Written by Ali Abdel-Saheb
If you ask your grandparents where they invested their money back in the ’50s, would it be an investment you would make now in the year 2022? A few common asset classes are stocks, bonds, commodities, and real estate. However, markets are changing, allowing new investors to generate a greater return on investment elsewhere. Investing now is completely different than it was decades ago, but why? What is causing investors to pivot to new markets, and what is all this talk about the Metaverse?
Let’s say you are at a bowling alley with some friends and want to catch a movie afterward. The only issue is, the nearest movie theater is an hour away, and the next showtime starts in 20 minutes. You realize you won’t be able to make it on time, so you and your friends end up calling it a night. But what if you and your friends could teleport to new places within seconds – without ever having to leave your house? The idea of being able to experience and explore different settings from the comfort of your own home may sound absurd, but not to Facebook.
Facebook CEO Mark Zuckerberg delivered a virtual event on Oct. 28 announcing that the company “Facebook” will rebrand itself under a new name: Meta. With hopes of creating the next generation of online interaction, known as the Metaverse (Bond, 2021). 20% of Facebook’s entire workforce is currently invested in developing VR and AR technologies (Virtual Products & NFTs in the Metaverse, n/d). The Metaverse has created a new avenue for people to connect and build lasting virtual relationships from the comfort of their own homes. Within the Metaverse, you discover people having live interactions in different environments. This virtual reality allows one to create their home or business, stay warm by a campfire, and enjoy their time at a live comedy club by putting on a pair of VR goggles. However, these are just a few places to wander off to within the Metaverse.
Very much like the life, we live in today, real estate development is essential within this virtual world – with the intent of making the consumer experience worthwhile. Although Metaverse is still in its early stages, investors have identified a new market: virtual real estate. One of the first companies to get into the digital real estate business is “Metaverse Group”, which operates a virtual world called Decentraland, reported spending over USD 2.5 million on virtual land (Estates, 2021). The ability to purchase and sell digital estate on metaverse platforms similar to Decentraland has been a popular topic. Celebrities such as Snoop Dogg and Paris Hilton also own property in these worlds. Snoop Dogg saw an opportunity to connect with his fans by creating his virtual world, “Snoopverse” (Logan, 2021). Within the Snoopverse world, you have access to become part of the Snoop Dogg community, which could mean living next door to the rapper.
Nonfungible tokens often referred to as an “NFT”, are an asset that cannot be arbitrarily swapped with another – it is one of a kind (Rice, 2022). While these transactions are being bought and sold online using cryptocurrency, it is not uncommon that a digital asset will be purchased at a ridiculous price. An NFT collector spent a little under a half-million dollars to become Snoop Dogg’s next-door neighbor in the Metaverse (Logan, 21). You may ask yourself, why did the NFT collector that goes by the name of P-Ape, spend a whopping $500,000 to live by Snoop Dogg? Is it because he always dreamt of living next to his favorite rapper, or simply because he believes the demand for this property will increase due to the location?
As celebrities as popular as Snoop Dogg continue to bring further awareness to the Metaverse, some may wonder how long the rising trend of real estate investments within the Metaverse can continue – and is it here to stay? To ensure digital real estate has value, supply is currently limited – a concept in economics called “scarcity value” (Tzanidis, 2022). Very much like traditional Real Estate, there are various ways one could generate revenue through the virtual property. While Metaverse continues to evolve, the property will increase in value as more users enter the virtual world. Due to limited property, real estate investors have an opportunity to charge at a markup. Beyond appreciation, another way to generate passive income from your virtual property is by advertisements. If a well-known brand opens a store within your virtual community, it is going to look for space to advertise. Brands will be marketing for Metaverse users to upgrade their lifestyle within the virtual world. While Nike is a highly established brand, it is certainly leading the charge at the assertive end of the Metaverse spectrum, filing for patents for virtual goods and the opportunity to build virtual retail environments to sell those goods (Golden, 2021).
Just like all other investments, high risk can lead to high returns, and especially with sunrise industries the door is wide open for massive returns. With over 400 million dollars being spent, and 40 million dollars being moved every month within the virtual economy all in the last couple of months, there is demand for virtual property (Holmes, 2021). Investors are optimistic that real estate within the Metaverse is going to skyrocket in the future. As the Metaverse continues to develop, while property becoming scarcer, could you see yourself becoming a virtual real estate investor?
References:
Golden, Jessica. “Nike Is Quietly Preparing for the Metaverse.” CNBC, CNBC, 3 Nov. 2021, https://www.cnbc.com/2021/11/02/nike-is-quietly-preparing-for-the-metaverse-.html.
Holmes, Frank. “The Metaverse Is a $1 Trillion Revenue Opportunity. Here’s How to Invest…” Forbes, Forbes Magazine, 22 Dec. 2021, https://www.forbes.com/sites/greatspeculations/2021/12/20/the-metaverse-is-a-1-trillion-revenue-opportunity-heres-how-to-invest/?sh=6649337b4df9.
Logan, Kylie. “Snoop Dogg Is Developing a Snoopverse and Someone Just Bought a Property in His Virtual World for Almost $500,000.” Fortune, Fortune, 10 Dec. 2021, https://fortune.com/2021/12/09/snoop-dogg-rapper-metaverse-snoopverse/.
Rice, Johnny. “Just What Exactly Is an NFT?” Benzinga, https://www.benzinga.com/markets/cryptocurrency/22/02/25739852/just-what-exactly-is-an-nft?utm_campaign=partner_feed&utm_source=InvestingUK&utm_medium=partner_feed&utm_content=cryptocurrency.
Theo Tzanidis Senior Lecturer in Digital Marketing. “Real Estate in the Metaverse Is Booming. Is It Really Such a Crazy Idea?” The Conversation, 22 Jan. 2022, https://theconversation.com/real-estate-in-the-metaverse-is-booming-is-it-really-such-a-crazy-idea-174021.
“Virtual Products & NFTs in the Metaverse.” Threekit, https://www.threekit.com/how-to-sell-virtual-products-in-the-metaverse.Waterworth, Kristi. “3 Benefits to Becoming a Landlord in the Metaverse.” The Motley Fool, The Motley Fool, 20 Dec. 2021, https://www.fool.com/real-estate/2021/12/20/3-benefits-to-becoming-a-landlord-in-the-metaverse/.