The metaverse, an interconnected set of digital and physical reality environments, would be the next phase of the Internet. How do you respond to this as an investor, without being the victim of a new bubble?
The Internet has already gone through several phases. We evolved from text-heavy static websites to video-heavy mobile social networks, made by users themselves. If we are to believe Facebook founder Mark Zuckerberg and other Internet entrepreneurs, in the next phase of the Internet we will be entirely in a digital world instead of looking at it on a screen. That will be the metaverse.
How can investors respond to this? A useful starting point is the analysis of venture capitalist Matthew Ball, which is included in ‘The Metaverse Primer’. Ball lists a number of requirements for the metaverse.
It should allow live and real-time matches, never stop or pause, and have unlimited users. It must have an economy with property rights for users and creators, and it must span the digital and physical worlds. The metaverse must also be the work of a broad front of people, groups and companies.
- The metaverse is possibly the next phase of the internet, where we are literally in a digital world for all kinds of activities.
- Venture capitalist Matthew Ball, along with Roundhill Investments, launched a tracker to capitalize on the metaverse. The tracker mirrors the performance of an index of public companies that Ball compiled.
- Tech giants like Microsoft and Nvidia are part of that portfolio. They have activities varied enough that they are not entirely dependent on the success of the metaverse.
The Ball Metaverse Index (METV Index) tracks the publicly traded companies involved in the creation of the metaverse. You can invest in the index through the Roundhill Ball Metaverse ETF (METV ETF) tracker. This is not yet available in Belgium for ordinary investors, but it provides information on a possible strategy to respond to the trend of the metaverse.
The game is the closest thing to what the metaverse will become at this point.
The largest positions are Meta Platforms, parent of Facebook (9.5%), graphics card specialist Nvidia (7.6%) and Microsoft (7.3%), which is active in mixed reality, gaming and Cloud. The top five are completed by the gaming platform Roblox (6.6%) and the games and software manufacturer for digital environments Unity Software (5.6%).
“Gaming is the closest thing to what the metaverse is going to become at this point,” said Tim Maloney, chief investment officer at Roundhill Investments, which markets the tracker.
The ETF invests in seven categories that form the building blocks of the metaverse. For example, there are companies that provide computing power and bandwidth. Others develop platforms for virtual environments, and then there are the operators of those platforms. Crucial are the developers of the standards that make the metaverse “interoperable,” meaning you can use your avatar and other digital assets anywhere.
start the metaverse
What exactly is the metaverse? How will it change our lives and our work? In addition to attending exclusive parties, can you also invest, build and invest there? Who sets the rules in this new virtual world? Which Belgian companies have already discovered the opportunities of the metaverse? De Tijd guides you through the metaverse with articles and podcasts. Follow all in our ‘Home to metaverse’ archive.
Payment technology specialists also play an important role, whether it is ordinary money or cryptocurrencies. There are companies that focus on the identification of digital goods and users. Finally, there are the hardware manufacturers.
Maloney won’t be tempted to make a prediction about when we’ll have a ‘real’ metaverse. “The timeline is fluid,” he says. ‘Roblox and the concerts in the game ‘Fortnite’ (like pop singer Ariana Grande’s virtual appearance in August last year, ed.) they are currently the most tangible manifestation of where we are going.” Tech companies like Meta are investing heavily. ‘Meta now wants to evolve from a social network to a metaverse company. But you can’t just say there will be a metaverse seven years from now.
These are usually large companies that invest heavily in metaverse technology, but have other activities that make a lot of money. The government can also invest more in the metaverse. “We saw that at the beginning of the Internet,” says Maloney. But there is one more clue. “The metaverse can also be created in a decentralized way, as we see in the crypto sector, which is active in building the metaverse. That is a new economy.
Can cryptocurrencies be part of an investment vehicle targeting the metaverse? Maloney has a clear interest in exposure to blockchains like Ethereum, Solana, Avalanche, and Tezos. But it is a matter of regulation. That won’t work in the United States for the foreseeable future.’ The index contains companies such as the Coinbase crypto market.
Regulators are not only targeting the cryptocurrency sector. Big tech is also under attack. Meta, a company with a market capitalization of more than $500 billion, cannot simply absorb companies. His plans for his own virtual currency also received heavy criticism. “But if regulators stop Meta, someone else will,” says Maloney.
For all ages
Doesn’t the dream of the metaverse collide with anthropological and social limits? Some observers say that adults will not have enough time and energy to spend long periods of time in these digital environments. “Hasn’t the same been said about social networks like Facebook and MySpace? We see that the elderly have now taken over Facebook, making it difficult for the social medium to remain attractive to young people. That problem is less with Instagram and WhatsApp, which are also owned by Meta Platforms.
Virtual meetings can become something that people have to deal with every day.
The metaverse can appeal to different age groups, Maloney explains. It refers to the movie ‘Ready Player One’, where the young protagonists move to another reality with headphones. ‘That may not be correct for a 45-year-old father with three children. But he looks at the pandemic and hybrid work. People may have to deal with virtual meetings every day. You don’t make a movie about it, but it’s part of the metaverse.
Maloney also sees a fusion between the physical and the digital. The smartphone game ‘Pokémon GO’ is an early example of this, where you hunt digital monsters in physical reality. “I don’t know what the metaverse will look like in the end, but mixed reality is definitely a part of it.”
20 percent lower
The Roundhill tracker is down 20 percent since its launch on June 30, 2021. The technology sector is under pressure due to fears of rising interest rates. In addition, inflation is skyrocketing, the supply chain is faltering, and there are serious geopolitical tensions. But for those who believe in the importance of the metaverse, such a tracker can earn a place in the technology part of an investment portfolio, Maloney believes.
Investors with enough resources to build a diversified portfolio can take inspiration from the METV ETF. For example, with a focus on technology companies that have enough other activities to score, the metaverse as a theme may disappear in subsequent years.