Is Top Shot Dead? An Investors Guide

NBA Top Shot sales are down and a lot of new and shiny NFT’s have come out since. We look the state of the moment producing line, and ask: is Top Shot dead?

For a brief moment in February, Top Shot wasn’t just thriving. It had become one of the most important cultural phenomena in the world. CNBC published articles and CNN stories about what everyone touted as the next wave of sports collecting. Even the New York Times released a think piece about Top Shots’ cultural importance.

The reason for all the coverage? The money. Lots and lots of it. In February, the company sold $231.6 million worth of NFT’s. The sale of one of Lebron’s dunks for $208,000 also made significant headlines.

The prominent sports card companies and the other leagues scrambled to release their own NFT’s but didn’t do as well. Top Shot was on top of the world.

Pride Comes Before the Fall of Sales

In retrospect, late February was the peak of sales. However, March was still great, and the company’s hype and mystique only seemed to increase.

Afterward, the popularity of the platform plummeted. April saw the volume of sales decrease by 60% to $92.5 million.

If we look at the average value of a sale, the picture is even bleaker. It was $181 per transaction in February and is now barely $30 per sale. So, in simple terms, your moments in mid-June are worth about 1/6 of what they fetched less than four months earlier.

What Do These Terrible Numbers Mean?

Dapper Labs predictably put a pretty spin on the ugly numbers. The company spokesperson explained, “It is the fastest-growing marketplace in history — there is nothing close to the volume or pace we’re on. There was an NFT boom in February and March. If we isolate that time and look to January ’21 and April ’21 as a more normative representation, we are still growing. April sales ($92.5 million) more than doubled that of January ($43.9 million).”

Investors in Top Shot moments were highly and justifiably concerned. There are not a lot of economic fundamentals behind the Dapper Labs model. The company came out of nowhere. And let’s face it, they don’t offer a product that people desperately need. There is an unstable feeling around NFT’s in general.

Have you ever tried to talk to a normal person about these things? And no, anyone in the hobby or into crypto doesn’t count as normal. They have no idea what NFT’s are or why anyone needs them. Maybe they are right?

Is Top Shot Dead Or Is This A Readjustment?

The numbers are clear, and the downward adjustment is meaningful and sharp. But there are three main narratives to explain this outcome.

• Moments were over-valued, but now they find their actual value, which is still high but more reasonable.
• Top Shot was a temporary craze and holds no long-term value and will be surpassed by other sports collecting memorabilia NFT’s.
• Top Shot moments’ decreased value reflects the lack of a long-term market for sports collecting NFT’s.

We do not have enough data to determine conclusively which of these narratives is the most accurate. However, there are have been some informative trends since the April price collapse. They mostly point to the first narrative.

Current Trends in Top Shot Sales

The numbers show a trend of a moderate but significant revival in the market, particularly in June (so far). Sales have hit surprisingly low points in comparison to the highs of February on more than one occasion. On April 7^th, it hit its most dramatic low, with sales totaling $630,133. In comparison to the highest point of 45 million dollars in one day, that looks like sales flatlined.

However, sales went up significantly in mid-April. Then reached their absolute lowest in late May before rebounding for a more robust June. The highest day for sales in June was healthy, though unspectacular $3,404,587 on the 11^th. The market is down again as of writing, but there is no reason to think it won’t go back up in a week or two.

It is also important to keep things in perspective. Daily sales of over 2 million dollars a day are a pretty healthy rate for a new company like Dapper Labs. And on many days, the sales are well over that mark. So, the current rates are probably sustainable. However, the margin is not as wide as Dapper Labs, and the NBA wants them to be.

The Unique User Metric

The best sign of life is unique users. It measures how many people actually bother to log in and trade moments on any given day. In some ways, it is a better measure than the value of moments because it measures engagement. Meanwhile, value has a lot to do with hype and fickle users who move on to the next big thing.

Let’s look at the number of unique buyers and total transactions by month

Looking at these stats gives us a much more positive picture of the health of Top Shot. It also provides a far more accurate snapshot. As you can see, a relatively small group of bullish investors drove the massive rise in value in February.

Many curious people dipped their toes in the following month, and unique users reached their highest point. While a good portion of the new users left, some remained engaged alongside a good number of original investors.

About two-thirds of the users remained engaged two months later (probably less as new latecomers joined). That is a reasonably firm sign that Top Shot offers lasting value to many of its users.

The number of engaged users remains a crucial and fragile metric. If that number slips well beneath 100,000, the platform may be in trouble.

Technical Issues

One issue that halted Top Shot’s meteoric rise was its technical issues. At the height of its popularity, it wasn’t easy to sign up and purchase new moments.

There were far fewer packs than users. Therefore, people waited in the online virtual room for hours just to come out empty-handed. If that wasn’t enough, sometimes you got to your position in line and would get bumped or couldn’t pay.

At that time, I couldn’t help but feel that a lot of this was an intentional attempt to create scarcity and value. However, by over-minting many of their moments, they significantly watered down their product. So, if this was a strategy, it didn’t work.

The company claims they were simply in beta and not ready for all the traffic they attracted. My guess is there was a bit of both going on.

There is no doubt that all of these problems created ill-will among some collectors. I know it did for me.

A problem that was definitely unintentional was that users found it difficult to withdraw funds. Sometimes, people had to wait 30 days to withdraw their own money. That is simply unacceptable.

Recent Improvements

However, there are some positive signs. For example, the new pre-registration system for packs before drops makes the purchasing process significantly more enjoyable. In addition, there are fewer glitches in payment or in releasing the money.

Either Dapper Labs has changed its strategy from exclusivity to customer retention or improved its capacity. Either way, today’s Top Shot is far easier to work with. In addition, they will find more success with casual users than they did before.

Is Top Shot Dead? The Bottom Line

If Top Shot is dead, the users have not got the memo. If you try to get a pack, you will still find yourself waiting behind 100,000 other users. There is life in Top Shot yet.

We won’t go into the overall prospects of NFT’s mainly because we have done so before. However, smart money is on a long-term increase in the use of NFT’s.

But the bottom line is, we now see NFT’s going from being an overhyped platform to a part of the culture. Users are finding the actual value the platform holds rather than enthusiastically pursuing an over-hyped product.

Panini has launched a competitor to Top Shot, and they won’t be the last. However, compared to the competition, Dapper Labs offer a unique product and have a base of loyal and engaged users.

In our opinion, Top Shot will have a long life ahead of it and will cement itself as the premier NBA NFT product in the long term. Sure, there will just be fewer profiles in the New York Times on it. But who cares?