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How to Invest in Metaverse

·7 min read
How to Invest in Metaverse
How to Invest in Metaverse

The metaverse is a speculative idea more than a specific product or service. It does not exist yet, nor will it be a specific product or service if it is developed. But it is backed by a lot of smart people in and around the technology industry. So, investing in this idea, then, comes with the same set of risks and rewards that any speculative investment carries: If you buy now, you might get in on the ground floor of something huge or you might lose all your money on something that doesn't work. A financial advisor can help you weigh the pros and cons of speculative investment opportunities.

Background of Metaverse

"Metaverse" is a word coined by science fiction author Neal Stephenson in his 1992 novel "Snow Crash." He used it to describe a dystopian virtual reality in which the wealthy dominate and ordinary people lose themselves. In 2021 Facebook founder Mark Zuckerberg chose to rebrand his company around this concept. The company that runs Facebook is now known as Meta. Zuckerberg says the company's long-term business plan is to develop a real-world version of the metaverse.

The metaverse is a virtual reality in which people can interact through different platforms, such as VR headsets, smartphones and laptops. Users interact with the metaverse through virtual avatars, using those avatars to move around the virtual space and interact with the features of the virtual reality. Ideally, the metaverse also connects just about every different online space and platform into one, unified virtual world. You can seamlessly hop from a Zoom call with your boss to a Fortnite match to a Twitter feed to a Facebook page.

The metaverse is wrapped up in the idea of Web3. Web1 was defined by websites and browsers. Web2 is defined by apps and a mobile-online experience that starts bleeding into the real world (think summoning your ride via Uber). Web3 promises NFTs … and here's what that means.

How to Invest in the Metaverse?

If the metaverse seems like a good idea, how can you invest in it? Especially since it is a concept, not a product? There are a few good options:

Shares of Meta

This one may not be very useful, but you could always buy stock in Meta, formerly known as Facebook. The company's stock trades on the NASDAQ exchange with the stock symbol FB. Thanks to enormous recent losses, the stock now trades (at time of writing) at around $196 per share. That's down from $379.38 on Aug. 1, 2021, and translates into a market capitalization of about $530 billion and a PE ratio of 14.

Virtual World/Video Game Companies

Video games in particular are likely to be one of the leading edges of the metaverse. These are companies that already develop virtual worlds of the kind envisioned for the metaverse, so they're already operating in that space. The main differences are that video game worlds exist in their own silos, rather than being part of a shared space, and that few offer virtual reality experiences.

The latter, however, is another reason why video games are likely to be a major focus of the metaverse. Entertainment is one of the biggest areas where virtual reality will actually make a difference to the user experience. Despite Zuckerberg's advertising efforts, no one has yet identified a strong productivity-based use case for VR technology. Switching from Zoom to a headset just doesn't do much for communication and productivity; if anything, it harms the workspace by replacing facial cues with digital avatars.

Entertainment is another matter entirely. Wrapping yourself in the world of Azeroth would be very different from watching it on a 2-D screen, meaning that this is an industry that has the potential for near-term consumer gains from virtual reality tech. Investors who want to get in on the leading edge of the metaverse may well want to look at video game and related companies like Microsoft, Sony, Apple and Electronic Arts. Funds such as ETFs and mutual funds that invest in this space would also be excellent options for this form of investing.

Hardware Producers

How to Invest in Metaverse
How to Invest in Metaverse

The metaverse will require a hardware revolution as much as software. As described, this interconnected virtual space will demand far more than most users' devices can provide. In particular, it will require upgrades to core processors, graphics processing and broadband capacity. Investing in related firms would be a good way to get in on this development. Companies like Samsung, NVIDIA and Intel will all be strong bets if the metaverse takes off, as users will need to upgrade the power of any given device to take advantage of this (theoretical) technology.

As above, funds like ETFs and mutual funds are also good options for this form of investing.

A Word on NFTs

Finally, most articles that discuss investment in the metaverse recommend investing in non-fungible tokens (NFTs).

The logic behind this is that NFTs provide a unique form of digital ownership. You can therefore buy something online, own it and transfer that ownership across the entire shared space that will make up the metaverse. So you might buy the NFT for a piece of art, then be able to display that work in your online house. Or you might buy the NFT for a weapon in a video game, so that you could own the weapon in the game and all other spaces. (So, we guess, on conference calls your avatar could point to the quarterly reports with a unicorn? One that no one else gets to ride.)

There are many problems with this logic. Among them are two major issues: First, investing in NFTs for the metaverse layers speculation on top of speculation. The metaverse doesn't exist, so no one knows exactly how it will work – if it ever is developed. Buying an NFT for this space means that you're predicting that the metaverse will exist, in a specific form, using a specific technology (here, blockchain), and that as a result specific software (the art, weapon, etc. that you bought) will be useful in that space.

That's a lot of guesswork.

Second, as they currently exist, NFTs are a highly volatile, wildly speculative investment class. While some people have made money on the primary market, by creating and selling NFTs, there's little evidence that people have made significant money on the secondary market, by trading NFTs among themselves. Too, fraud is rampant in this space, with large NFT markest like OpenSea regularly pulling down assets as theft and scams.

If you do believe that blockchain will be the future of the metaverse, we recommend instead looking at Ethereum. While, like all cryptocurrency, it is a speculative and volatile asset, it is also a functional form of digital contract.

The Bottom Line

How to Invest in Metaverse
How to Invest in Metaverse

The metaverse envisions a digital world in which you can move seamlessly from Google to the New York Times to an individual blog, all using the same browser and without barrier (although a given site may charge for its content). Visual virtual reality technology, such as that developed by big firms (such as Oculus) and small ones (such as Boston-based Rendever), has also advanced quickly. This suggests that it may be possible to knit the existing seamless internet into the increasingly proven virtual experience.The metaverse is a shared virtual reality that connects the entire online space. It does not exist yet, but tech firms are trying to create it, which opens investment opportunities for people who think this is likely to work.

Tips on Investing

  • Consider working with a financial advisor about investing in the metaverse and other speculative prospects. Finding a qualified financial advisor doesn't have to be hard. SmartAsset's free tool matches you with up to three financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you're ready to find an advisor who can help you achieve your financial goals, get started now.

  • Use our no-cost investment calculator to get an estimate of how your portfolio could grow over time.

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