In 2021, it’s really difficult to take new tech seriously. It’s in our nature to speculate about new products and especially new markets, but the concept of a Non-Fungible Token (NFT) and the appeal around them is a doozie.
Prior to NBA TopShot, the only information most of us had on NFTs were these blockchain pieces of pixelated art, known as CryptoPunks. When I first looked into CryptoPunks, the concept was insanely nonsensical. The idea people were paying tens of thousands of dollars for limited pieces of blockchain “art” is already difficult to believe, but even more difficult after seeing the simplicity of the artwork.
The Market for NFTs, like Cryptopunks, was carried by arbitrary pricing methods within NFT galleries such as OpenSea. The sellers were posting the NFTs for sale at insanely high prices, based simply on the principle of scarcity. Similar to the early NFTs like CryptoPunks, NBA TopShot moment pricing closely resembled the CryptoPunk market in its early stages.
What is NBA TopShot?
The best way to describe NBA TopShot is: It’s a player highlight you can collect. The highlights are not called “cards”, they’re called “moments”.
Moments are classified as common, rare, or legendary (based on the quantity produced of each moment). Each moment you get has a unique serial number. The serials closer to number one or the player’s jersey number will fetch the most money on the marketplace. You use a website called Dapper to transfer funds into, by which you can purchase packs of moments or moments off the site marketplace.
Now, when I first heard about this in February, I had some questions. Do you own the rights to the moment? Can you transfer a moment to a crypto wallet, or does it have to stay on the site? The answer to both is “no.” Apparently, the latter is currently being worked on.
Regardless, my next thought was, “Why would anyone want to own something they can just lookup for free on YouTube? The answer is somewhere between, “It’s a cool alternative to collecting cards” and “I have no idea, but it’s a cool, new thing.”
It’s also worth noting, NBA TopShot is still in its Beta phase, so there are some issues with site maintenance and cashing-out your account.
The TopShot Hype
NBA TopShot began very quietly, launching in June of 2020 and releasing its Series 1 moments in July of 2020. Dapper Labs had rounded up a number of current and former NBA players to fund and promote their new product (along with a number of large companies). Players like Aaron Gordon, Andre Iguodala, and Spencer Dinwiddie were a few of the bigger name investors. Following a half year of relative obscurity, NBA TopShot users and moments exploded in the middle of January, 2021.
On January 15th, Bloomberg released an article about NBA TopShot and Lebron James highlights selling for thousands in the marketplace. Six days later, the Action Network released an article by Darren Rovell highlighting the five-figure sales. T
Two days later, Forbes released an article about a Lebron James moment selling for $71,455. After that, NBA TopShot absolutely exploded, hitting its peak pricing for moments around February 28th. For continuity and consistency purposes, we’ll use a steady star player like Giannis Antetokounmpo as a basis for representation of the market this season.
In the sixth months prior, you could attain a Series 1 moment (common) from a star like Giannis for $25 to $30. There wasn’t much volatility in those times. The Moments you could acquire were only slightly overpriced when compared to the pack prices. Following the release of those articles, the ascent of moment values was steep across the board.
From a business perspective, it’s important to evaluate markets by the basics. You have this new product that had little demand prior to January, selling in a new commodities market. The supply was also limited at that time. As soon as those articles were released and people started reading about NBA TopShot, the demand spiked, but the supply didn’t. Therefore, the site was overwhelmed by new users, as users flocked to the marketplace to buy moments since they couldn’t acquire packs. The price of that Giannis Series 1 Dunk went from $30 to a whopping $2,000 by February 28th.
It’s clear the hype peaked by March 1st and economic principles were bound to kick in. What happened next was what early adopters likely expected, but get-rich-quick users feared: the market nose-dived. From the beginning of March to the beginning of April, that Giannis dunk went from around $2,000 down to $520.
The reason for this was the influx of flippers (users with the mindset of acquiring moments through packs and immediately selling them on the marketplace for immediate profit). There’s nothing inherently wrong with flippers, but hobby markets have fallen prey to them in other collectible markets in the past.
Anytime there is such an imbalance with supply and demand, resulting in inflated prices, flippers will infiltrate that space with the intent to capitalize on strong, short-term profits. However, since the peak, both marketplace transactions and the number of active users have declined. It’s a completely normal reaction in a market such as TopShot.
TopShot marketplace projections
Remember trading cards? Maybe you do because you’re still in that space, but here’s a brief rundown for those of you who are unfamiliar. In the 1980s, the baseball trading card market boomed. What happened after the boom was an overproduction of cards from the mid-80s, through roughly 2006 or so.
Thanks to the internet boom and sites like eBay, acquiring and turning a fast profit became very easy. After that, prices dropped, sales dropped, and the production of cards subsequently dropped.
Eventually, the supply became relatively low, and the number of people joining the hobby exceeded the previous supply and demand equilibrium. With card costs fixed via established contracts with retail stores, the re-sale of items boomed. With that boom came the influx of flippers to the card market. With TopShot, the same price imbalance between the cost of packs, the limited number of packs, and the demand is following that same cycle.
Though TopShot got off to a massive start, things have begun to slow, as arbitrary marketplace pricing (from users) and a steady flow of new moments have slowed things down. When you have a market with a high percentage of flippers, a lot of undercutting tends to happen.
Users had already recognized the value drop of most of the moments after the late February peak. As a result, selling moments as quickly as possible has become vastly prevalent and accelerated the overall drop in both marketplace sales and moment prices.
If TopShot continues with their current pack release trends, moment prices will slowly begin to decrease in the marketplace. Once the average collective value of moments pulled from packs better reflects the cost of the packs themselves, the incentive to buy packs for a guaranteed profit will continue to incentivize flipping.
From here we can expect the continual sinking market to result in two scenarios:
- TopShot increases prices for packs – By doing so, TopShot can effectively halt the flippers in the market and stabilize the prices on the marketplace. Of course, the downside to this is that it may price out some of the collectors who may be valuable, long-term customers.
- TopShot expands to other sports, to curb the expected drop in interest during the NBA offseason – I expect TopShot won’t have all the deals with other sports ironed out in time for the looming dead period in the summer. So, it’s likely TopShot will begin releasing more moments from NBA games prior to last season. By utilizing archived NBA highlights from their historical vault, TopShot should be able to keep the train rolling through summer and early fall.
Is it worth getting into TopShot?
From a financial perspective — if you’re looking at this from a long-term investment standpoint — TopShot is probably still a few months away from being settled from a market perspective. The gains have been fleeting and the value of moments has been in steady decline for around 45 days. Do your research before buying anything from the marketplace.
Just know, if you want to get in on this now, it’s best to just try to acquire moments through the pack drops (they announce the dates on the site and a lottery system is still in place). Right now, anything you get in the marketplace is still going at an inflated rate, so go in there knowing the value likely won’t increase for some time. If you’re a collector, Series 1 moments are holding value better than Series 2.
The best way to determine if you would like TopShot is to spend some time exploring the site. Check out moments and the showcases people list on their profiles. Just beware, this is no longer a Gold Rush where people are flooding the space, dropping a few hundred bucks, and leaving with thousands. That ship has sailed. Now, it’s all about how much you enjoy the product.