Welcome to the Block & Mortar newsletter! Every week, I bring you the top stories and my analysis on where business meets web3: blockchain, cryptocurrencies, NFTs, and metaverse. Brought to you by Q McCallum.

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#69 - Bitcoin's price, royalty-free NFTs, and The Met's metaverse play

A chart from Google Finance showing BTC/USD from 2016 to the present day

What the numbers mean

It’s been an interesting week for numbers. Bitcoin’s price briefly fell to $26k and some Bored Ape Yacht Club (BAYC) NFT holders are suing because their asset values have tumbled as low as $50k.

But do those prices really tell us anything useful? That depends on where you sit:

1/ At a high level, prices reflect market sentiment and market confidence in a given asset. So while “$26k” is an arbitrary boundary, the price move hints at the perceived health of Bitcoin and possibly the crypto trading market as a whole. A falling price may also indicate reduced investor confidence in the asset: they ask whether even-lower prices are on the way, leading them to sell in a panic, which in turn drives prices down and triggers a self-fulfilling collapse.

2/ Traders only care about asset prices when they buy or sell, because that’s when they actually make or lose money. Someone who buys Bitcoin at $327 and sells at $15k (November 2015 - December 2017) should feel pretty good about their decision. To buy at $61k and sell at $64k (March 2021 - November 2021) is a far less impressive move, even though the actual prices are larger. This is why traders skip past the absolute numbers to focus on the differences between the prices at which they’ve bought and sold.

On the surface, then, the BAYC lawsuit may seem like a case of sour grapes. (“Sour apes?” If a frustrated BAYC buyer wants to launch an NFT collection of that name, have at it. You heard it here first.) You bought the asset, the price didn’t move the way you wanted, you lost money trying to sell the asset. It’s poor form to sue your way out of that loss, no?

But when you consider the key claim of the lawsuit – that the involvement of famous auction house Sotheby’s artificially inflated asset values, constituting a slow-motion pump-and-dump scam – then you see why buyers feel frustrated.

3/ People who put up their Bitcoin as collateral for loans are sweating right now. Let’s say in June you give your broker one Bitcoin as collateral (margin) for a loan of $27k. Bitcoin is currently worth $30k, which means the loan is slightly overcollateralized by $30k - $27k = $3k. That $3k represents a little cushion of collateral as Bitcoin’s price fluctuates.

August 2023 rolls around and Bitcoin sinks to $26k. Your collateral is now worth less than the loan amount of $27k! What happens now? In the traditional finance (tradfi) world you’d get a margin call from your broker, a polite-yet-urgent request to top up your margin account with more Bitcoin to even things out. If you let that call go to voicemail, the broker would have to wait for you to ring back.

But in crypto, the “broker” is just code and your “margin account” is a section of a smart contract. When Bitcoin’s value dips below some threshold, there is no phone call. There is no patient waiting. That code simply – and, important for this discussion, immediately – sells off the Bitcoin at the current price to protect the lender.

This explains why there was a lot of wailing and gnashing of teeth in the crypto world last week. For some traders, Bitcoin’s price drop wasn’t just an unrealized loss that they could wait out. It was the first domino that fell onto their loans, which fell onto other related crypto activity, and so on.

If your crypto trading operation doesn’t have a full-fledged risk department, you can get most of the way there with a single sheet of paper. Put this on a sign above your desk:

  1. Asset prices move in both directions.
  2. Assets with fluctuating prices make for terrible collateral.

Think of these two statements before every trade and you’ll save yourself a lot of worry.

Worldcoin: the next episode

Do you read Matt Levine’s “Money Stuff” column? Elon Musk was a recurring topic there for a while, leading Levine to joke that Musk had effectively become his boss. A stray tweet about Dogecoin here, an odd Tesla sell-off there, and the poor guy would have to sacrifice his weekend to put out an extra column.

I sometimes wonder who might play a similar role here at Block & Mortar. SBF has been a real three-ring circus, so it’s hard to not cover his latest shenanigans. But then there’s Worldcoin:

  1. I first mentioned them in the May media roundup, linking to an interview with cofounder Alex Blania.
  2. Earlier this month, as Worldcoin graduated out of private beta status, I ran another segment to describe their newfound media skepticism spotlight.
  3. Two weeks ago I noted that Blania had kinda sorta acknowledged some possible price manipulation in the Worldcoin token.
  4. Last week’s newsletter pointed out that the group had attracted the attention of regulators in five different countries. Five. And I was afraid the number might increase by the time it reached subscribers’ inboxes.

That’s … a lot.

We now have more clarity on that fourth point. Worldcoin initially chose to … ignore the order from Kenya’s data protection authority (the ODPC) to stop collecting biometric data:

“The applicant (ODPC) is aware that despite the suspension and directive to cease processing of personal data, the respondents continued to process the said personal data. It took the public directive by the cabinet ministry of interior and coordination to halt the operations of the respondents (Tools for Humanity and Sense Marketing),” said Otieno in the affidavit.

At first I followed that up with “Worldcoin should be mindful of the optics on this” but since they’re in trouble for scanning eyeballs I had to scrap that. I then changed it to “this isn’t looking so good.” Also a bad fit. So I’ll just say that this story has some room to grow:

The ODPC sought the court’s help to have Worldcoin compelled to preserve the data it collected from Kenyans, as it finalizes (the multi-agency) investigations around security, privacy, and the legality of using “financial incentive” to obtain biometric data.

Do you like hearing about Worldcoin? You do? That’s great. Because, spoiler alert: they’ll be back next week for the August media roundup.

Not how it’s supposed to work

An early selling point of NFTs was that putting artwork on a blockchain would help artists get paid. Not only would they make money on the initial sale, but they would continue to earn royalties as their art moved about the secondary market. The money would just automatically roll in!

That only works if … the marketplace actually pays the artists those royalties.

Which, apparently, they can choose to not do?

NFT marketplace OpenSea has decided to take that low road. Earlier this year they made creator royalties optional (following in the footsteps of competing marketplace Blur). Last week the group announced that they were just getting rid of royalties altogether.

Adding insult to injury, OpenSea is selling this as a positive:

Others, including OpenSea, are trying to frame [not paying artist royalties] as a necessarily, positive change as the marketplace evolves. OpenSea CEO Devin Finzer criticized the fees’ “ineffective, unilateral enforcement” and said that creators will find other ways to monetize their work.

“Our role in this ecosystem is to empower innovation beyond a single use case or business model,” he writes in the blog post announcing that OpenSea will no longer support the ecosystem’s primary business model.

The fact that marketplaces can decide to not pay royalties is a flaw in and of itself. True.

The fact that marketplaces have decided to not pay royalties is a very different kind of flaw.

The Met’s metaverse play

I admit, I did a double-take when I saw this headline: “Why the MET Is Expanding Into the Metaverse With Roblox.” I initially thought it was about The Met. You know. “Time to ring up the lads at The Yard” and all that. I mean, I could see New Zealand cops doing that, sure. But London? Nah.

Turns out the article is about the Met museum in New York City. That makes more sense.

If establishing a metaverse presence works for brands, it should prove especially engaging for a cultural institution such as a museum. A virtual venue is a way for people to “visit” the exhibits without having to travel. And for those who are able to go to the museum in-person, a mixed-reality quest offers some digital prizes:

Scanning the physical works—which include a marble Sphinx from 530 B.C., a 16th-century Japanese helmet, Antonio Canova’s 18th-century sculpture “Perseus with the Head of Medusa,” and, of course, Van Gogh’s 1887 “Self-Portrait”—allows visitors to import digital wearables drawn from their various elements into their own inventories on the Roblox platform.

This virtual dimension affords “access to experiences that, in the physical world, might be difficult or impossible,” Roblox Head of Education Rebecca Kantar told Decrypt. “People are able to engage with and try on art and clothing pieces that would otherwise be kept behind a glass case.”

The linked article mentions that the British Museum is also getting in on the act. I wager their metaverse game would be more of a mystery experience. You know, “from whom was this artifact stolen?” No need to ring up Scotland Yard …

The wrap-up

This was an issue of Block & Mortar.

Who’s behind Block & Mortar? I'm Q McCallum. I've spent the past two decades in the emerging-tech space. And I'm very interested in web3 use cases.

Credit where it's due. Big thanks to Shane Glynn for reviewing early drafts. Any mistakes that remain are mine.

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