CryptoPunks and NFTX
Should $PUNK trade like an index fund or a holding company?
When I first encountered CryptoPunks, my reaction was one of skepticism and disbelief — “Why would someone pay real money for this?”. I eventually came to understand the historical context and, empirically, its undeniable that people really value these things. More details on the thread below:
But approaching CryptoPunks with an investor mind, I was still uncomfortable. While there was an organized market for them, trades were very infrequent, and some Punks haven’t been traded for years.
That’s where the solution NFTX created came into the scene. What they did was create index funds for Punks and for other high-quality NFTs (whatever that means). $PUNK gives you exposure to a portfolio of punks, from Basic to Zombies (the second most expensive), and are reasonably liquid — you can trade them on DEXs
People following this journal may remember that I just took some profit on a NFTX position. Why am I writing this again?
Well, yesterday was a pretty historical day for CryptoPunks. The highest-priced sale of a single Punk happened: Punk 2890 (one of the 9 Alien Punks) bought for 605 ETH ($761,888.57 USD).
Could this be wash trade? Certainly. But the reaction and the amount of people interested on Twitter just went to confirm that there is a real interest in these things.
This confirmation led me to take action in 2 ways: I bought more $PUNK and $NFTX. With 2 different strategies.
NFTX I topped up the position in such a way that now I own a % of the protocol that I intend to keep untouched, at least until 100M. This is much more a VC-style bet, like my Badger position. But I can take profits if the market decides to price this too expensively for the current stage of development.
PUNK is a different thing, it’s really a trade. Currently, the fund is being traded at ~20ETH PER $PUNK, a 16% discount to NAV at launch. I believe Punks will keep appreciating, and given they are generally priced in ETH (and I’m bullish ETH), buying them at a discount to NAV seems to be interesting.
What could go wrong here? A persistent or widening discount may indicate that actually, $PUNK is less an index fund, and more like a holding company (where 20-30% discounts to NAV are not unusual). Implicitly, then, I’m betting that this will actually trade as an index fund, as the creators of NFTX suggest. It makes sense to me because
it’s not a random collection of NFTs, there’s no “manager” and it’s a rules-based fund. But this market is so new that it’s hard to really be sure.
I’ll refrain from adding to this position until I see some confirmation that the market will correct this discount.