[Issue 8]: Reflecting On A Month In Topshot, Part 2
How does the real-life actions in the NBA move the Topshot Market?
Welcome back to the Dropshot! As promised, in today’s issue I’ll be continuing the series regarding my learnings from my first full month investing and researching NBA Topshot.
A short disclaimer before today’s post: for my previous posts (“issues”), I’ve attempted to keep the NBA discussion and context to a minimum to allow for the greatest possible accessibility. Today’s post will deviate from that principle, as I will be discussing my learnings about how Topshot moment value and news in the NBA can correlate in interesting dimensions. I’ll try my best to explain the context briefly, but feel free to leave any comments and/or questions at the bottom of the post if you want something clarified!
As with Monday’s post, I’ll be going over three broad themes/learnings corresponding to the NBA<>Topshot thread of thought. Let’s get started!
Injuries to Key Players Can Be Market Opportunities
Sadly, one of the main storylines of this NBA season has been short-to-medium term injuries for a number of the league’s premier star players. The reasons for this are numerous; the currently accepted hypothesis is a shortened and compressed NBA season that has created a more tiring workload on players and perhaps a lack of time for players to perform proper conditioning and body recovery activities.
Joel Embiid, Anthony Davis, LeBron James, Kevin Durant, and Kyrie Irving are just a few of the major players in the NBA that have missed more than ten games so far this season. Their lengthy absences can create opportunities to exploit the schizophrenic nature of the Topshot market that can exhibit severe recency bias, especially around injuries that either have no definite end date or shift the competitive landscape of the league. Let’s take a look at two examples - a severe drop and a more gradual drop in price, both which present different market opportunities.
The canonical “severe drop” example happened on March 21st, 2021, when ESPN NBA reporter Adrian Wojnarowski dropped this bomb on Twitter:
Looking at the price history of the LaMelo Ball Rising Stars moment, which is his only Rare moment on the marketplace currently, try to see if you can pinpoint how quickly the reaction was to the tweet:
Interestingly, the price did eventually jump back to almost pre-injury levels. If you were smart enough to see the post-injury dip as a buying opportunity instead of a panic, you gained access to a $5,000 moment at roughly $3,000. While this is certainly a unique example (LaMelo is one of, if not THE most, hyped young players in the NBA), this market action shows that that injuries that are seen as medium to long term (i.e. more than a month or two) can cause significant shock value, opening up some arbitrage opportunities.
A longer-term moment value malaise due to injury can be seen for Anthony Davis, the best player on the Los Angeles Lakers not named LeBron James and arguably their most consistent performer during their run to the championship last summer. He’s been out since mid February due to a nebulous “calf strain”. The lack of clarity around the severity of his injury and lack of firm updates about his return date has caused his market value to slowly crater over March, rather than one significant dip that then bounces back:
A $60 moment for a potential NBA Finals MVP, and top ten player in the NBA overall, seems like a great deal. I personally invested in Davis’s Seeing Stars moment because it has only 10,000 copies rather than this moment, which has 15K. Even if AD doesn’t come back until the playoffs, I foresee another deep playoff run that will give AD more time in the brightest spotlight. If not…the downside is very limited!
Scarcity is King
Before investing in a moment, I always ask myself a series of questions:
Is the player a top-10 player in the league currently?
Is the type of play being performed exciting?
How many serial numbers of this moment is issued?
Do I foresee a larger role for this player in the future?
…and other such questions
But by far the most important question I ask myself is: Given all the context gained from all my other questions, how likely is this moment to be repeated again?"
Let’s dissect this question through the lens of a moment that I haven’t invested in yet, but I have my eye on: the Steph Curry alley-oop to Chris Paul during the 2021 All-Star Game. Consider the following facts:
Chris Paul is widely considered the best pure point guard of his generation, and has been named to 11(!) All-Star games.
Chris Paul is also 35 years old and competing for an All-Star position against a large number of up-and-coming young point guards in the NBA. He is unlikely to make another All-Star game in his long and illustrious career.
His first All-Star moment just so happens to be at the first All-Star game that has Topshot moments.
Chris Paul is a flat 6 feet tall. While tall for a normal human being, he is positively Ant-Man when compared to other NBA players. The upshot of this fact? He doesn’t dunk often, if at all.
When you put all these facts together, it becomes obvious that Chris Paul scoring on an alley-oop during an All-Star game is a moment that is unlikely to ever occur again. It is probably a truly unique moment in the annals of NBA Topshot, especially when we look back on it five years from now. This is exactly why I’m looking to purchase a good deal on a low serial number of this moment as a long-term hold.
Note that I was able to form this investment thesis based on facts that are hard to be aware of unless you are an NBA fan. This is where I think investors who are NBA fans will have the edge on casual Topshot traders - they will be able to look one, two, even ten years down the line and identify the moments that will be truly scarce. Zion Williamson dunking a basketball is certainly the type of moment that drives a lot of attention and hype on Topshot, but Zion is a dunking machine fitted inside a 20-year-old human body. By the time his own long and illustrious NBA career is over, he will probably have dozens, if not hundreds, of NBA Topshot dunk moments.
But there will (probably) only ever be one Chris Paul alley-oop moment.
Don’t underestimate the power of hype (but it’s a double edged sword)
Anthony Edwards, after LaMelo Ball, is arguably the most popular rookie in the NBA. While he is statistically having a roller-coaster year, he announced himself to the NBA during this highlight on February 19th, 2021:
When looking at Edwards’s price for his moment from December, note the pop that happens on the 19th (and remember that his December moment is NOT the same as the dunk above):
I remember being on Topshot the night that this dunk happened; the instant the video hit Twitter, I watched the lowest ask for the Edwards moment (again, a totally different moment than the dunk) pump itself higher every time I refreshed the page. It was truly like watching a star being born, but being anointed by the Topshot market rather than an NBA announcer or an All-Star selection. It definitely felt like a historic moment (pun intended).
Alas, notice the cratering in price that followed nearly a week later. To be fair, this corresponded with a general market pullback, but the lesson is the same: if you ride the hype train of a player or a moment, be prepared to either ride it for a long time as a long-term hold, or get out fairly quickly with a modest profit before the market moves on to the next hot dunk or challenge.
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I hope this newsletter was still interesting to you all, even if you don’t follow the NBA closely! In the third (and last part) of this series, I’ll take a closer look at future plans for Topshot, and how I’m tailoring my investment strategy to fit around the limited information we have so far combined with some educated guesses on my part.
Until then, happy Topshotting!