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Is Metaverse Virtual Property a Good Buy?

Evaluating the Newest Virtual Investment Strategy

Facebook founder Mark Zuckerberg promised to create a beautifully immersive three-dimensional online world called the metaverse. With a vision including augmented reality and virtual reality, the company changed their name to Meta, and spent $10 billion over the past year in development. 

When I wrote about the metaverse last February, it was clear all aspects of the space were being monetized. You could buy a house, car, clothes and other accessories for your virtual self within different “projects.” I don’t know why I thought these items would cost somewhere in the range of a video game or Barbie dream home, not upwards of $2 million in actual money, converted to cryptocurrency, for a plot of virtual land. Even though metaverse platforms still appear rudimentary with no hint of lifelike holograms, investors were already jumping in to buy up real estate in the virtual world.

When Decentraland, one of the “big four” of metaverse real estate owners, held its first auction in 2017, a parcel of land cost just $20. By 2021 they were selling for $6,000, and at the start of 2022, they rose in price to about $15,000.

The metaverse today
Platforms within the metaverse are individual virtual worlds, sort of like a video game, but with more social and community components. For example, in Bored Ape Yacht Club, the clubhouse looks like a seedy pirate bar. Registered members, who all have unique ape avatars, can participate in various activities, and go into the virtual bathroom and communicate with other members by writing graffiti on the wall one pixel at a time. The currency of the club is ApeCoins, which can be put toward purchases, including virtual real estate that Bored Ape controls. 

The Bored Ape’s creator sold more than $300 million worth of metaverse land plots in April via digital non-fungible token (NFT) “deeds” to virtual real estate in its new game “Otherside.” Each deed costs 305 ApeCoins, or about $6,000. The NFT’s give buyers access to a supply of up to 55,000 plots of metaverse landscape.

Buying virtual real estate means you own a unique parcel of land in a world in the metaverse, and you can do things with it, including creating income-generating properties like leasable buildings or interactive venues that charge admission or promote a brand. They can also be sold. This has attracted not only individual investors, but large corporations, celebrities and major product brands. 

While real estate went wild in the real world in 2021, virtual land kept pace with skyrocketing values. A virtual real estate portfolio was touted as the next big thing for investors who aren’t afraid to take a chance on new technology.

Problems in the metaverse
At the beginning of 2022, confidence in blockchain platforms fell, affecting the metaverse. Virtual real estate values came crashing down over 80% by late summer. Ouch. 

Then FTX, a large cryptocurrency exchange, disintegrated over roughly 10 days in November, after a run on deposits that left the company with an $8 billion hole in its accounts. FTX filed for bankruptcy on Nov. 11, 2022

This was not the typical rise and fall in value that has happened with crypto. Indications are it was mismanagement and misuse of funds that crashed the company, and the actions may have criminal implications. FTX told investors it would keep their assets safe. If the company did something else with the funds, such as investing the money elsewhere and losing it, laws may have been broken. Regardless, about a million people lost a lot of real cash.

However, despite these serious problems, virtual real estate is expected to not only bounce back, but grow rapidly.

How to buy digital real estate in the metaverse
For full functionality, access metaverse platforms with a desktop computer. First, you will want to search for a property to buy. This California (real life) real estate blog has a good summary of top virtual real estate projects. Then, research available lots on one of many third-party reseller platforms, like OpenSea.io or NonFungible.com. There you can look at sales history of comparable prices of nearby properties.

Location is also critical. Recently, someone paid $450,000 to buy vacant virtual parcels to be next door neighbors with Snoop Dogg, who is building a virtual mansion that mirrors his real life home, in partnership with the Sandbox platform in the metaverse. Locations near something like Snoop Dogg’s mansion that is generating a lot of traffic will be more valuable than undeveloped areas. 

You’ll also need a digital wallet that can hold your digital assets, including the cryptocurrency you’ll be using to make your purchase. The wallet you choose will depend on the metaverse platform you’re using. Each site will explain which are preferred and how to link them.

The next step is to purchase the amount of cryptocurrency you’ll need for the real estate transaction. For example, Bored Ape uses ApeCoin, the Sandbox uses SAND, Decentraland uses MANA, etc. These can all be purchased on open cryptocurrency exchanges using your local currency or other cryptocurrencies.

Once those few steps are completed, the actual transaction is quick and easy. Simply go to the desired platform’s marketplace of a third-party seller and click the buy button for your desired property. It can take a minute to verify the transaction. When complete, the crypto currency comes out of your digital wallet and your NFT representing your purchase goes in, along with an anonymous identifier that records you as the owner.

The process to sell is similar, but in reverse, landing you a pile of cryptocurrency in your digital wallet in exchange for the NFT.

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Is virtual real estate a good investment?
This new frontier is a risky investment. But high risk can return high rewards, and many people have made a fortune in virtual real estate.

Despite the crash of FTX and other dips in crypto value, industry experts including Forbes Technology Council member Peter Abualzolof expects major growth in virtual real estate in 2023. Vantage market research reports the global metaverse real estate market alone was valued at $821.9 million in 2021, with a projected increase to $5.95 billion by 2028.

However, with new technology comes new problems. This includes Ethereum’s blockchain issues, which included the platform’s lack of scalability. This cooled investor interest, and virtual land values dropped like a rock in the first half of this year. The average price per parcel of virtual real estate across the six major Ethereum metaverse projects fell from approximately $17,000 in January 2022 to around $2,500 in August 2022, an 85% decline. And that $450,000 lot next door to Snoop Dogg? It’s worth about $25,000 now.

Buying assets in this virtual world is still a relatively new concept. The Metaverse is in its infancy, nowhere near what Mark Zuckerberg describes as “a feeling of presence—like you are right there with another person or in another place.” Right now, most platforms in the metaverse appear as rudimentary and cartoonish video game backgrounds. There is no hint of being able “to teleport instantly as a hologram to be at the office without a commute, at a concert with friends, or in your parents’ living room to catch up.”  

Financial professionals advise against shifting investments from physical real estate to virtual properties, and don’t invest any money in the metaverse you can’t afford to lose. As we have learned from numerous examples, NFTs and cryptocurrency can be hacked, and there is no recourse for lost investments.

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