What is the Metaverse and how can you invest in it?

You might have heard of the metaverse after Facebook rebranded to Meta, and went all-in on creating virtual worlds. Zuckerberg envisions a world powered by virtual and augmented reality that is filled with virtual hangout spaces and populated by avatars. Think of a world like Ready Player One but without the fight to the death, if that rings a bell.

Facebook’s rebrand to Meta in late October 2021 came with a long presentation about what Zuckerberg’s vision for a metaverse looks like. He envisions that we will wear ultra-thin glasses (think virtual reality headsets but…better) that would transport us to virtual worlds that play similar to Second Life or VR Chat.

You may remark that these types of games have been around for years—Second Life came out in 2003—and note that Zuckerberg’s navel-gazing could be a distraction from the privacy concerns that have beleaguered the company for years. But Zuckerberg is serious about the metaverse: he plans to invest tens of billions of dollars in building it through Facebook Reality Labs.

Zuckerberg’s plans are certainly ambitious. His promotional video for his vast, decades-long project features a basketball game played on real courts, only the opposing side is thousands of miles away on their own court and the two teams play with a virtual ball rendered in augmented reality. And to hang out with his friends, Zuckerberg snaps on a virtual suit and lounges with them in a very convincing virtual rendition of space.

The thing is, exactly what the metaverse is is in dispute, as well as who’s allowed to build it. Zuckerberg and Meta’s vision is just one version of the metaverse.

The term has been knocking about since Neal Stephenson coined the term in his sci-fi novel from the 90s, Snow Crash. There, it referred to a virtual shared space that, according to the book’s blurb, is “cyberspace home to avatars and software daemons, where anything and just about everything goes.” Meta means “beyond” and verse comes from “universe”. In Snow Crash, inhabitants developed land on a virtual city, leasing it from the Global Multimedia Protocol Group and accessing it through personal terminals owned by a monopolistic cable TV network.

Before Facebook rebranded to Meta, the idea grew popular within cryptocurrency circles. There, the idea was that you would have a persistent online identity that is maintained by blockchain technology. Since the blockchain market is nothing more than a network of interrelated, but essentially independent protocols, the ambition is to create a decentralized metaverse that is owned by the people that use it.

This idea became very popular, and the cryptocurrency people are very interested in pushing the narrative that the metaverse is something that is owned by its inhabitants, rather than a service provided by a huge company like Facebook. To vote on how the metaverse operates, cryptocurrency investors use so-called governance tokens to influence votes in DAOs, or decentralised autonomous organisations. The metaverse would therefore be a cooperative project.

Like with Second Life and VR Chat, the cryptocurrency version of the metaverse already exists. On a more abstract level, coins like Ethereum grant you the right to participate in a vast network of decentralized finance protocols. Your identity is tied to your virtual wallet, like the browser-based MetaMask wallet, which you can shorten into a human-readable name, like Rob.ETH, using the Ethereum Name System. So, when I invest in Defi protocols and can be identified by my username, I am participating in a cryptocurrency metaverse.

Of course, this is still pretty abstract and the link to the metaverse seems somewhat tenuous. So cryptocurrency companies decided to make things more concrete. Things changed with so-called profile picture NFT tokens. NFTs, or non-fungible tokens, are unique cryptocurrencies that usually reflect a bit of art. Some collections are so popular that people tie their online identities to these NFTs. I’ve heard people introduce themselves at real-life cryptocurrency parties by their NFTs, not by their actual names.

So, a CryptoPunk, a Bored Ape or a Pudgy Penguin become avatars in the metaverse. These avatars can be traded online, and, crucially, they can be used in any part of the metaverse that supports Ethereum smart contracts. Twitter, for instance, is facilitating this on its platform through a tool that it creating. The tool lets you connect your NFT of, say, a CryptoPunk to your Twitter profile, so people know that you are represented online by this NFT.

If that’s still a little abstract, cryptocurrency video games are being developed that let you replicate something close to Zuckerberg’s idea of the metaverse: a virtual space where you can hang out with your friends, conduct meetings and play games. Popular cryptocurrency games include Axie Infinity, Decentraland and The Sandbox, and they have already generated billions of dollars in sales.

Axie Infinity is a monster battler game. It’s a little like Pokémon—the game admits as much in its documentation—with one key difference: the players own all the items and monsters needed to play the game. It’s the most successful NFT game of all time, having generated $3.1 billion in sales as of November 15, 2021.

The Sandbox and Decentraland are more like virtual open worlds. On both of them, you can buy virtual plots of land using cryptocurrencies, and build whatever you want on top of them. This is similar to Stephenson’s Snow Crash and Second Life, only the plots of land are entirely owned by the players and their rights to the land can’t be revoked. Right now, these games are in pretty early stages, and they don’t hold up to polished videogames like Call of Duty or Animal Crossing just yet. But the core concept of player-owned worlds fit for a metaverse powered by cryptocurrencies has caused their value to boom.

It is important to remember that no vision of the metaverse is ‘right’, and that in many ways, it’s really just an embellishment of technology that we already have. VR videogames, online forums and cryptocurrencies have provided us with something that looks like the early stages of the metaverse—arguably, the metaverse is just a continuation of the idea of ‘cyberspace’ that was popular in the 90s. What’s more, Zuckerberg’s metaverse can co-exist, and will likely integrate, aspects of videogame and cryptocurrency culture. Meta’s promotional video even teased a clip of Zuckerberg’s friends fawning over some NFTs, hinting that he may well include cryptocurrency technology.

How to invest in the metaverse

I hope that you now have a better idea of what the metaverse is, as well as some of the factionalism that might shape it definition in different circles. But this is Wealthsimple, after all, a place to invest your money. Now that you know what the metaverse is, how can you invest in it? Here are a few ideas about investments that might expose you to the metaverse.

1. Invest in Meta.

When Facebook rebranded to Meta, it didn’t actually create a new company and issue new stock. Instead, it just renamed the company and, will, in time, rename the Facebook stock ticker. So the easiest way to invest in Mark Zuckerberg’s vision of the metaverse is simply to buy stock in his company, or any stocks that you think Zuckerberg might snap up as he expands his virtual empire.

1. Invest in virtual reality companies

Meta (then Facebook) bought Oculus in 2014 for $2 billion, but other publicly-run companies are building virtual and augmented reality technology. These include Sony, Microsoft, Apple and Google, as well as companies like Qualcomm, Nvidia and HTC. Videogame companies are also building out VR, and many are thought to have plans to integrate NFT technology—although few have publicly announced this.

1. Invest in the cryptocurrency metaverse.

This is a more complex one, and the item to which I shall devote the rest of this piece.

How to invest in the cryptocurrency metaverse

As this article has mentioned, the concept of the metaverse is vast and far-reaching. But lots of cryptocurrency projects have already positioned themselves as part of the metaverse, and invite you to invest in them.

NFTs

NFTs, or non-fungible tokens, are cryptocurrency tokens that are provably unique. This feature makes them very popular with digital artists, who use them to sell their work on online marketplaces. Lots of these NFTs can be used throughout videogames. These NFTs can serve as tickets to inter-connected virtual worlds, and their programmability means that they could represent a different thing in each. For instance, a mugshot of an ape could be used as a profile picture on LinkedIn, Twitter or Instagram, but it could also entitle you to, say, a space monkey outfit in one videogame, and a diamond-encrusted sword in another.

It’s often difficult to judge which of these NFTs will go viral and become the Next Big Thing, but you can see the largest projects for yourself on NFT aggregator sites like CryptoSlam. Popular NFT projects often sell out in mere hours—if that—but they are generally resold on secondary marketplaces. While some projects, like CryptoPunks and NBA Top Shot, have their own bespoke marketplaces, most end up on sites like Rarible and OpenSea. Most are hosted on the Ethereum blockchain, but rival blockchains such as Tezos, Solana and Avalanche are home to their own.

You can buy these NFTs with cryptocurrencies. To buy Ethereum-based NFTs, you need to first buy the token or coin against which they trade, usually ETH, WETH (Wrapped Ethereum) or a stablecoin called USDC. You need to buy these cryptocurrencies from a venue that lets you withdraw your funds to a web wallet, like MetaMask. Most cryptocurrency exchanges let you do this, but Wealthsimple does not at present. Once your NFT is in your wallet, it’s yours to do with whatever you please.

Crypto videogames

You could also invest in crypto videogames like Decentraland, Axie Infinity and The Sandbox. There are a several different ways to do this. The first way is to buy their governance token. For Decentraland, this is MANA, for Axie Infinity, it’s AXS tokens and for The Sandbox it’s SAND. These trade on the open market, and you can find them on most major cryptocurrency exchanges.

The second is to buy in-game items. You could buy and sell monsters and items (like jugs and hedges) in Axie Infinity, for instance, and then resell them on marketplaces. Axie has its own marketplace, as does Decentraland. All of these games also let you purchase plots of land. These are, essentially, NFT tokens that grant you the right to build on that land. What you can do depends on the game, but on Decentraland, for instance, you can create virtual worlds for other players to visit. These NFTs are in short supply—there are only 90,000 parcels of land on Decentraland, for instance, compared to 1,292,000 MANA tokens—so they cost far more.

Metaverse token index

If you’re unsure about how to invest in the cryptocurrency metaverse, one way to get involved is to buy an index token that represents a basket of metaverse tokens. They operate a little like index funds on the stock market, although they’re not regulated and there have been cases when the index tokens have not maintained their peg to the prices of the tokens they claim to represent.

The most popular metaverse token is called the MVI, or Metaverse Index. It’s created by Index Coop, and it tracks the largest metaverse tokens by market capitalisation, and automatically rebalances its portfolio over time. MVI only invests in Ethereum-based metaverse tokens that have a market cap of over $50 million and an independent security audit. This is to prevent the collapse of an errant project from affecting the value of the token. You can buy MVI on Index Coop’s site, as well as decentralized finance portals like Zerion and Uniswap.

Note that investing in the metaverse is highly risky, and many of these projects, even Facebook’s, are unproven. Like the definition of the metaverse itself, these companies are still working out their purpose in the market. As always, don’t invest more than you can afford to lose, and definitely do your research before investing large amounts of money.