The Metaverse: What To Think, How And When To Care

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To try to imagine the Internet with any specificity or accuracy during its 1980s evolution would have been a frustrating and disorienting task. The mechanics of what it is – a vast network capable of transmitting data and media across interconnected devices – are much less important than what it did; it gave us another way to exchange and interact.

– Valuewalk

Q4 2021 hedge fund letters, conferences and more

As the term ‘metaverse’ continues to populate conversations, headlines, and interviews, there’s a similar challenge in understanding what everyone means by the term. Mechanistically speaking, the metaverse could be understood as a digital realm supported by virtual reality, augmented reality, and virtual worlds that affords users a different level of user immersion. But a more useful understanding would focus on the fact that the metaverse is, above all else, a shift in the way we’re able to interact with technology.

Early by-products of the metaverse’s evolution include hyper-real, alternative worlds where people coexist. The first applications were in the world of gaming, but increasingly, enhanced virtual and augmented reality technologies, 3D holograms, and realistic avatars have expanded the pathways for people to coexist and interact in these online universes – a shift that hasn’t gone unnoticed by big name companies and industry visionaries.

Today, the metaverse is becoming more important as a place of economic activity – a digital economy where users can create and exchange. According to experts at ARK Invest, revenue from virtual worlds could approach $400 billion in the next three years. For this reason, along with its recent headline mentions, the metaverse is worth an in-depth understanding. Forward-thinking investors need a way to think about, and plan for, it’s relevance as a new investment space. Below are some insights on what to think about the hazy metaverse world, and how to consider it within a long-term investment outlook.

What’s New In The Metaverse

Another worthy question might be ‘to whom is the metaverse new?’ Generation Z grew up already familiarized with the metaverse because of their experience with virtual games that had in-game currency, 3D avatars, and expanding, changeable virtual worlds. Building on earlier models of ‘Internet games,’ Gen Z embraced the monetization that came with those virtual games, finding new ways to make those platforms a creative and economic space. Recently, a study showed that blockchain-based games see a 5x increase in user spending than traditional online games.

Other modes of expression and exchange have come from those game spaces, including fashion and art. What might have begun as the ability to toggle clothes for an avatar resulted quickly in a digital Gucci bag sold in the online domain of Roblox at a very real price of $4,000—much higher than it would be worth in real life. Digital art exchanges like OpenSea, an NFT marketplace, have crossed thresholds in trading volume since the start of last year. In November, exchanges on OpenSea exceeded $10 billion.

What’s been most notable in the recent months is the uptick in institutional activity within the metaverse space. When Facebook announced their rebranding under the name ‘Meta,’ they simultaneously announced their plan to spend at least $10 billion in the space. And Facebook, now Meta Platforms Inc (NASDAQ:FB), wasn’t the only big-name brand planning to venture into the space.

Household Name Companies Enter The Space

A helpful piece by Meagan Loyst on the decentralized publishing platform Mirror details some of the landmark transactions and brand collaboration that have recently populated the Metaverse. Adidas, she details, launched a metaverse campaign in December consisting of a 30,000 NFTs that netted $23.5 million in sales within an afternoon. Fashion giants and music artists also turned to the space as a place to run campaigns and offer new releases.

The chosen collaborators of Adidas, Nike, and other name brands have always been in the direction of popular culture. The choice to pursue the metaverse space, and their demonstrated success within that space, proves a change is underway. And it’s a change that has important opportunities and consequences for investors as an up and coming industry landscape.

For Investors: How To Catch The Metaverse Wave

Despite the success of those aforementioned campaigns, companies are still deliberating as they place their bets on the development of the metaverse space and their place within it. Facebook, now Meta, seems to be focusing on the infrastructure of virtual houses. Microsoft is gearing up for the world of virtual meeting rooms, and a lot of new to market vendors are focusing on the technical building blocks, like interface innovations and motion tracking tools, that could expand the user experience.

For investors, yield is yield, and there’s reason to believe that more yield is coming from the metaverse space. Roblox, a platform that houses user-generated games, is valued at $45 billion after its IPO. Digital real estate investments function similarly to real world principles, and stocks are stocks, even in the metaverse space.

Still, most investors are considering metaverse investments as speculative, the riskier and more experimental parts of their portfolios. The least volatile option for metaverse-focused investing is to invest in publicly traded companies who are making waves in that space. Microsoft, Boeing, and Roblox would all qualify in that domain.

For investors who want to take one step further, there are endless options and marketplace platforms through which to buy digital land and NFT collectibles. In the case of real estate, users would connect their cryptocurrency wallet to a marketplace. They would then explore and invest according to their normal, real-life principles, considering price, location, and future appreciation of the digital ‘place.’

Quickly, investment expertise in digital real estate is picking up. The Republic Realm, a frontier metaverse real estate firm, launched a professionally-managed and diversified digital real estate investment fund in April of last year. Holding some of the largest portfolios in Sandbox, Axie, Infinity, Decentraland and Treeverse, the company provides a path for established and new investors to apply the same principles in the metaverse and NFT ecosystem. Today, the company holds more than 1,900 NFTs across 17+ popular metaverse platforms.

Cryptocurrencies are closely connected to the metaverse, and certain tokens are already taking up different amounts of the metaverse market cap. Investing in tokens is certainly more risky than alternative focuses, and investors should remain true to the age-old maxim of never venturing more than they feel able to lose. But tokens are an interesting focus because of their new use cases. Many metaverse cryptocurrencies double as a voting process, allowing holders to chip in on decisions within metaverse platforms and digital communities. As digital assets rise, so do the value of their associated tokens, making token-focused investments equal parts volatile and exciting.

Predicting outcomes is hard regardless of the investment vehicle, but it’s made harder by the novelty and ever-evolving nature of the metaverse world. Much of the motion in the space can be seen through the actions of publicly traded companies, and investors who want to have a piece of the action might be well-advised to focus on those market players. Investment strategy and best practices will certainly change drastically with the pace of change within the space. If nothing else, investors might try their hand at a token—or attend a virtual concert on Fortnite—just to say they were a part of these early beginnings, which no doubt forecast a significant and lasting change.

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