2 reasons why this little crypto has explosive potential

By now almost everyone has heard of Bitcoin (BTC -0.58%) and Ethereum (ETH 0.76%)but unless you’re deep in the weeds of the crypto world, or perhaps a fan of some of Europe’s top football leagues, you might not have heard of Chillies (CHZ -5.93%). But with that token’s price up 27% over the past week at a time when most other cryptocurrencies have struggled, perhaps it should be on your radar.

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What is Chiliz, by the way?

Chiliz is a cryptocurrency that “aims to foster a blockchain ecosystem built for sports and entertainment.” Most notably, it is the crypto that powers the Socios fan token platform. Fan tokens are essentially cryptocurrencies issued by sports teams (or bands, entertainers, and the like) that offer their holders perks and benefits similar to membership in an exclusive fan club. Holders can vote on decisions related to their team, such as the design of special uniforms, banners or murals that will be displayed in the stadium or in the locker room. They can also get chances to win more benefits such as access to VIP events or meeting players. The Socios platform has partnerships with more than 100 teams and individuals worldwide, including some NBA and NFL teams, Formula 1 drivers, UFC fighters and some of Europe’s best football teams such as FC Barcelona, ​​Real Madrid, Paris Saint Germain and Manchester City.

Thanks in large part to the momentum of these partnerships, Chiliz has grown to the 34th largest cryptocurrency by market capitalization with a value of around $1.6 billion. Chiliz was previously an Ethereum ERC-20 token, but it has since moved to its own blockchain. While Chiliz is down about 70% from its March 2021 high, it has rallied 190% since the May 2022 low cycle on the back of these announcements and partnerships for Socios.

Barcelona’s share is a big deal

The most interesting of all the developments surrounding Chiliz was the news that they had bought almost 25% of Barca Studios for around $100 million. Barca Studios is the media arm of FC Barcelona, ​​one of Spain’s most popular and successful football teams. The iconic players who have suited up for Barcelona over the years and the club’s continued success have made it popular far beyond Spain. On Facebook, FC Barcelona has the second most fans of any team in the world, behind only arch-rivals Real Madrid. Having fallen on hard times financially, the legendary club was in dire need of funds this summer to sign new players, so it sold part of its media and merchandise rights. The club also took out a loan of more than 600 million dollars from Goldman Sachs (GS -3.50%) and signed a new shirt sponsorship agreement with Spotify (SPOT -3.36%).

Chiliz took advantage of the club’s need for funds, and while it is unclear how it will monetize its stake in Barca Studios, it now owns part of a very attractive asset. Socios says it will work with Barcelona to develop non-fungible tokens and metaverse projects.

Picks and shovels

Fan tokens offer some exciting benefits to fans of the teams that issue them. But from a purely economic perspective, the investment value they provide is relatively minimal. For that reason, I am more interested in Chiliz as the engine that powers the fantoken universe, especially as fan tokens become more widespread. Instead of betting on the Barcelona fantoken, investors can buy Chiliz as a move and spades play on the fantoken industry. (During the gold rush, the business owners who sold picks, shovels and other equipment to the miners often ended up wealthier than the miners themselves, which is one way of looking at an asset like the Chiliz.)

As the engine driving the fantoken market, and one that now owns a large stake in an incredibly exciting asset in Barca Studios, Chiliz looks like an interesting investment. Buying cryptocurrencies that are further down the line in terms of market capitalization can be risky, but Chiliz is really making inroads into the world of sports and entertainment, and its stake in Barca Studios provides tangible value. So I see this token as unique among cryptos and worthy of a small position for risk tolerant investors. Despite the run Chiliz has staged this summer, at a recent price of around $0.26 it is still well below the all-time high of $0.89. It reached that level long before it bought its stake in Barca Studios or forged many of its current partnerships, meaning a return to its previous high or higher is not out of the question if the overall crypto market picks up.