5% in withdrawal fees to bring crypto back into fiat currency are gone – the number is now closer to 1%.

With increasing clarity on taxation and regulation (although there is still much work to do), as well as gradually waning scepticism around the legality and propriety of crypto as an asset class, the borders between the crypto economy and the “real” world are blurring and becoming ever more porous.

This has two important consequences: firstly, the money that flows into crypto is no longer just the spare change of a bunch of nerds in their basements – it now includes cold, hard institutional cash in huge tickets; secondly, these flows bid up the valuations of crypto projects, but with inflows of such size relative to the existing system, the bid is huge – existing tokenholders have become significantly richer as a result.

So despite the cartoonish profile pictures on twitter, this isn’t cartoon money anymore – real, serious capital is coming into crypto, and it’s just the beginning. And these inflows are making a lot of people who aren’t used to being rich very rich.

Got rich, now what?

The meteoric emergence of crypto over the past few years has been a boon for many within the crypto community, some more quickly than others and to varying extents. This has given many within the crypto space the financial freedom they could only dream of in prior years: the ability to buy their own homes, allow their parents to retire, pursue projects that interest them – the list goes on.

Yet when presented with the option of returning their riches to the world of traditional finance, many of them would likely find the returns on offer to be meagre. As we were told by one crypto investor, where traditional finance measures their investment returns in %, crypto measures its returns in x.

As a result, while some of this wealth does circulate into the “real” economy, the majority of it goes back into crypto, seeking out the newest opportunities in a rapidly expanding space, providing funding for the next batch of innovation.

Is it therefore any surprise that the top echelons of crypto society decide to spend their cash on rocks, punks, apes or penguins? While the rest of the world looks on in incredulity at the amounts of money that change hands on NFT marketplaces like OpenSea, this is the crypto Twitter equivalent of buying a private jet or bidding for a piece of abstract, contemporary art. Hedonism, opulence, extravagance, “flexing” – but for the crypto age.

After all, where else could one find representations of the meme culture that so clearly characterises crypto Twitter, but in crypto itself?

We’ve only just begun

A view we’ve articulated multiple times before is that we are only in the early stages of crypto’s emergence, not just as an asset class but as a driver of profound disruption to legacy business models and beliefs – about what works and what’s seen to be valuable.

Many will focus on what has now been called the “productive assets” narrative, seeking out projects that have the potential to deliver revenues and earnings, very much like a traditional stock or bond. That narrative, a meme in itself, is arguably the most comfortable meme for traditional investors to get familiar with, since it lends itself to similar modelling techniques as with stocks and bonds.

But life is much more than just about procuring “productive assets”, it’s also about finding la joie de vivre. And as the communities on crypto twitter start spilling into the real world through conferences and meetups that are becoming more and more common, so too does the modus operandi of the pseudonymous Twitter account with an animal for a profile picture. Joie de vivre to an oligarch of the previous generation would mean a very different thing to an anonymous crypto billionaire.

Digital art, collectible card games, more animals as Twitter avatars or even random pictures of rocks (with Ape NFTs turned into Apple Watch backgrounds, technically making them worth more than most luxury watches) – doesn’t it all make sense now?

Designing economic models, products and services that make sense for this new breed of consumer is going to be drastically different from everything that was done in the past, precisely because the underlying culture and beliefs are so unbelievably different from the prior generation.

In the end, the rebellious counter-culture that typified the old stereotype of “crypto people” as nerds in their basements trying to prove their worth still lives on.

The only difference now is that they now also happen to also be billionaires.

Businesses of the future – take note, these are your future customers.