How to Follow Facebook’s Lead Into the Metaverse
You’ve probably seen the news already: Facebook has officially been renamed Meta Platforms (Nasdaq: FB). Going forward, the social media giant is betting that most — if not all — of its core business will be bound to the metaverse.
The metaverse is comprised of digital spaces that offer experiences through virtual and augmented reality … made possible with the help of crypto technology. Right now, though, it’s still in the early stages of development.
Which is why Meta’s declaration should be a bellwether. When large institutions make commitments this big, investors should take notice.
In our most recent Weiss Crypto Sunday Special, Chris Coney breaks down the why behind Meta’s decision ... and several ways you can follow the social media giant down this crypto rabbit hole.
We have the full video available if you haven’t seen it yet. Or you can keep reading for the full transcript ...
Hi there, guys. Welcome to this week's edition of the Weiss Crypto Sunday Special with me, your host, Chris Coney. This week, I want to talk about why Facebook has just bet its future on crypto.
You've probably heard this by now, but Facebook executives announced the company is rebranding as Meta Platforms (Nasdaq: FB). So going forward, that means all their business activities will be bound to the metaverse, which is the alternative digital reality that exists online.
So, what's that got to do with making money as a crypto investor? Well, [let’s go] back to my basic tenet, which is: Economic activity is human activity. Wherever human activity goes, so goes economic activity.
For example, when these global lockdowns started coming in, I knew that was going to tank the economy simply because it was restricting human activity. It was simple cause and effect, as far as I could see. I even made a video about that at the time, so I'm on record of saying that.
However, that's not the point of this episode. The point here is to discuss how human activity is going to be moving increasingly into the metaverse ... and how economic activity is automatically going with it.
It's akin to economic activity moving onto the internet, right? This is now the next phase of that.
One distinction with the metaverse is its interconnectedness, or at least the potential for its interconnectedness. Let's start with early video games, which were self-contained realities.
One game universe didn’t necessarily have any relation to another game universe. So, if you played Super Mario on your Nintendo, and then you played Sonic the Hedgehog on your Sega Mega Drive, they had absolutely no relation to each other at all. The rules of those universes were self-contained. And even a thousand different people playing Super Mario at the same time around the world were all different instances of the Super Mario world, right?
Thanks to the internet and PC gaming — and actually even consoles that connect to the internet, as well — we moved to these big, centralized virtual worlds: massive multiplayer online games like Fortnite, EVE Online, World of Warcraft and all of their peers. That’s the same game world, and it joined together the experiences of thousands of different players within that world.
Remember, on the consoles [there were a] thousand different people playing Super Mario ... but [in] a thousand different games.
Whereas now, 5 million people at a time can be playing World of Warcraft, and all those games are connected together in one massive multiplayer online game. They could be on an Xbox, or they could be on a PC, or whatever.
That's why Fortnite in particular were so successful — it was cross-platform, so it wasn't like [only] the players on PC could game together. Now you could have people on Nintendo Switches and on PlayStations and on PCs all playing Fortnite at the same time, which is a breakthrough in terms of social gaming.
So now, while these are huge universes in their own right, they're still centrally controlled and ruled with almost all of the economic activity being captured by the software company that built it. So, with World of Warcraft, I think Blizzard Entertainment is the company that develops and manages that. So, they're capturing all the economic value, that's great. And there have been attempts actually to create secondary marketplaces for in-game items.
I think, particularly with World of Warcraft, the community created a website that was a marketplace to trade items they owned in the game because, at the time, the system didn't provide a mechanism for that. So, the community built their own. It was like an auction site where you'd say, "I'm selling this virtual sword; who wants to buy it?" People would bid, the trade would be agreed, and then the actual exchange or the transfer of the virtual item would happen in the game.
And I think when Blizzard Entertainment got wind of this they were like, "Hang on, this is some economic activity we're not capturing." So, they cracked down on it a bit. And I think they even, to their credit, created an in-game auction system to sweep their economic activity back within their purview.
So then, there's things like the Steam gaming platform. That's Steam, S-T-E-A-M. The Steam gaming platform is where independent game publishers and game studios can publish their own games, get direct access to the consumers and the gamers, and build a business.
But the problem with that? Still centralized.
And there are many instances where certain games have been forcibly removed from the Steam gaming platform by the company, which has either damaged or completely destroyed those gaming studio businesses. So that's no good, is it?
Now, we're going to move to a world of decentralized gaming, where all that stuff I've just talked about will continue, but on decentralized networks where developers and players are going to have equal amount of power.
Players, first of all, can truly own their in-game items because they'll be crypto assets. They can also participate in governing the game, deciding in which direction it can be developed, and so on. And they can also be developers themselves. They can contribute code; they can create schematics for new in-game items or anything. Basically, the sky's the limit.
With these games, some group of developers might start the project, but when governance becomes decentralized, well, their power gets diluted or removed entirely. We're sort of in that stage right now, the whole decentralized-gaming phase. And then after that, this is really where the metaverse would flourish truly. We haven't quite gotten to this stage yet, but it’s when these games start connecting to each other.
Say you had a World of Warcraft [account]. And then say someone created a decentralized version of it. Then you had a Fortnite [account] and someone created a decentralized version of that. That's great — millions of players playing the game at the same time, sharing that experience now that it's all decentralized and ownerless. Superb.
But you've still got these silos: 5 million people playing this game over here, 5 million people playing this game over there. So, the metaverse is where they start connecting to each other, and that's mind-blowing stuff.
And that's where potentially you could have in game items you could transfer between universes. So, say you had a sword in a World of Warcraft–type medieval battle game. Well, what if you could transfer that item to a completely different game and use it there? That is certainly mind-blowing.
And this is likely the world that Facebook are now preparing for.
You know that piece that I just said about in-game items and the ability to transfer them between games? Well, that's only really become possible thanks to crypto and blockchain technology, because you need the sovereignty of the asset and then the proof that there is only one of those, say, swords in existence so that it can be burned on one blockchain and created on another because it's virtual. The blockchain technology is that digital scarcity piece that we've needed to do that kind of thing.
So, what's this got to do with Facebook? Well, researchers at Bloomberg Intelligence expect by 2026, the total addressable market for metaverse products and services could reach $800 billion.
Now my favorite word in that is “services.” I was talking to my students about this recently. There's a virtual world called Second Life which is … well, it’s old. It's been around a long time; it was pre-crypto, pre-blockchain, but obviously post-internet because it's online.
The reason this is significant is because — I think this was like 2005 when this happened, it was on the tech news — the first millionaire has been minted in Second Life. And if I remember right, this was a real estate agent and they had a business in Second Life, in the virtual world, and they were a real estate broker. They brokered the real estate within Second Life. So land, islands, retail shops, they would be the real estate agent for those transactions. And, of course, they charge a commission, just like you do in the real world. And they built the business to a point where they'd made themselves a millionaire in the real world with their virtual business.
So that happened years ago. So, when Bloomberg is looking at $800 billion of metaverse products and services, we're not talking about $800 billion of virtual swords and artworks. All the services around that — which I cannot even imagine right now — are going to constitute some of that $800 billion of revenue.
Next point is that these virtual worlds are going to be the next social networks. So, this is the point where we’re exploring what this has got to do with Facebook.
These are going to be the next social networks. If people are increasingly socializing in these virtual worlds instead of scrolling through Facebook on their phone, well then, Facebook has a problem. If your revenue model is advertising, which Facebook's currently is, you're relying on this large group of people [remaining on] the platform that those ads are on, currently Facebook.
So, Facebook must see the writing on the wall here in terms of people starting to turn their attention away from Facebook. Then there would be less eyeballs on those adverts, and it would become less lucrative. And they're so certain this is going to happen that they haven't just started a new arm of Facebook to deal with this new trend ... they've wholesale rebranded their entire organization to Meta Platforms.
They previously acquired Oculus — a brand of virtual-reality hardware — and is a key piece in their arsenal. So the Oculus play is likely an earlier version of this rebrand. That was the foot in the door. But now with this rebrand, they're kind of full-body walking through the door.
So, where's the investment opportunity is the question? Well, there are several different levels of opportunity here that represent different risk to reward profiles.
The first one would be to invest in the stock of companies like Facebook or some up-and-coming metaverse development companies like Globant (NYSE: GLOB).
Another one would be to just invest in Bitcoin (BTC, Tech/Adoption Grade “A-”) or Ethereum (ETH, Tech/Adoption Grade “A”) because as the crypto economy grows, they always capture some of that value as the key transactional and store-of-value assets in the entire crypto space.
You could also invest in the token that relates to whichever platform has the most metaverse activity on it. When you want to build one of these virtual worlds, you have to choose which blockchain platform you're going to use. So, you could choose Solana (SOL, Tech/Adoption Grade “C-”), you could choose Tezos (XTZ, Tech/Adoption Grade “B”), you could choose Polygon (MATIC, Tech/Adoption Grade “B-”), you could do it on Ethereum if you want to. Well, it's unlikely that they would choose it for that kind of thing.
Let's use Polygon as the example. If Polygon becomes the most popular blockchain for metaverse activity, well great, you can get exposure to all of that just by buying the Polygon token MATIC. You wouldn't have to pick winners; you just pick the platform that's the winner.
The next level is you can invest in the token that relates to the most popular game on that platform. So, say Polygon is the most popular [platform], well then … we're talking about picking which specific game is going to be the most popular, right? You could do that, and most of the games will have their own tokens for governance and so on.
The next level deeper than that would be to start investing in specific items within that particular game, the most popular game, on the most popular platform like I was talking about with our friend, the real estate agent from Second Life. They were trading specific pieces of real estate in Second Life, so this is what we're talking about here.
So Upland, U-P-L-A-N-D, is a metaverse virtual real estate trading game on the blockchain. This is an instance of how you could do this strategy: Say you found that, I don't know, the Empire State Building in Upland was the most sought after, the most valuable virtual item in that world. Well, you could invest in that. And if it went up in value, just like a real piece of real estate, you'd make money from it, right?
But, of course, that's dependent upon you picking the right piece of property in the right virtual world, which is then obviously on the right platform. That all has to line up for that to make sense.
Now, as you go up those levels, the potential reward does increase ... but so does the risk, naturally. I'd say there's an optimal level there somewhere between investing in the most popular network protocol token and investing in the token that relates to the most popular game on that platform. That's sort of the sweet spot if you ask me.
Investing in this specific piece of real estate in the most popular games ... That to me just doesn't feel like a good risk-to-reward ratio, so I wouldn't do that unless you're really fanatical about that game, [where] you could figure out which one of those buildings or virtual items would be the most popular. But for most investors that's just too much.
So, there's the sweet spot. Somewhere between investing in the most popular network and the protocol token that relates to that and investing in the token that relates to the most popular game on the most popular platform. That's going to be in the sweet spot.
Or you can do a hybrid play. I've spoken about Yield Guild Games (YGG, Unrated) a few times. That's like a big, old, decentralized hedge fund that invests in virtual games, virtual game items, players, crypto assets, the whole shebang. So, you could just kind of outsource that if you like by investing in the YGG token and then let them diversify the investments in the metaverse for you.
In terms of further research, I think the best choice of research — if you want to stay informed about all the latest metaverse investment opportunities — would be Undiscovered Cryptos from Weiss Ratings. So, check that out if you want more active, more regular research on what to invest in in the metaverse.
So that's going to do it for this week's edition of the Weiss Crypto Sunday Special. Keep your eye on your inbox for next week's episode. Until then, it's me, Chris Coney, saying bye for now.