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— Benjamin Franklin |
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The Metaverse was a huge buzzword back in 2021, but the crypto winter of 2022 cooled things down in terms of hype.
Metaverse projects haven't been shuttered, however. They continue building and growing, and we think they'll come out of this bear market stronger than they were when it began.
With that in mind, today's edition will take a dive into the top Metaverse projects from an investor's standpoint.
We will analyze the current state of the metaverse; identify key trends, investment opportunities, and challenges; and provide insight into the future of this growing and exciting digital space for crypto investors.
As you'll see, there are some newer players in the space that are well worth investigating, along with well established platforms that remain our top picks.
For our updated research and ratings on the state of the Metaverse, read on. |
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| | | Must Read Today's most important story for crypto investors. |
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Is crypto being choked out of the traditional banking system?
Following the closure of Silvergate Capital and Signature Bank, two of the largest crypto-focused banks in the U.S., some within the industry are claiming that regulators are trying to push crypto out of banking.
Barney Frank, who was chairman of the House Financial Services Committee from 2007 to 2011 and a co-sponsor of the Dodd–Frank Act, said he suspects the New York State Department of Financial Services shut down Signature Bank simply because it had crypto companies as clients.
Regulators claim they are protecting the public from more events like the collapse of FTX and the bankruptcy of platforms like Celsius and BlockFi. In addition, they continually point out the potential risks that crypto brings to the financial system.
This, despite the fact that the failures of Silvergate, SVB, and Signature had little to do with crypto and more to do with interest rates and balance sheet risk that was likely created by the Federal Reserve's monetary policy.
It's also possible that the current anti-crypto sentiment from regulators will wane once regulations and risk management policies are in place.
Investor takeaway: The recent developments in crypto banking suggest regulatory scrutiny is increasing, which could have implications for the crypto industry (particularly smaller startups that may be unable to even open accounts.)
As such, crypto investors need to remain informed about regulatory actions and developments to make smart investment decisions. (Be sure the companies you're investing in actually have bank accounts.) |
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| Sector Report: Metaverse by Daniel Joel |
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Summary: The market size of the metaverse was recently estimated to be worth around $61.8 billion, a testament to the space’s overall growth in a short period. In this piece, we'll analyze the current state of the metaverse; identify key trends, investment opportunities, and challenges; and provide insight into the future of this growing and exciting digital space for crypto investors.
Industry Overview
Until recently, the metaverse was a concept explored primarily in science fiction. The term was first coined by Neal Stephenson in his 1992 sci-fi novel “Snow Crash” to describe a computer-generated 3D virtual space. |
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A couple decades and innovative technologies later, there have been significant attempts to bring the metaverse to life. It can be loosely defined as a persistent network of 3D virtual worlds powered by blockchain and accessed by the internet and immersive technologies like virtual and augmented reality.
In its current state, the metaverse doesn't yet match this definition, but there are some industries already making their mark on the metaverse.
Real Estate: In the metaverse, “real estate” refers to virtual buildings or undeveloped parcels of land. Like in the real world where real estate is a highly-priced asset, so too are virtual properties. In late 2021, metaverse investment company Republic Realm purchased $4.3 million worth of land in The Sandbox metaverse. This was a few days after the “Fashion Street Estate” (a sought-after plot of land in the Decentraland gaming platform) sold for $2.4 million.
Fashion: The fashion industry was also quick to surf the metaverse wave. Luxury fashion brands like Dolce & Gabbana, Louis Vuitton, and Gucci have all launched virtual-only products.
Music and Entertainment: Here's another industry that was quick to capitalize on the metaverse trend, with mainstream megastars like BTS, Ariana Grande, and Marshmello all hosting virtual concerts in the metaverse.
These are just a few of the industries leveraging the metaverse to grow their brands, but there are many more like sports, retail, computing, advertising, and workplaces. Precedence Research estimates the global metaverse market size is $68.49 billion in 2022, and it projects the market to reach $1.3 trillion by 2030. |
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The rapid growth of the metaverse market size. Via Precedence Research
Analysis Group, an economics consulting firm, projects the metaverse’s growth in their 2022 report from a different angle. “If we assume that metaverse adoption were to begin today [2022], we can also estimate the metaverse’s potential contribution to GDP in dollars and compare it to industry projections of the potential size of the metaverse. Our model implies that if metaverse adoption began today, it would have a contribution to global GDP of $3.01 trillion (measured in 2015 U.S. dollars) in 2031.”
The market cap of blockchain-based metaverse projects has also grown heavily over the past two years. In 2021, the total market cap of such projects stood at around $5 billion. By early 2023, the number tripled to over $15 billion. This growth is a result of an increase in metaverse projects and their adoption. Also, in the same period, there have been changes in the top ten list in terms of market cap, with newer projects like Internet Computer stepping onto the list.
Notably, projects like Decentraland, The Sandbox, Enjin Coin, and Axie Infinity have more or less maintained their places on the list. |
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Metaverse tokens’ market cap and top coins in 2023. Source: Coinmarketcap
Various sources estimate over 400 million monthly active metaverse users, with a major chunk coming from virtual platforms like Roblox and games like Minecraft and Fortnite. The user growth of blockchain-based metaverse platforms, on the other hand, is a different story.
Top Metaverse Projects |
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Investment Thesis The metaverse industry is still in its early stages, so crypto investors who are putting their money into this industry are betting on its future potential. They are essentially speculating on early leaders, hoping to capitalize on the unknown value that will be unlocked once the industry evolves and matures. With that said, here are some of the most common ways to invest in the Metaverse now:
Metaverse tokens and cryptocurrencies: Many blockchain-based metaverse platforms have tokens. Some investors hold these tokens for the long term, which we believe is a proxy for owning company stock since their values are directly tied to that of the underlying “companies.” There are other assets (like virtual real estate and non-fungible tokens) which, by design, are a big part of metaverse-based projects.
Metaverse stocks: Many metaverse stocks may not necessarily give investors direct exposure to the industry. For example, Meta Platforms (META) is now heavily exploring metaverse concepts, and Nvidia (NVDA) provides the chips that power various metaverse projects. There are also exchange traded funds (ETFs) like Blackrock’s iShares Future Metaverse Tech and Communications ETF (IVRS) that hold baskets of metaverse-related stocks.
It's risky to invest in any industry still in its infancy. In the worst-case scenario, the industry doesn’t take off, or the companies currently at the forefront fall by the wayside as the industry rapidly evolves in different directions.
Who’s Investing: Institutional Backing
The Metaverse has attracted many investments from big tech companies and venture capitalists. According to McKinsey, a management consulting firm, the industry attracted over $120 billion in 2022, more than double the $57 billion in investments made in 2021.
Meta Platforms has been one of the biggest investors. In October 2021, Mark Zuckerberg, Meta’s CEO, announced during the company's Q3 earnings call that he plans to invest $10 billion over the next few years to expand the metaverse.
Another major investor is venture capitalist firm Andreessen Horowitz, which last year launched a $600 million fund focused on metaverse games. Other notable investors include Coinbase, which has shown interestin the Metaverse by investing in NFT marketplace OpenSea.
Last year, Microsoft acquired the popular video game developer Activision Blizzard, a move it claimed would help the company build the metaverse. “Metaverse is essentially about creating games,” Microsoft CEO Satya Nadella said. “It is about being able to put people, places, [and] things in a physics engine and then having all the people, places, [and] things in the physics engine relate to each other.”
Top Metaverse Projects |
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Internet Computer (ICP) Internet Computer (ICP) was created by the Dfinity Foundation in 2021 to provide a decentralized, open-internet platform that can support smart contracts and other decentralized apps. It lets people build websites and applications that aren't controlled by central authorities by designing them to run on decentralized networks of computers.
The project raised over $190 million in funding and is backed by venture capital firms like Andreessen Horowitz and Polychain Capital. It has experienced tremendous growth since its launch and sits as the top metaverse blockchain project by market cap ($1.5 billion).
DFINITY reportedthat the number of new users increased by over 647% (Dec 2021-Dec 2022) from 4,079 to 37,224. ICP’s price, however, has been on a downward trajectory since its launch and has currently settled at around $5. |
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Look at that growth! Via Twitter
The project has ambitious plans to go toe to toe with, and eventually replace, the current centralized web system. They said in a blog post, “In ten years’ time, it will be widely recognized by the tech community that the Internet Computer is on a likely trajectory that will one day make it humanity’s primary compute platform for building systems and services, and that the ‘open internet’ will now near-certainly predominate over Big Tech’s closed proprietary ecosystem.” |
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Decentraland (MANA) Decentraland is a 3D, decentralized, virtual world game that allows users to experience, create, and monetize content. Players can earn through real estate, creating and selling wearables, or through play-to-earn games. Decentraland is powered by MANA (the main means of exchange in the game) that can be used to buy LAND (parcels of digital land) and other virtual assets.
Decentraland took off in late 2021 during the NFT craze, and its market cap quickly shot up to $6.8 billion while the token was trading at an all-time high of $5. However, the price of MANA has since dwindled, and so has the number of active users. Recently, Decentraland has been recording an average of 1,000 daily active addresses. To attract more users, the project is looking into ushering more developers into its platform as part of its growth strategy.
It has raised over $25.5 million in funding from 11 investors including blockchain investment firms Klover Capital and Krenex Capital. It remains one of the most popular metaverse platforms since its 2021 launch. |
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The Sandbox (SAND) The Sandbox initially launched as a mobile game before being acquired by Animoca Brands, a blockchain game software company. Animoca Brands transformed the game into a virtual metaverse world that allows users to create, build, and trade digital assets like virtual game items and NFTs. SAND is the utility token of the game and the basis of transactions, allowing players to buy and sell virtual land and digital items.
Similar to Decentraland, Sandbox also had a strong end to 2021. SAND’s price peaked at an all-time high of around $7 with a market cap of over $6.6 billion. During the same period, Sandbox was reporting an average of 2,000 daily active addresses compared to the current average of 1,000. |
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Daily active addresses holding steady. Via IntoTheBlock
Sandbox has partnered with some big names like HSBC and Warner Music Group. It recentlyannounced a partnership with the government of Saudi Arabia for “future metaverse development.” Just like Decentraland, Sandbox has growth potential and staying power due to its position as one of the go-to blockchain-based platforms. |
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Enjin Coin (ENJ) Launched in 2017, Enjin is a blockchain-based platform that allows users to create, use, and manage digital assets like in-game items, virtual goods, and tokens. The platform attempts to make the whole process of creating, listing, and managing NFTs as simple as possible. In 2021, Enjin coin became the first gaming cryptocurrency to be approved in Japan. This followed a massive rise in price to hit an all-time high at $3, which was topped later in the year at $4. However, like many other cryptos, ENJ experienced a drop in price in 2022.
The number of daily active addresses on the platform has also been low, averaging less than 1,000 since the beginning of last year. |
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More products should lead to greater growth. Via IntoTheBlock
Enjin plans to launch more blockchain-based products in the future. Last year, the company landed a partnership with Square Enix (a massive Japanese entertainment company) to launch a digital collection of a popular game’s (Final Fantasy VII) 25th anniversary cards on their network. Such partnerships with well-known companies and titles in the gaming industry may increase Enjin’s growth potential. |
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Axie Infinity (AXS) Axie Infinity is an NFT-based online strategy game based on the ETH blockchain. The game is inspired by the Pokemon series where players raise, collect, battle, and sell digital pets called Axies for profit. In 2021, Axie had a meteoric rise in revenue and surpassed the $1 billion mark before the end of the year. This success went hand in hand with its market cap of just over $5 billion.
At its peak, Axie Infinity was attracting over 9,000 daily active addresses, but this number fell to less than 1,000 since the start of 2022. Revenue has also been dropping over the last year. |
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The hype has waned, but revenues remain. Via TokenTerminal.
The platform is attempting to attract gamers with new game modes and other projectslined up.
Investor Takeaway
The metaverse has the potential to revolutionize the way we live our daily lives. That's why massive tech companies are investing billions of dollars in the industry. It has the potential to create new markets and business opportunities and to provide a platform for a variety of services. Investors have the opportunity to get in early to maximize their returns.
However, investing in blockchain technology is risky, as is the metaverse. From an investor’s standpoint, you are thus doubling your risk by investing in metaverse blockchain tokens. On the other hand, doubling the risk can sometimes double the rewards.
Metaverse blockchain tokens are probably not the first investments in a crypto portfolio, but if you can stomach the risk, if you love the product, and if you believe it can become a category leader in the next five years, you might try investing a tiny amount of your portfolio (no more than 1-2%) in the metaverse. |
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