Nick Chong · 4 days ago · 2 min read · Insights via Grayscale Investments
Ethereum › Adoption
How Two Guys Made $100k Trading Digital Cats on Ethereum, Merit of Digital Collectibles
Ivan Bogatyy, former Google AI and deep learning researcher, and his friend Oleg Ostroumov, who has been running one of the biggest crypto hedge funds in Russia, made $107,000 off from CryptoKitties, a digital collectibles platform based on the blockchain, during its peak when the massive demand was enough to clog up the Ethereum network.
Selling Digital Cats For 200 Ether
Upon the release of CryptoKitties and its viral debut, most of the digital kittens on its Ethereum-based platform were already valued at around 25 to 50 ether – about $25,000. Old kittens or the Founder Cat, the first kitten on the CryptoKitties platform, was sold at 150 ether, worth around $75,000 at the time.
Acknowledging the rapidly increasing demand towards digital collectibles and CryptoKitties in specific, the two investors purchased as many old kittens on the platform as possible, those that are not replaceable and will forever have sustainable value.
“Oleg bought Founder Cats #4, #6, #8 at 50 ETH each ($25K at the time), and I put up $5K for a 20% equity stake in Founder Cat #4. We were pretty optimistic about the mania and re-listed the Kitties at 250 ETH, 5x the purchase price.”
The three cats in total cost 150 ETH at the time, equivalent to about $75,000.
The critical element of the high-risk but high-return investment thesis of the two investors was ensuring their exit at the top, right at the peak of CryptoKitties.
By using Google Trends, GasGuzzlers, and KittySales, to evaluate the trend of the app, interest of CryptoKitties on Ethereum, and overall value of kittens, the duo sold kittens at around 200 ETH each.
In the end, Ivan donated his share of the profits to the Summer Informatics School of MCCME, a coding bootcamp, demonstrating that the journey of the two investors was done to demonstrate the value of digital collectibles and an innovative way to find value in newly emerging products that permanently exist on the blockchain.
So What is the Purpose of Digital Collectibles Exactly?
For a start, CryptoKitties showed the possibility of exchanging digital goods on the blockchain seamlessly, in a peer-to-peer manner. The digital kittens on the app could have been replaced with stocks, cryptocurrencies, and securities, and the app would function as a decentralized brokerage.
The rise of CryptoKitties also demonstrated the potential of consensus currencies and systems, which can gain value independent of the existing financial system.
As such, Vitalik Buterin, the co-creator of Ethereum, praised digital collectibles for their efforts in showcasing the possibility of increasing the adoption of the blockchain beyond the realm of finance. Buterin said,
“I actually like the digital cat games. They illustrate very well that the value of a blockchain extends far beyond applications that would literally get shut down by banks or governments if they did not use one,”
Upon the recent sale of a $1 million rose on the Ethereum blockchain, prominent hedge fund investor Ari Paul stated that non-fungible digital collectibles will get big very fast.
2/ people will ask why these have value, the same way people question the value of all collectibles ranging from beanie babies, to Babe Ruth baseball cards, to rare coins and stamps, to undrinkably old wine.
— Ari Paul (@AriDavidPaul) July 5, 2018
Investors could dismiss the value of digital collectibles based on the decentralized and virtual nature of those assets. But, similar to old artwork and antiques, digital collectibles exist permanently on the blockchain without the possibility of elimination and alteration, unlike traditional collectibles.