How to Invest in the Metaverse
The metaverse is gaining global attention. But what exactly is it, and how can interested investors gain exposure?
The metaverse promises to create an immersive user experience well beyond what's currently offered by virtual and augmented reality and introduce user-owned assets. Is this the next evolution of the internet?
Bloomberg estimates that the metaverse may become the next major tech platform and reach a US$800 billion market cap by 2030. So should you consider investing in the metaverse?
The metaverse is a collective term for immersive worlds designed for users to interact, meet and game within a single platform. Typically, the term metaverse also implies user-owned assets using NFTs and in-world cryptocurrencies for transactions. However, Meta Platforms’ (NASDAQ:META) proprietary Metaverse does not include blockchain-based technologies.
There are several different ways you can invest in the metaverse: cryptocurrencies, NFTs, companies manufacturing next-gen hardware, social media companies and even exchange-traded funds (ETFs).
Are metaverse investments the right addition to your portfolio? Keep reading to learn more about this potentially revolutionary technology and how you can invest in it to match your risk tolerance.
What is the metaverse?
The goal of the metaverse is to bring together various emerging and existing technologies to create a new connected virtual world. Blockchain technology, virtual reality and interconnected platforms form the basis of the emerging virtual world.
Investing in the metaverse ranges from medium to high risk depending on which aspects of the metaverse you invest in.
For example, investing in Nvidia (NASDAQ:NVDA) for its role in supporting the metaverse’s graphics is less risky than buying virtual land. If the metaverse fails to achieve mainstream adoption, Nvidia is still a major graphics card manufacturer, but your virtual land may lose all of its value.
What about Meta’s metaverse?
Meta Platforms, formerly Facebook, changed its name as part of its transition to creating its own Metaverse. However, Meta’s platform is not typically how the broader tech world defines a metaverse. For example, it does not include user-owned assets, blockchain technology or cross-platform compatibility.
Meta’s take on the Metaverse is an isolated virtual world intended to represent the next evolution of the Facebook platform. Mark Zuckerberg’s significant investment in its new platform has recently become controversial. The company’s share value dropped by 66.79 percent, and Meta had to lay off roughly 13 percent of its workforce. The mass layoffs are the first time Meta has ever had to do a round of layoffs.
Is there a future for Zuckerburg’s Metaverse? That remains to be seen, but investors need to differentiate between Meta’s version and the broader meaning of the metaverse.
How does the metaverse work?
The metaverse aims to become the new way people spend time online. There are currently several individual metaverse projects, but the ultimate goal is the creation of a single metaverse that connects individual worlds. It’s similar to how the internet works, connecting websites and apps together in a single network.
The metaverse was initially created by landmark blockchain projects like Decentraland and The Sandbox, both of which are still operating and in development. The surge of interest in these projects launched significant interest in what’s possible with a metaverse, which was also partially propelled by the rise of NFTs.
Proponents of a metaverse still disagree about some aspects of its definition and what will create a true metaverse, but there are a few agreed-upon characteristics, such as:
- An immersive experience: The core technology behind the metaverse is a new level of immersion provided by virtual reality (VR). However, some proponents also say there is potential for augmented reality (AR) for some aspects of the metaverse.
- Cross-platform compatibility: The goal is to create a singular metaverse in which developers and organizations can integrate their own platforms. For example, you may log on and visit Roblox’s world, head to the Apple store to buy a new NFT phone and then socialize with friends in Snap’s virtual club.
- User-owned assets: Blockchain technology will underpin the economy of the metaverse. Non-fungible tokens (NFTs) will represent individual assets, while specialized cryptocurrencies will be in-world currencies.
Currently, the metaverse is focusing on gaming and creating virtual social environments. Anyone can use the metaverse even without a VR headset, as most projects have web-based portals. However, VR headsets are ideal for a truly immersive experience and will become increasingly necessary as the virtual world evolves.
In the future, developers imagine the metaverse as a place where businesses can meet, transact and even set up shop for consumers. Essentially, every use case of the internet is intended to move into the metaverse eventually.
What's the outlook for the metaverse?
The metaverse is getting plenty of attention due to its vision, disruptive potential and the success of early projects. Furthermore, interest in NFTs further contributes as the metaverse will give NFTs additional uses.
What is the future of the metaverse? Projections for future value vary significantly based on the assets analysts include in the metaverse market and how they evaluate growth.
We mentioned how Bloomberg projects an US$800 billion market cap by 2030, yet another study estimates US$1.3 trillion by 2030 with a CAGR of 44.5 percent. An additional projection conservatively suggests US$224 billion by 2030.
So what’s the actual projection? Unfortunately, it’s hard to predict due to all the moving pieces, emerging technologies and lack of historical data.
Ultimately, it’s worth considering how the metaverse will continue to grow, develop and become adopted by consumers.
Cryptocurrencies and blockchain technologies are infamous for boom/bust cycles, while VR/AR has continually captured imaginations and undergone steady improvements. The promise of an inter-connected virtual reality is intriguing to some, while others don’t want to spend most of their time in a VR headset.
Yet, if the metaverse does succeed in capturing mainstream attention as development continues, investments can become as significant as investing in core technologies of the internet in its early days.
So, let’s discuss how you can invest in the metaverse to match your risk tolerance.
How to invest in the metaverse?
You can invest in the metaverse in a few different ways, each with varying risk levels. Key metaverse investments include:
- Metaverse-related stocks: Manufacturers of VR headsets (Sony (NYSE:SONY), Meta, HP (NYSE:HPQ)), video cards (Nvidia, AMD (NASDAQ:AMD)), software companies (Unity (NYSE:U), Meta) and cloud computing (Amazon's (NASDAQ:AMZN) AWS, Microsoft's (NASDAQ:MSFT) Azure) all support different aspects of the metaverse. As a result, investing in these companies is lower risk than other options, as these companies aren’t entirely reliant on the metaverse for growing value.
- Metaverse ETFs: Multiple metaverse ETFs have emerged due to growing interest. These ETFs include:
- Metaverse-related cryptocurrencies: Cryptocurrencies intended for usage within the metaverse have the potential to grow in value as development and adoption continue significantly. Notable cryptocurrencies are MANA and SAND, both used in current projects.
- NFTs and virtual land: Blockchain-based assets promise users actual ownership of digital assets that cannot be taken away by a third party and freely traded to other users. NFTs include virtual land ownership in addition to nearly everything in the metaverse, including clothes, food and sports cars.
Each category has unique pros and cons worth considering:
- Individual companies can be a safer bet if they have broader offerings that aren’t exclusive to the metaverse. For example, if the metaverse fails to achieve its goals, Nvidia graphics cards will likely still be in strong demand.
- Metaverse ETFs can be an excellent way to benefit from the growth of several companies without needing to buy individual shares. However, just like other ETFs, take the time to read the prospectus and examine the composition to pick which one matches your risk tolerance.
- NFTS and cryptocurrencies focusing on the metaverse are extremely high-risk options but also have a high potential for growth depending on development and adoption.
Investor takeaway on the metaverse
The metaverse is still in its early stages, but it has captured the imagination of developers and consumers alike. Yet, it remains to be seen whether it will become the next evolution of how people spend time online or become a small niche of the greater tech landscape.
It’s worth considering investing in the metaverse based on your risk tolerance and opinions about future adoption. Unfortunately, there is minimal historical data to evaluate, leaving much of the current projects up to speculation.
Take caution when investing in NFTs and cryptocurrencies. They are risky investments and can open you up to additional risks, such as fraud and cyber attacks. Research every potential investment thoroughly and understand how to set up and use cryptocurrency wallets, especially the web3 wallets used with NFTs.
We’re excited to see how the metaverse evolves. If you believe it has potential, it may be worth adding to your investment portfolio.
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