GameSquare literally just spent $5 million on one CryptoPunk — a “Cowboy Ape” to be specific, purchased from Compound founder Robert Leshner. Leshner’s already a shareholder, and the company is apparently targeting 6-10% annual returns on their foray into digital assets. CEO Justin Kenna, a former Flywheel Sports exec, now refers to it as a “grail” investment. Really?
Is a JPEG Really A Grail?
So can we pump the brakes on the dedicated “grail” chatter already? A grail suggests something of vast, perhaps impossible worth, rich with legend and lore. Excalibur, the Holy Grail… a pixelated gorilla in a Stetson? These days, CryptoPunks occupy an important place in NFT history. To call this exact purchase a grail feels more like marketing hype than a real investment thesis.
What metrics actually support this claim? Rarity? Sure, there are only 24 ape punks. But just because something is rare, it doesn’t mean its rarity leads to long-term reliable, predictable returns. And that's the key word here: predictable.
Think about it. If you were given the opportunity to invest $5 million, would you take that money and invest it all into one very high risk and highly volatile digital asset? Or would you use that to diversify into, for instance, a smartly-managed fund focused on real estate? A fund that produces reliable returns through rental income, grows in value as the buildings appreciate over decades, and is collateralized by real assets? Suddenly, that “grail” looks a bit more like a rusty pot. It reminds me of the dot-com boom, where companies with no solid business models were valued at astronomical figures simply because they were "internet companies." Have we been down this path before, albeit with a blockchain slant?
6-10% Returns? Seriously?
GameSquare is projecting a conservative 6-10% annual ROI on making this investment. Let's be blunt: in the NFT market, that's a massive gamble. We’re not discussing a normal asset class, but rather one notorious for its extreme volatility, vulnerability to bubble-like activity, and all-out regulatory roulette.
That last 21% increase in the NFT market you just heard about? That's not a sign of stability. Well, it’s not so much the sugar high as it is the sugar high powered by Wall Street speculation. Just because one wallet purchased 45 CryptoPunks should not be construed as an indication of a positive, long-term market direction. It's a pump, plain and simple. And what happens after the pump? The inevitable dump.
GameSquare expect to generate this incredible yield. Community activations? Marketing? Potential licensing deals? These are all fuzzy promises, not specific plans. Beginning to work with 1OF1 AG is a big step in the right direction. Even the best NFT yield management programs are unable to provide returns during a bearish market.
A well-diversified portfolio of dividend-paying stocks can realistically produce a similar return, with much lower risk. Even junk bonds do much better on this score, providing a far more certain income stream. NFTs should most certainly be part of a diversified portfolio. Placing a bet of millions on one NFT seems like a high-stakes poker match – not an investment you’d want to make.
Ethereum Holdings: Playing With Fire?
Outside of the CryptoPunk, GameSquare’s investment in Ethereum runs deep. They’ve dumped $45 million worth of ETH, greatly increasing their holdings. They now hold over 12,000 ETH. This is a monstrous bet on the long-term future of Ethereum and the broader crypto ecosystem.
I’m not anti-crypto per se, but I abide faith in crypto is mislaid. Let's be honest: the regulatory landscape surrounding cryptocurrencies is a minefield. The SEC’s enforcement ramp-up is particularly extending to unregistered securities offerings, and stablecoins are particularly facing the regulatory spotlight. Just one bad regulatory ruling could send ETH prices crashing down. Depending on how low (or high) the average price drops, this could erase over two-thirds of GameSquare’s treasury.
The company’s Ethereum strategy isn’t too different from the early days of the cannabis industry. Investors rushed in, seduced by hype and the prospect of mind-boggling growth. Regulatory delays, licensing bottlenecks and deeply embedded competition from entrenched local players soon chilled the market. Are we watching history repeat itself with crypto?
Looking back at GameSquare’s acquisition of CryptoPunk, it feels less like a smart move and more like a spectacular bet. It passes just short of the divide into foolhardy conjecture. The company is placing some major stakes on the future of Web3, and if that gamble pays off, they’ll be reaping the rewards. It could also backfire spectacularly.
The key question for investors isn’t whether GameSquare is being innovative. It's whether they're being responsible. And right now, the jury's still out. What do you think?
