Nolan Hoffmeyer

Nolan Hoffmeyer

Thematics Asset Management

Walid Azar Atallah

Walid Azar Atallah

Thematics Asset Management

The metaverse is about to change everything, its proponents boldly claim. In just a few short years, we’ll be able to enjoy a seamless convergence of our real and digital lives, with individuals able to inhabit new spaces to play, shop or even work together online.

Instead of calling your far-flung loved ones on Zoom or Facebook chat, for instance, you could spend an afternoon strolling a digital Thames together. Or you could meet your co-workers at a virtual office, each person at a table sipping their virtual beverage. The possibilities are endless.

Moreover, industry insiders believe that the combined powers of new artificial intelligence (AI) tools like ChatGPT, the new sensation text generator developed by Open AI, and image generator DALL-E, also by Open AI, could help to speed up development of the metaverse.1

Indeed, many now think that the metaverse, as the next iteration of the internet, will disrupt our lives in much the same way as the iPhone’s unveiling in 2007. But what exactly will the metaverse look like?

Nobody truly knows what the metaverse has in store for us. Although most agree that it’ll become a virtual-reality space in which users can interact with other users, there are already different interpretations of what it could one day become.

In fact, there are at least two distinct versions of the metaverse rapidly emerging, with the battle between the two evoking some of the early libertarian dreams of the original internet (Web 1.0).

The first, centralised version, is a closed platform metaverse. Sometimes referred to as Web 3.0, it’s really a version of the metaverse being built by tech giants such as Meta, Nvidia, Microsoft, Roblox and Activision Blizzard. Ultimately, these firms will control the virtual worlds you’ll inhabit, such as in the game Fortnite, including the digital currencies (like ‘Robux’ in the game Roblox) that are used within these worlds – as opposed to cryptocurrencies.

These versions of the metaverse may be immersive and fun, but critics claim they’re being built for the profit of its creators – rather than to the benefit of its users. As Twitter founder Jack Dorsey summed up: “you don’t own web3. The VCs and LPs do. It will never escape their incentives. It’s ultimately a centralised entity with a different label.”2

Moreover, venture capitalists (VCs) and their partners (LPs) may be able to pressure blockchain founders or other metaverse creators to comply with centralised regulations, such as collecting Know Your Customer (KYC) data or the General Data Protection Regulation (GDPR). Even if the government’s influence is minimal, that’s still a big no-no for those that truly believe in decentralisation.

Instead, they’d prefer a completely decentralised version that’s built, governed, and owned by its users. In-game tokens, such as Decentraland’s MANA, can be exchanged for other cryptocurrencies, while ownership of all digital assets and tradeable items is recorded on a blockchain like Ethereum. This version is clearly closer to the ‘network state’ philosophies that underpin both crypto and DeFi.
Whatever the metaverse eventually looks like in the future, there may very well be competing worlds – yet there’s no denying the enormous commercial opportunities on offer.

Take NFTs (non-fungible tokens). Hundreds of celebrities, including Serena Williams, Snoop Dogg and even Paris Hilton have hopped on the hype train, with some NFTs selling for as much as $69 million.3 NFTs are easy to access and aren’t simply for celebrities – all that’s required is a crypto wallet and Ethereum to make the purchase. And despite interest cooling off in recent months, some experts still believe the overall market could be worth as much as $23 billion by 20304.

Still, that pales in comparison to the wider metaverse opportunity. So, just how much could the Metaverse be worth? Estimates vary wildly – which is not entirely surprising given it remains mostly a design concept for now.

JPMorgan, for instance, believes the market could represent more than $1 trillion in annual revenues, double that of smart phones, if it really does become a seamless extension of our physical lives.5 Goldman Sachs, meanwhile, has gone even further. It predicts the entire metaverse could be a $12.5 trillion opportunity if one-third of the current digital economy eventually moves to the metaverse and the market continues to grow at some 35% per year.6

Those are lofty, though perhaps not impossible, predictions. Yet whatever the total size of the metaverse, companies of all stripes are building a presence there, keen to tap into a fast-growing market ahead of what could be one of the biggest technological shifts of our time.

This includes fashion houses setting up digital HQs, retail stores selling NFTs, real estate agents offering digital plots of land, and the list goes on. “From a corporate perspective,” wrote JPMorgan, “there are opportunities to massively scale. Instead of having stores in every city, a major retailer might build a global hub in the metaverse that is able to serve millions of customers.”7
With the metaverse set to upend our lives, there’s likely to be several avenues for investment. Though it may be tempting to rush to build a portfolio of digital assets like NFTs, digital realty, or even publicly-traded metaverse companies, caution here is warranted.

The price of most NFTs, for example, collapsed in the second half of 2022, reflecting wider market conditions that have saw nearly all assets swoon – be it stocks, bonds, real estate, or luxury watches.8 And as prices declined, so too did overall interest in NFTs.9

Meanwhile early adopters such as Roblox or Meta (formerly Facebook) had a torrid first half of 2022 – proving, perhaps, that the true potential of the metaverse is more hype than reality for now.10

There are less speculative areas of the metaverse, however. Cyber security firms will be needed as our lives, and finances, become increasingly digital. The sheer scale of the metaverse, meanwhile, will require billions of high-performance semiconductor chips. And all this data will need to be backed up in storage REITs or cloud computing farms.

Such areas may seem less exciting, but they’re also likely to benefit from the steady growth of metaverse over the long haul. Speculation may appeal in the get-rich-quick age of cryptocurrency and NFTs, but the market events of 2022 proved that it can just as easily lead to financial ruin.

Alternatively, investors may want to invest with a technology-focused fund manager who can navigate this rapidly evolving world for them. A new world awaits, but that doesn’t mean investing in it will be without risks.

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  • Blockchain – Blockchain is the digital platform behind Bitcoin and other cryptocurrencies. It is intended to create faster, more efficient ways to transmit, receive, and track orders using secure data. Blockchain networks combine private key technology, distributed networks and shared ledgers. Confirming and validating transactions is a crucial function of the Blockchain for a cryptocurrency.
  • Chatbot – Short for ‘chatterbot’, these are computer programs that simulate human conversation through voice commands or text chats, or both.
  • GDPR (General Data Protection Regulation) – As a set of data protection rules, GDPR places limits on what organisations can do with personal data: information that allows a living person to be directly, or indirectly, identified from data that's available. This can be something obvious, such as a person's name, location data, or a clear online username, or it can be something that may be less instantly apparent: IP addresses and cookie identifiers can be considered as personal data. GDPR was adopted by both the European Parliament and European Council in April 2016 and came into force in May 2018. Countries within Europe were given the ability to make their own small changes to suit their own needs. Within the UK, this flexibility led to the creation of the Data Protection Act (2018), which superseded the previous 1998 Data Protection Act.
  • NFT (Non-fungible token) – NFTs are unique cryptographic tokens that exist on a blockchain and can represent real-world items like artwork and real estate. ‘Tokenising’ these real-world tangible assets makes buying, selling, and trading them more efficient while reducing the probability of fraud. Unlike cryptocurrencies, they cannot be traded or exchanged at equivalency. This differs from fungible tokens like cryptocurrencies, which are identical to each other and, therefore, can serve as a medium for commercial transactions. Much of the current market for NFTs is centred around collectibles, such as digital artwork, sports cards, and rarities.