This month’s recommendation is risky — even for crypto. We’re jumping into the metaverse.
The metaverse is essentially a digital parallel (well, mostly parallel) to our physical universe. It’s a place where people will “live out” their digital lives using avatars (digital representations) of themselves. People will be able to access the metaverse using virtual reality (VR) or augmented reality (AR). And they’ll be able to directly interact with each other in this parallel universe.
Imagine living in North Carolina and being able to toss a football around with your brother or sister in Minnesota. Or getting an immersive concert experience without ever leaving your home. Or — and this one just happened — networking directly with people at a physical conference while sitting in the comfort of your home or office.
We’re just starting to see the first generation of “real-world” use cases for the metaverse come to fruition. iHeartMedia is hosting a concert series in the Fortnite metaverse. Pop star Charlie Puth is kicking off the concert series next month (though he won’t be in avatar form like Ariana Grande and Travis Scott were in previous Fortnite concerts).
Fortnite’s parent company, Epic Games, inked a deal with the LEGO Group in April to create a kid-friendly metaverse entertainment space. Metaverse dating apps have already launched. And interest in the metaverse isn’t limited to just social and entertainment purposes. J.P. Morgan has opened up a lounge in the metaverse, and even HSBC is jumping on the metaverse bandwagon.
I’m not completely sold on the metaverse. VR and AR technology are steadily improving. But they’re not ready (yet) for mainstream adoption. I believe we’re still more than a few years away from seeing that. But I’ve also been waiting since 1993 (Sega VR anyone?) for VR to become a reality. So I’m a bit jaded.
Equally important is that society hasn’t figured out how to solve many of the basic problems plaguing the internet — including rampant bullying, censorship and disinformation. The very same dynamics that make social media and comment sections toxic will likely emerge in the metaverse. Will people really flock to a virtual universe that has the exact same set of problems that the physical universe does? Somehow, I doubt it. And considering much of the metaverse is going to be (at least initially) reliant on user-generated content, this is a serious problem.
Yet despite these significant and real concerns, I believe you should add a metaverse project to your crypto portfolio. The metaverse’s market potential is too big to ignore.
The metaverse’s current market size ranges from $125 billion to $201 billion depending on who you ask. And it’s expected to grow into a $435 billion to $546 billion market by 2028. IF the forecasting is correct, this segment is just too big to ignore. And even if the forecast is horribly wrong, there’s nothing wrong with pocketing a decent gain before the metaverse goes away completely.
I believe the two best metaverse projects right now are Sandbox (SAND) and Decentraland (MANA). SAND has one major flaw though — play-to-earn schemes (where people essentially get paid for playing video games) are a big part of its business plan. I’m not a big fan of play-to-earn schemes. I believe they’re too easy to exploit. This piece on Axie Infinity shows exactly what can go wrong with play-to-earn. So for now, I believe we should pass on SAND and focus on MANA.
Decentraland is more of a metaverse real estate play. People use MANA to buy plots of metaverse land. Each plot is about 2,755 square feet. And the value of the plot goes up and down based on basic real estate principles — like where the plot is located and what the plot is being used for.
Decentraland plots can be used for a variety of different things including Patron cocktail lounges and Estee Lauder art galleries. Other potential uses for land plots include casinos, arcades and music venues.
As of this writing, MANA is trading for about $0.83. It hit its all-time high of about $5.48 last November, and it began the year at $3.34. So there’s plenty of room for MANA to trade higher in the future. But like most cryptos this year, it hasn’t been able to escape the bear market. The current price feels like a pretty good bargain given the outlook for the metaverse and MANA’s previous trading history.
MANA also tends to trade in tandem with ethereum, so there might be some interesting short-term upside depending on how the Ethereum Merge goes.
As I’ve written previously, dollar cost averaging is your best friend in a bear market. The crypto markets are poised for another downturn (perhaps as soon as today), so buying a small (fixed) amount each week will help lower your acquisition costs and make sure you enter the market at a good price.
Investing in crypto is inherently risky. Investing in the metaverse carries even more risk than most crypto investments. That’s why we’re adding MANA to our speculative portfolio.
Don’t invest money you can’t afford to lose. And remember the investing rules of the road.
Rules of the Road
- Let me repeat — do not invest money you can’t afford to lose. The markets are in for a rough ride. And if you can’t afford to lose the money, you shouldn’t risk it.
- Focus on projects with strong use cases.
- Look for teams or communities that are active and committed to their projects.
- Always enter a position using dollar cost averaging. That means buying a small amount each week rather than buying your entire position at once. That way, if prices continue to fall, you lower your overall acquisition cost.
- Don’t try to time the market perfectly. Nobody can. And I believe this bear market will be around for several months. So if you want to wait, that’s perfectly okay. But when you do invest, make sure you utilize dollar cost averaging to buy into the market.
- Diversify your crypto portfolio. From a percentage standpoint, bitcoin and ethereum should be the biggest investments in your crypto portfolio. But you need exposure to a much broader and more diverse set of coins to take advantage of the full upside of the crypto markets. Bear markets are a good time to diversify the portfolio and increase exposure to different crypto sectors.
The easiest way to buy MANA is through Coinbase. Make sure you understand your time horizon for investing in this coin. And remember, investing in crypto is risky. Never invest money you can’t afford to lose.
That said, I believe MANA offers an attractive risk-reward ratio.