Chiliz (CCC:CHZ-USD) is another altcoin making headlines on its performance.
It has a strange name, and despite what you might imagine from that name, it has no connection to the food industry at all. No, Chiliz is actually connected to the sports industry. Is it a spicy buy, though?
Today there are thousands of altcoins. According to Investopedia, “As of March 2021, there were almost 9,000 cryptocurrencies … Altcoins accounted for over 40% of the total cryptocurrency market in March 2021.”
Why you should consider CHZ token, then, among this plethora of altcoins? I will explain the reasons and give my verdict on Chiliz.
A Reality Check On Crypto Investments
With myriad altcoins and a decentralized system, the relentless pursuit of quick and easy profits are the fuel for surging prices and dramatic declines in the cryptocurrency market. The charm of buying something for pennies, investing a rather small amount of money, and turning it into several thousand dollars soon attracts many investors. Naturally, this creates hype in the cryptocurrency world.
Invest in what you know, do your due diligence, and be okay with your investment philosophy. Are you a speculator? If the answer is yes, then Chiliz may be another investment opportunity. Just make sure you know its high risks and that it probably doesn’t have any value at all. Like any miniscule altcoin, your hope will be that the greater fool theory lets you exit your position at a profit, and you find another investor who thought this was a hot altcoin to buy at a higher price than the one you bought.
Also remember that today, valuations in the cryptocurrency world are completely meaningless. It’s the norm for altcoins to offer the promise of potentially being worth billions. It exemplifies the phrase “irrational exuberance,” one of my favorite investment idioms.
CHZ Stats: The Hype Is Present
Looking at CoinMarketCap for stats about Chiliz, some things are obvious from the start.
It has a market rank of No. 62 as of June 2, 2021, a flat line for its price for about a year and a half from 2019 to early 2021, and a huge spike of almost 90 degrees in late February and mid-April. Chiliz went from about a penny at the beginning of the year to 77 cents in April, and its current price is about 28 cents. It has a market valuation of about $1.6 billion. The question to ask is why. What makes it that valuable now?
Before answering this question, let me clarify that by valuable I only mean its price observed by its total market capitalization. This is different than its real or intrinsic value.
Can Chiliz Disrupt the Sports Industry?
So then, what is Chiliz, exactly? The Malta-based company is a startup that issues tokens to sports fans in return for rewards. According to Adriana Hamacher at Decrypt, “The Chiliz token, CHZ, powers Socios.com, and fans can use it to buy tokens for their favourite teams via its marketplace and cryptocurrency exchange. Tokens allow fans to vote in a series of polls and receive special promotions and rewards.”
The idea is that teams from various sports leagues can have fan tokens on Chiliz, allowing them to build a community with their fans and monetize this interaction with their audience.
This allows sports teams to sell fans special perks, such as voting on team jersey designs or early access to tickets. In April, fans were given the chance to vote on which fighters they wanted to see in a mixed martial arts bout with their Chiliz tokens, as reported in Coindesk: “Some 25 fan tokens are now offered on Socios after the company secured a series of partnerships with sport teams and leagues including FC Barcelona, Manchester City, Juventus and the Ultimate Fighting Championship (UFC).”
The article quotes Mason Nystrom, a Messari analyst, who says, “large organizations like football clubs and the UFC need control of their brands and monetization rights. Tokenized loyalty points and rewards present new opportunities for increasing revenue beyond ticket sales. The push to grow digital lines of revenue will surely grow even once the pandemic subsides.”
Crypto Meets Sports: Good Decision or Not?
Is this business model of providing fan tokens a viable or good one? Many altcoins try to prove that they have utility, and connecting them to a large industry like sports is one way to do that. Fans are eager for opportunities to have a stronger connection to their favorite teams, and they’re ready to spend money on things like early access to tickets.
The sports industry is extremely lucrative and includes numerous revenue channels, including sponsorships, tickets sold, and many other sources of income. The majority of sports teams have very loyal fan audiences.
But when it comes to the utility of Chiliz I’m hesitant. Would I pay to buy a fan token to get access to early tickets? Or to vote on a new logo design? Those aren’t necessarily valuable to me. I do not see any value to this, even though it might be fun. When it comes to investing, I do not see a solid reason to buy Chiliz.
At 27 cents, it might be tempting to view Chiliz as a cheap, accessible investment. But this market capitalization of about $1.6 billion is built on little more than hopes, sentiment and fun.
Yes, it may back the sports industry but the utility and value of Chiliz to me are way too overpriced.
If I want to engage with my favorite team’s decisions, I can send a letter or email to the management for free. They probably won’t listen to me, but at least I’m not spend any money to express my opinion on a trivial decision.
CHZ is another highly speculative altcoin. Right now, Chiliz has deals with NASCAR, UFC, and the NHL. That is nice. But as for actually buying it, I see no value in it at all.
All major decisions by the teams will be made by their management, not their fans. Some fun decisions might be offered for the fans to make. That would be nice. But trying to push this sports altcoin to become valuable has plenty of fundamental holes in it.
Chiliz may have some utility, but not enough to justify its price or its valuation. In the end, supply and demand will drive its price, not its effort to disrupt the sports industry. Right now, buying CHZ to redeem rewards has no practical or monetary value to me. It’s important to focus on what matters in investing. Something that costs 27 cents isn’t necessarily cheap just because of its price. The idea of turning emotions and excitement and the loyalty of sports fans into a monetization business model leaves me with questions.
Does support, fun and excitement in sports need to have a price? Why? Most teams are capable of managing their financials. Why ask for the extra push from their fans with any fan token? It spoils the whole concept of supporting any team. There is a purity to the excitement and love fans have for their teams. I’m not romanticizing this relationship; I am just skeptical of changes to those fundamentals.
On the date of publication, Stavros Georgiadis, CFA did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Stavros Georgiadis is a CFA charter holder, an Equity Research Analyst, and an Economist. He focuses on U.S. stocks and has his own stock market blog at thestockmarketontheinternet.com/. He has written in the past various articles for other publications and can be reached on Twitter and on LinkedIn.