The Whales of NBA Top Shot

Courtesy of The Wall Street Journal, an article on the NBA’s Top Shot phenomenon:

Michael Levy was scrolling Twitter last September when he noticed someone mention something that he wanted to know more about. What is NBA Top Shot? he wondered.  

This platform to buy, sell and collect officially licensed video highlights was months from becoming a market that would captivate and mystify basketball fans, cryptocurrency enthusiasts, sneakerheads, pandemic day traders and thousands of people stuck at home. But it wasn’t long before Levy texted his friends: “This could be big.” 

He was so convinced that he decided to spend $175,000 over the next six months on digital trading cards. They are now worth $20 million. 

The investment was a sizable one for Levy, a 31-year-old financial analyst who says his interests are sports, poker, markets and “trying to identify advantages and edges,” but it appears that he found the latter in Top Shot. It’s why he’s not selling. 

 “I continue to think it’s an asymmetric bet with fantastic upside,” he said. 

Levy is one of the biggest winners of a manic new market that true believers say is the future of collecting and skeptics call a slightly absurd form of speculation. At the center of the frenzy are assets known as non-fungible tokens, or NFTs, which use the blockchain technology powering cryptocurrencies to authenticate digital art, memorable tweets and a remarkable variety of ephemera suddenly worth a mind-blowing amount of money. 

The most popular and perhaps most confounding NFT market is NBA Top Shot. It has minted unlikely millionaires and left many scratching their heads as it processed more than $250 million in sales from 100,000 buyers over the last month alone. 

The peculiar but lucrative subculture of Top Shot reminds others of a similar hit from the same company, Dapper Labs, in which people collected virtual cats instead of NBA highlights. CryptoKitties was a fad that was mostly forgotten after a few crazy weeks in 2017. 

Now the idea is roaring back in part because Top Shot is built for a different audience: the average NBA fan. Dapper Labs cut deals to give the league and its players a slice of every transaction—the company takes a 5% fee—with the goal of reaching casual basketball consumers and not just blockchain evangelists. It’s working. Instead of swapping jerseys after games, NBA players are exchanging Top Shot moments. 

“We knew this was rocket fuel,” said Roham Gharegozlou, chief executive of Dapper Labs. “The thing that surprised me is how quickly mainstream basketball influencers adopted it.” 

For a generation accustomed to playing daily fantasy sports and gambling on their phones, there is nothing particularly odd about paying exorbitant sums of money for otherwise free NBA highlights. 

Many of them are young. Some are now rich. The millionaires of Top Shot were the bullish investors who had the money to pour into an emerging market once they spied a profitable opportunity before the rest of the world could see it. Their luck, timing and knowledge of blockchain and basketball turned out to be worth a fortune. 

They still have to explain to confused friends what they’re buying, why they’re not selling and how a glorified YouTube clip that can be viewed by the rest of the world can also trade for hundreds of thousands of dollars. 

“If someone tells me they don’t see the value of diamonds, art, stamps, physical cards, these intangible items that don’t have intrinsic value, it’ll be impossible to get them across the line on a digital asset,” said Levy.

It’s easier to understand through another kind of collectible. A baseball card is a few cents of ink and paper, but the most valuable ones are limited in supply, reflect an experience and come with a guarantee of authenticity. Top Shot moments have the same forces working in their favor. 

“It’s the story, the scarcity, the joy you get as a collector,” Levy said. “It’s not the ability to hold it in your hand.” 

But there is some value to that, too. Gharegozlou recently ordered a video frame to display his clip of Vince Carter’s last shot in the NBA. It will live on a shelf next to his Larry Bird signed basketball.

One of the Top Shot whales is a 27-year-old software developer named Andy Chorlian. Except for the size of his bank account, he is typical of the Top Shot demographic. He traded Pokémon cards as a kid. He owns so many sneakers that they no longer fit in his Brooklyn apartment. And he wasn’t surprised by what happened once he discovered Top Shot. “I just became really obsessed,” he said. 

Six months later, he owns roughly 3,800 moments, and they are valued around $15 million—give or take a few million bucks depending on the day.  Top Shot’s market was deeply inefficient when he started buying, and Chorlian took advantage by concentrating on the NBA’s superstars, since he felt those premium collectibles were the safest investments. He also made value plays by pouring funds into cheap rookie moments that had the potential to grow over time. He owns 96 of the same limited-edition moment from RJ Barrett’s rookie season—there are 2,882 total—and snagged a chunk for $1 and $2. The lowest asking price for this layup is now $1,900. One went for more than $4,000 last week.

Chorlian flipped part of his collection to pay taxes—he also sold a portion of his cryptocurrency holdings to cover his student loans—but otherwise he’s staying in the market passively. “I spent more time thinking about Top Shot when every moment was $5 than I do now,” he said. 

But to make a fantastic amount of money, it wasn’t enough to buy on the cheap. There were times when Levy and Chorlian had to splurge.  

Levy set the record for the highest price ever paid on Top Shot when he purchased a Giannis Antetokounmpo dunk in late December. The serial number: 34. His jersey number: 34. The price: $8,034. 

A few weeks later, Chorlian bought a special LeBron James tribute dunk to Kobe Bryant, a moment that felt canonical to him. His purchase was also the most expensive in Top Shot’s history. The record of $71,455 lasted for an hour. 

It was around that time when Levy was offered $100,000 for a LeBron James moment. He refused. And he knows how that sounds. But the reason he said no was simple. 

“I think it’s worth more,” he said. 

Top Shot had its GameStop moment another few weeks later. A single day in late February brought a spike of $46 million in sales—including the current marketplace of $208,000 for a LeBron James dunk.

A small group pooled their funds together to buy that clip, including Peter Jennings, who was busier than any of his partners that day. As it turned out, Jennings was in the hospital: His wife was 16 hours into labor. He was about to become the father of a baby daughter.

A screenshot shows an NBA Top Shot virtual playing card featuring a Feb. 2020 dunk by LeBron James.

The action has been so dizzying that Levy and Chorlian do their best to ignore it altogether. The market has dipped since then, but Levy says he tries not to focus on short-term noise, and Chorlian says he’s comfortable with volatility as 95% of his net worth is held in cryptocurrencies. In the worst-case scenario of a Top Shot crash, he figures he would still have a job that pays well. “I’d be in the same position as a lot of 27-year-olds in the United States,” said Chorlian, who described himself as “a bit of a degenerate gambler.” 

But he wouldn’t be able to cash out right now even if he wanted to. 

Top Shot users have to wait 30 days before they can withdraw money, and there are limits for certain users because of the company’s safeguards against money laundering, Gharegozlou said. The more than 10,000 approved to withdraw money became a minority as demand exploded, which remains a source of frustration for Top Shot’s many new users. Gharegozlou cautions that Top Shot is still in beta testing and says he’s confident that marketplace outages, technical difficulties and other challenges of scaling a business will be worked out. 

Levy made an investment in Dapper Labs in February as his Top Shot collection was growing in value, a stake that increased his exposure to the risks of an unpredictable industry. He doesn’t have to be told he should be diversifying. “Any traditional portfolio theory would say this is too outsized an asset,” he said. 

Every time he looks at his account and sees a previously unimaginable amount of money is a reminder that he must decide what to do with his millions of dollars. His plan for now is to do nothing. He is holding.

“I don’t know where this is heading,” Levy said. “I just know that it has enormous potential that no other investment I have access to can mimic.” 

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