Meet the former ParaFi Capital investor betting big on NFTs

You might know Santiago Santos by his CryptoPunk profile photo on Twitter — one with a hoodie and nerd glasses. Or you might know him as a prominent crypto investor, who until July was a partner at ParaFi Capital.

What you might not know is that he has branched out on his own, looking to invest his own money in a variety of tokens and crypto projects — and he has put a big chunk of that money into non-fungible tokens, or NFTs.

In real life, Santos dresses like the uber wealthy, with a knitted cardigan wrapped around a t-shirt, glasses that appear to be mostly for style and the only sign of luxury a Cartier watch. We meet at Token 2049, in London, where Santos arrives a day late after being held up by the U.K.’s COVID regulations.

But we weren’t here to discuss real life. Instead I wanted to find out what percentage of his portfolio he had put into JPEGs — a question that would have sounded absurd a couple of years ago.

“My allocation to NFTs has grown. There’s NFTs, there’s games, and if you bucket that together, it’s probably over a quarter now.”

How much money are we talking about? The average price for a CryptoPunk wearing a hoodie is 204 ETH, according to Larva Labs, worth $735,000. But the current cheapest one available is 320 ETH ($1.15 million). And that’s just one of his NFTs.

But NFTs aren’t just about making money, according to Santos, who describes them as a “trojan horse” for bringing new people into the crypto world.

“It has been much easier to explain crypto to people by showing them NFTs,” he says. “NFTs are very relatable, people love collecting. It’s a very social sport and I think that’s onboarding millions of people.”

How Santos chooses to invest in NFTs

The first thing Santos says about buying NFTs is that he chooses art that he doesn’t want to sell. He buys pieces that he likes, and when he likes the artist. He namedrops pplpleasr (who did Fortune’s crypto cover). 

He also wants to understand the general vision behind the project and judge the support of its community. 

“Last year, I dropped into the Discord channel for Larva Labs and saw probably one of the smartest people in the space discussing NFTs. And to me that’s always a hallmark of good projects: a strong community. By spending time in a Discord channel, you can understand how active a community is, how thoughtful it is,” he says.

Santos also considers the metrics for each NFT to figure out how rare each one is. “Punks benefit from being one of the rarest and earliest projects in the space. And then you can obviously look at attributes, all the metadata is there. Okay how many hoodies are there? And how many hoodies with glasses and beards are there?” he says.

The other things that NFT investors should be concerned about revolve around the question of ownership, says Santos. “Some of the things you ought to be thinking about is: what is the IP? Are you actually owning the IP? Where’s that data actually being stored?”

The flippening is ‘inevitable’

With the emergence of NFTs, along with decentralized finance (DeFi) technology — something that ParaFi Capital made a lot of money from — Santos is bullish on the underlying platform: Ethereum. And even more so than bitcoin. 

“For a long time the narrative has been very bitcoin-centric, that this is a hedge against macro, against inflation and all this stuff,” Santos says. But he doesn’t see this as a strong thesis, and doesn’t agree with the notion that bitcoin has established itself as a store of value. It took gold centuries to do that, he points out.

Santos says that in a lot of his conversations with large allocators of capital, they don’t talk about bitcoin but ask about Ethereum and the Web3 world. “When you invest with that mindset, there’s way more capital looking to invest in technology rather than hedge macro through bitcoin.”

As a result, he believes the so-called flippening — the moment where ether’s market cap overtakes bitcoin’s — is inevitable. “I’d say, with a 90% probability that it happens within the next three years.”

Santos says he reached out to a few large funds and asked them how they were positioned. He says they have grown their exposure to Ethereum meaningfully — a radically different change from a year ago. He adds that some of them don’t even hold bitcoin.

“Increasingly it’s become harder to justify holding bitcoin because it doesn’t have any utility to me. Whereas I have this piece of ETH or SOL, I could interact and use it for so many different things.”