Big tech giants are pouring billions of dollars towards developing the metaverse. As virtual and augmented reality becomes more popular, virtual real estate might become a key asset class.
1. What Is Metaverse Real Estate?
The metaverse is designed to be a virtual reality where people can socialize, play games, and perhaps even work in a collaborative setting. By taking advantage of rapidly improving technological capabilities, the metaverse may be able to offer users a virtual place to congregate, a sort of digital public square. Assuming that happens, space in these universes could become quite a hot asset.
Various virtual universes have started to sell land to the public. And, over the past two years, the idea of virtual land as an investment has started to gain traction.
In early 2020, rapper Travis Scott held a widely-publicized concert within the Fortnite video game universe. This opened a lot of eyes to the possibility of virtual worlds. Subsequently, celebrities such as Paris Hilton, Jake Paul, and Snoop Dogg have set up properties and businesses in the metaverse. Snoop Dogg, for example, built a mansion within the Sandbox metaverse, leading to a flurry of speculation as fans rushed to snap up lots around Snoop Dogg’s property, as reported in Fortune.
It’s not just celebrities that are getting involved. Corporate money is also starting to take part.
Coca-Cola has taken part in promotions involving the metaverse platform Decentraland. Gucci set up the Gucci Garden site within the Roblox community as a unique form of marketing. Nike is planning to launch a store for digital goods within the Roblox universe. Samsung, Atari, and Adidas are among others that have purchased virtual land holdings for future business ventures.
2. Benefits of Buying Metaverse Land
There are several reasons that investors may choose to buy land in the metaverse.
It’s a Newly-Emerging Field
It’s a Leveraged Bet on Crypto
It’s an Opportunity to Reach Young Consumers
It Can Serve as an Inflation Hedge
3. Metaverse Land Price
The cost of land in the Metaverse varies considerably. Prices are rising in popular metaverses such as Decentraland and the Sandbox. Land can still be purchased at lower prices in smaller, less popular metaverses. Location, like with traditional real estate, is important.
Prices for the most expensive plots have increased into the six and even seven figures at the top end of the spectrum. In one virtual environment, one NFT collector notably paid $450,000 for a block of property near Snoop Dog’s possessions. Some cryptocurrency corporations have even spent millions of dollars to purchase parcels of land in virtual universes.
Some metaverse investors have mentioned purchasing land in hundreds of various worlds as a type of diversification strategy; by purchasing properties in each project, one hedge one’s bets as to which ones will eventually take off. Given the wide variety of cryptocurrency projects available today, it’s difficult to determine exact pricing or fair valuations for metaverse real estate, and the market may be very unpredictable.
4. How To Buy Virtual Real Estate In the Metaverse
Most virtual real estate is bought and sold using cryptocurrencies rather than fiat money. So, the first step for a potential virtual real estate investment is to obtain cryptos that are popular for DeFi applications, such as Ethereum or Solana which can then be used for subsequent transactions.
5. Paying for Metaverse Property with Crypto
There are starting to be things such as metaverse real estate brokerages and metaverse mortgages. For now, however, these traditional finance world options are not yet broadly popular in metaverse land sales.
Primarily, people acquire metaverse real estate by purchasing directly with cryptocurrency. Many virtual worlds have a store or application that sells land in return for crypto. Oftentimes, these land parcels are structured as non-fungible tokens (NFTs) and thus can be bought and sold like other NFTs.
Generally, a buyer needs to connect a digital wallet to the virtual universe where the buyer wishes to acquire land. It’s important to make sure that the right cryptocurrency has been obtained as well, as many land sales occur in crypto specific to that metaverse, rather than being a broad token such as Ethereum. With a digital wallet and the proper crypto, a buyer can then proceed to pick up their desired property.
6. Where To Buy Space In the Metaverse
Given how early it is in the adoption cycle for the metaverse and virtual real estate, it’s hard to forecast which ecosystem will end up being the most popular.
That said, as of this writing, the Sandbox and Decentraland have become leading options and have obtained a significant amount of celebrity participation and resulting investor interest.
Don’t count out gaming companies as well. Roblox wasn’t designed a crypto-native metaverse but its digital world is attracting significant interest from major retail brands. That could lead to interesting investing ramifications in the future. Other major game publishers may make significant metaverse plays and create virtual land of high value as well.
7. Is Buying Metaverse Property a Good Investment?
The answer to this in large part depends on an investor’s risk tolerance. Given how new and unproven this field is, there is a very real chance of losing all of one’s potential investment in virtual land.
These risks include hacking/theft, buying into a virtual universe that fails to become popular, or cryptocurrency, in general, losing its value, among other risks. Typically, physical real estate will never lose all of its value but it remains to be seen how virtual real estate will hold up during industry downturns.
That said, for investors with a strong stomach, there could be a case for virtual land as a diversifying investment with potentially tremendous upside. It seems likely that at least a couple of the metaverse or virtual reality ecosystems will take off. Properties in those could potentially be multi-baggers many times over. There’s also the possibility of getting leverage on those gains if the cryptocurrency underlying the virtual property also appreciates in value against fiat money.
Additionally, depending on how much corporations get drawn into the metaverse, there could be a good opportunity to generate rent or other income streams from the properties in addition to capital gains. Right now, these business models are as conceptual as anything, but the possibility is there for fortunes to be made. It’s a new technological frontier, with the grave risks and extreme rewards that entails.
Companies such as Meta Platforms (FB) are investing tens of billions of dollars to try to make the metaverse take off. If these efforts have much success, a large virtual economy is likely to develop in these ecosystems. Owners of virtual real estate could stand to profit handsomely if and when this occurs.
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