Up to 133% Already in 2023, is this Metaverse Crypto a buy?

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What a difference a year makes. In 2022, some metaverse cryptos were down more than 90% for the year, and many analysts had already written off the metaverse as a potential investment option. However, during the first two weeks of 2023, the scenario changed. Metaverse tokens are now the best performing sector in the crypto market.

Decentraland (MANA -0.94%) led the charge, which at one point grew more than 133% in 2023. Sentiment appears to have shifted dramatically on the outlook for this metaverse token. Moreover, the sentiment changed almost overnight. So is Decentraland a buy?

The Roller Coaster Hype Cycle

When it comes to the metaverse sector, understanding investor sentiment is key. It’s truly been a rollercoaster hype cycle for the Metaverse over the past 18 months. In 2021, everything “metaverse” was golden, and Facebook even went so far as to change its name to Meta Platforms to achieve first-mover status in the metaverse.

And it’s not just tech companies, celebrities, brands, and major social media influencers promoting the metaverse. High-end consulting firms and Wall Street banks have consistently pointed to the Metaverse as a potential $1 trillion market opportunity.

But in 2022, investors realized that it might take much longer than expected to realize the full magnitude of this market opportunity. That’s why I worry about this new round of hype: it could be just as fleeting.

Lack of fundamentals

Of course, you can blame the broader market decline for much of Decentraland’s woes last year, as investors indiscriminately threw all cryptos into a mad dash for the exits. But part of the blame lies with Decentraland itself. Despite all efforts to attract top celebrities and brands to build into its metaverse world, Decentraland still has less than 1,000 daily active users. The usage numbers, quite frankly, aren’t very encouraging.

Lack of a good catalyst

Despite the recent price spike, it’s hard to find a single good reason why Decentraland has grown so rapidly in 2023. The consensus seems to be that positive January macro news is driving growth. Based on just one good economic number, metaverse investors are now confident that inflation fears have been exaggerated, the economy will improve, and users will start playing in the metaverse again.

Maybe I’m too skeptical, but I need to see a major catalyst driving this growth – or else it’s all hype and could die at any moment. Yes, Decentraland announced new profile features and avatar functions, but that seems like a small tweak rather than a big catalyst. Another working hypothesis is that the start of the Australian Open tennis tournament in mid-January played a role. The logic here is that the Australian Open has a metaverse destination inside Decentraland where you can learn more about tennis, and maybe that’s why Decentraland is on the rise. I don’t find this argument very convincing, especially since the tournament only lasts two weeks.

Stand Out in the Metaverse

Even without the presence of a good catalyst, and even with low usage numbers, I could be persuaded to buy Decentraland if I felt it was absolutely the best metaverse crypto in its class. But I don’t think it’s possible to make that argument. For example, The Sandbox and Gala – two metaverse cryptos that rank in the top 100 by market capitalization – are also rising. Overall, everything about the Metaverse seems to be on the rise, so it’s hard to say that Decentraland is somehow unique.

Image source: Getty Images.

Another major concern is that the term “metaverse” has been used so much that no one really knows what it means anymore. In 2021, it usually referred to a specific metaverse world such as Decentraland. But it is now used to describe anything related to virtual reality, augmented reality or even online games. You can legitimately argue that Apple is now a potential metaverse stock, based on reports of a major VR headset product coming in 2023.

Short-term and long-term outlook

In the long term, there is no doubt that there will be some sort of market opportunity related to the metaverse. Some tech companies will find out, or maybe a crypto will find a new multi-billion dollar market niche. However, in the short term, I’m much more skeptical. The hype cycle is so intense that it’s hard to see 100% gains in two weeks while anything but another corkscrew spins on this roller coaster ride called the Metaverse.

Thus, I need to see a change in strategic direction before I can support Decentraland. The old “build it and they will come” approach doesn’t work. When Decentraland stops relying on influencers, brands, and celebrities to attract new users, and instead finds a true value proposition that appeals to mainstream consumers, that’s when I might decide to jump on the metaverse roller coaster.

Randi Zuckerberg, former director of market development and spokesperson for Facebook and sister of Meta Platforms CEO Mark Zuckerberg, is a board member of The Motley Fool. Dominic Basulto has no position in any of the stocks mentioned. The Motley Fool holds positions and recommends the Apple, Gala and Meta platforms. The Motley Fool recommends the following options: long calls $120 in March 2023 on Apple and short calls $130 in March 2023 on Apple. The Motley Fool has a disclosure policy.

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