Investing Through the Lens of the Metaverse

Opportunities for the new digital world

This research was sponsored by Luno Global, a platform that allows users to buy, save and manage cryptocurrencies.

The metaverse — where virtual reality meets your reality.

The term “metaverse” was coined in Snow Crash, a 1992 cyberpunk novel by Neal Stephenson, where characters can build things that do not exist in reality.

Today’s version of the metaverse consists of not one singular metaverse, but several — where people can create avatars to play, learn, work and shop. Among the many metaverses, Sandbox and Decentraland are among the most popular.

While the concept of an alternate reality has been around for a few decades, interest in the metaverse skyrocketed due to the pandemic as individuals found themselves relying on computers for school, work, shopping and socialization. And the technology behind VR has evolved significantly, with Artificial Intelligence (AI) and cloud technologies being used to develop more robust ecosystems.

Moving into alternate realities

“The metaverse is here, and it’s not only transforming how we see the world but how we participate in it — from the factory floor to the meeting room.”

Satya Nadella, Microsoft Corporation Chairman and CEO.

What is the potential value of the metaverse? Grayscale — a leader in cryptocurrency investing — estimates that the metaverse could one day be “a trillion-dollar revenue opportunity,” as a greater proportion of time is spent digitally.

The world’s largest technology companies are investing in this digital realm. Software giant Microsoft’s recent purchase of game developer Activision Blizzard, Inc. for $68.7 billion will enhance the firm’s gaming lineup and according to the firm, it will provide building blocks for the metaverse.

Apple Inc. — the world’s largest company by market capitalization — already has more than 14,000 augmented reality apps available on the App Store which utilize Apple’s ARKit framework — a way to create AR experiences using an iOS device.

CEO Tim Cook confirmed during a recent earnings call that the technology giant views the metaverse as having substantial potential, and that as a result, Apple is “investing accordingly.”

And Mark Zuckerberg’s vision for the potential of the metaverse resulted in the company formerly known as Facebook changing its name to Meta Platforms.

The role of NFTs in the metaverse

NFTs, short for non-fungible tokens, are digital assets that can be linked to items like artwork or collectibles. Further, they could be associated with music, websites or even physical objects.

NFTs are a relatively new concept. This was highlighted in a recent poll conducted by market research firm 3Gem, in which only 31% of participants were familiar with these digital tokens.

But these innovative tokens are more than just representations of art. According to Binance, “NFTs are the bridge to the metaverse, and facilitate identity, community and social experiences in the metaverse.”

NFTs are unique and immutable. Built with smart contract functionality, they represent the ownership of digital and physical assets on the blockchain. From digital artwork to the gaming industry, NFTs are integral to transactions on the metaverse.

Gaming, Shopping, Advertising….and Banking?

Get your AR/VR headsets ready. The metaverse is already here.

Gaming
Virtual gaming worlds have been around for years. The Sims, My Sims and Animal Crossing could all be considered precursors to the metaverse. Today, Roblox, Fortnite and Minecraft combine gaming and non-gaming elements, including shops, concerts and lectures, characteristics of the metaverse.

GameFi — the blending of decentralized finance and decentralized games — enables users to profit in digital coins from gaming using a “play-to-earn” model. Using NFTs, users have an opportunity to access a multiplayer online game, interact with other players and profit from participating in the game. Grayscale estimates that global revenue from virtual gaming alone could surpass $400 billion by 2025 from $180 billion today, an increase of 122 percent.

According to Professor Nir Kshetri, Bryan School of Business and Economics at the University of North Carolina, Greensboro, Roblox is viewed as one of the most developed metaverses and can help clarify how the alternate reality may evolve.

Kshetri explained how Roblox investors benefit more if the platform increases the number of users and influences them to spend more money using Roblox’s in-game currency (Robux). In the first quarter of 2021, over 42 million users logged in Roblox each day and spent about 10 billion hours playing the game, he noted. They also spent $652 million on the site’s virtual currency to purchase digital items such as hats, weapons, and hot air balloons.

“A similar logic holds for other metaverse settings. If an online dating metaverse is able to attract more users, its investors benefit more. However, most metaverse activities currently are in an extremely nascent stage,” said Kshetri.

Real Estate
Virtual real estate through the metaverse has become just as hot as the physical housing market, and digital tracts of land continue to break new records in terms of sale prices.

Like a real-life Monopoly game, there is development taking place and acquisitions as well. Properties can be leased or rented, with upscale rents for desirable downtown areas. Scarcity further enhances their value with limited parcels available.

Famous neighbors also command higher prices. After rapper Snoop Dogg bought a parcel of land in The Sandbox, the lot next door sold for nearly 71,000 SAND, which would have been roughly $450,000 at the time. And just like in the “real” world, these properties can be leased, sold, or used for advertising.

Besides event spaces, the metaverse offers the ability to build virtual malls and event spaces — and to rent these spaces out to generate revenue. JPMorgan Chase & Co. opened a “lounge” in Decentraland, which coincided with a paper exploring investments in the virtual realm.

Shopping
Just about every day there is a new announcement of another firm establishing a presence in the metaverse. Virtual fashion shows are being held by couture brands including Gucci, Dolce & Gabbana and Givenchy, where users can outfit their avatars.

Instead of visiting museums or going to concerts, one can just turn on their computer. A visit to Sotheby’s metaverse, a virtual gallery in Decentraland, showcases digital artworks. And concerts in the metaverse can reach an audience that no live venue could ever hold — over 78 million Fortnite users viewed pop artist Ariana Grande’s performance last October.

Conclusion

COVID-19 has had an enormous impact on society — changing how we shop, work and learn. The metaverse has enabled users to step into virtual worlds through shopping, gaming and events.

The next step — and what will bring the technology into mainstream adoption — is when virtual reality is extended as a means of ownership across both virtual and real worlds. The remaining questions include how many metaverses will exist, how one’s assets can become portable across different metaverses, and the degree of mainstream adoption.

This content is for educational purposes only. It does not constitute trading advice. Past performance does not indicate future results. Do not invest more than you can afford to lose. The author of this article may hold assets mentioned in the piece.

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