The Metaverse: What You Should Consider Before Investing in a Virtual Space
The concept of the metaverse is quickly gaining steam and reaching mainstream consciousness with many brands entering the ecosystem since Facebook’s rebranding. Now, investors view an opportunity, as many metaverse-linked coins and stocks have gained traction in past weeks thanks to the increased interest.
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But what should investors look at when considering investing in the virtual space?
What is the Metaverse?
The metaverse is a concept that includes the construction of an alternate universe where individuals can model their image to whatever they want to be, and perform real-life tasks such as buying things, gaming with friends, and other activities, as Morgan Stanley recently defined it.
Matt Maximo, research analyst at Grayscale Investments, told GOBankingRates that “it’s how we interact with each other digitally and it’s about making digital interactions to be more authentic.
“The metaverse is an attempt to rebuild the social digital services — video calls, gaming, social media, etc. — into experiences that flow seamlessly with the physical world,” he said.
Gaming and the Metaverse
Maximo explained that there are two main concepts in the metaverse world for investors: infrastructure and games themselves.
“So, we look at two pieces of the puzzle: the games that have blockchain compatibility through NFTs and tokens and the protocols providing infrastructure for game developers to build blockchain-compatible games,” Maximo said.
In the crypto world, blockchain-project Decentraland, for example, is in the middle, he said. MANA is the token of Decentraland, a virtual reality platform powered by the Ethereum blockchain that allows users to create, experience and monetize content and applications. In this virtual world, users purchase plots of land that they can later navigate, build upon and monetize, according to its whitepaper.
Explaining its rationale in the whitepaper, Decentraland says that “the development of large proprietary platforms, such as Facebook, has allowed hundreds of millions of users to gather, interact, share content and play games. Their network effects helped cultivate vast online communities and gaming companies. These platforms, controlled by centralized organizations, manage the network’s rules and content flow, while extracting significant revenue from the communities and content creators who drive traffic to the platforms. Decentraland aims to establish a network that allows its content creators to own and capture the full value of their contributions.”
A Growing Multi-Billion Dollar Investment
MANA, with a market cap of $6.5 billion, has been on an upward monthly trajectory as it has increased 249.2% in the past month, according to Coingecko. The entire metaverse market cap today stands at $36.7 billion.
Grayscale launched its Decentraland Trust in February, to solely and passively invest in MANA, enabling investors to gain exposure to MANA in the form of a security while avoiding the challenges of buying, storing and safekeeping MANA directly.
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Maximo said that another interesting theme is play-to-earn gaming tokens.
“This trend is capturing the gamers who want to own the value of their time spent in-game and has become immensely popular with people in developing countries like the Philippines and Venezuela,” he said. “These players are often able to earn higher wages playing these games than through traditional or even government jobs.”
In a note, Grayscale explained that the continued shift of game developer monetization is a key dynamic within this growth trend. And according to Ark Investments research, revenue from virtual worlds could grow to $390 billion in 2025, from $180 billion in 2021.
The sentiment about this trend is echoed by many experts. Michal Cymbalisty, co-founder of Domination Finance, told GOBankingRates that investors cannot really delve into the metaverse without first looking at Axie Infinity and Decentraland.
“Axie is the first play-to-earn (P2E) game which really took off and Decentraland has been dead set on the metaverse for years at this point with digital real estate being their forte,” he said.
Axie’s token, AXS, is at the number one spot in terms of market cap, standing at $8.88 billion, according to Coingecko. It’s up 31,211% in the past year.
Cymbalisty said that UFO Gaming is a newer project worth looking at. It “aims to take the best of what Axie and Decentraland has to offer and combine it into one massive metaverse.”
“While Axie and Decentraland can be thought of as individual galaxies, UFO is aiming to be the metaverse universe if you will, with the gaming, social, and economic aspects of the metaverse all on the same platform,” he said.
UFO, with a $1.2 billion market cap, has increased 138.8% from a month ago, according to Coingecko.
What Should Investors Look For?
In terms of what metrics investors should look at for metaverse-linked coins, Grayscale’s Maximo said it’s “tough to say,” as most coins in the metaverse and gaming world are outside of the top 100.
It’s early, so investors should look at normal metrics: market cap, volume, transaction count and protocol revenue, he said, but the best way to think about it is on a thematic level, and bet on whether infrastructure or a specific game is going to take off.
“Transaction count and protocol revenue indicate how many users and the frequency at which they are interacting with the game. These metrics help to understand the market cap and trading volume of the tokens associated with the projects and can provide color as to which way the token may trade,” Maximo said.
“You also have to do some due diligence in those categories,” he added. “It’s such an early ecosystem, and most are under $1 billion in market cap, and they are very volatile, so it requires a lot of research.”
He added that Axie Infinity and Sandbox seem to be promising projects out there in terms of their market cap, marketing and community building.
As for the gaming world, one important metric investors should look at is community building, but it’s a hard metric to track, Maximo said.
“So the easiest way to look at it is how the game is doing on social media, specifically YouTube and Twitter where players interact with game developers & content creators the most,” he said, adding that Decentraland does “a really good job” with community-building by hosting Creator Contests to encourage the community to create Decentraland content. Gaming videos and live streams are a crucial way to bring new players into the game.
It’s Just the Beginning
As many experts underscore, we are just at the beginning of what the metaverse will offer and investment opportunities will continue to multiply.
Tobias Batton, CEO and founder of blockchain game publisher Ex Populus, told GOBankingRates that video games have historically given people just a taste of what the metaverse has to offer as far as community building, virtual marketplaces and relationship building across cultures in a common virtual environment.
“But with recent technological developments, the potential utility of the metaverse is boundless,” he said.
Investors looking to invest in truly transformative crypto projects should look beyond the idea that the metaverse is a ‘virtual world,’ he added.
“The metaverse is a framework for connection, and has utility across industries, from energy to reforestation and environmental initiatives, gaming, and immersive new ways to interact digitally and allowing users to leverage their accumulated digital assets in a new and functioning way,” he shared.
Ethereum and the Metaverse
Finally, other experts note another victor of the booming metaverse space — ETH.
“The secret winner for all of these metaverse coins? Ethereum, the protocol that most blockchain gaming and metaverse coins are built on top of,” Hayden Hughes, CEO of Alpha Impact, told GOBankingRates.
“Think of these metaverse games like apps, and think of Ethereum like the App store. Between metaverse adoption and recent changes to Ethereum’s supply growth, we see a supply shock that will create tremendous upside for ETH as we head into the holidays,” he said.
On that note, he said that one token they’re watching “that appears to have legs above” is Illuvium, a blockchain gaming platform where users compete and win ETH.
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