Is the Metaverse real estate market a financial bubble ready to explode?

Since Facebook announced it would go all-in on virtual reality, even changing the company name to Meta Platforms, the Metaverse real estate market has had a spike in demand and land costs have risen by up to 500% in recent months. Some investors are paying millions for plots of land in a series of virtual worlds that you will know under the generic and all-encompassing name of Metaverse, driven by the effect of a kind of strange real estate frenzy. Excitement among Web 3 investors is fueled by positive predictions from industry pundits such as Grayscale, a leading cryptocurrency investing authority, which has predicted that the global market for goods and services in the Metaverse will soon be worth $1 trillion, but there is no shortage of skeptics ready to bet that rather than "the next big thing", digital real estate is actually "the next big flop". Important names also appear on the list of detractors, such as financial expert David Rasencraft, ready to bet that this race for land is actually a financial bubble ready to explode and cause damage comparable to the subprime mortgage scandal on Wall Street in 2008. But let's go step by step.

"Winter House", a virtual place designed by Andres Reisinger

First of all, it must be specified that not all land is worth millions and that everything works more or less like in "real" life: the value of the lots is proportional to the importance of the platform on which they are located, just as in physical life the positioning is a important indicator when we talk about price. The plots can be rented, bought, sold and exchanged. The reasons large and small investors buy and sell plots and virtual real estate are the same that brought NFTs to the fore, because they are a way to invest cryptocurrencies or to make sense of them. Millions of people have already had a taste of life in the Metaverse in virtual entertainment spaces such as Fortnite and Roblox, or even on the Horizon Workrooms app where, thanks to the Oculus Quest viewer, office meetings are held between remote collaborators as if they were sitting there. Yet we are only at the beginning of the possibilities that web 3 could offer us very soon. The Epic Games game itself represents a perfect example of how the "Metaverse fever" has grown over the years: it started from a simple sandbox game in which brands and brands could approach the virtual world with events (the live of Travis Scott of April 2020), has become a real virtual world in which players can, for example, visit a virtual exhibition of Kaws faithfully recreated in the smallest details.

"Winter House", a virtual place designed by Andres Reisinger

"Winter House", a virtual place designed by Andres Reisinger

"Winter House", a virtual place designed by Andres Reisinger

In October, Tokens.com, a NFT and Web3 real estate specialist, acquired 50% of Metaverse Group, one of the world's first virtual real estate companies, for a modest price of $ 1.7 million. The Toronto-based firm opened its virtual headquarters in Decentraland in Crypto Valley, what the New York Times described as "the Metaverse's version of Silicon Valley". For now a real city under construction, a sort of  desert that will soon become a place for shopping, gambling, culture and much more and which could soon generate revenue from rentals and advertising for brands. In fact, the Boson Protocol company has already purchased a $704,000 lot from Decentraland to create a virtual shopping center. At the same time the Alexander brothers, well-known faces of the American real estate market with clients such as Kanye West and Tommy Hilfiger, became the first luxury brokers in the Metaverse, joining forces with Republic Realm, a virtual developer who recently paid a record price of $4.3 million for 2,500 digital parcels of land on Sandbox. The same "platform" where a buyer shelled out $450,000 for a property next to Snoop Dog and with which adidas not long ago announced a deal for 144 plots of land.

Yet, despite the large numbers at stake, it is still not entirely clear whether this is a new frontier for investors or a speculative bubble, destined to burst sooner or later. Those who buy land in the Metaverse, do so - like what happens in the real world - with the obvious intent of generating profits, reselling the lots in the future at a higher price or building shops. In both cases, it is an investment characterized by a high level of risk, considering that to date it is not possible to know which of the many current Metaverses - among the best known Sandbox, Decentraland, CryptoVoxels and Somnium Space - or which ones they will come in the future will assert themselves over others. The example of Second Life, which about fifteen years ago created great expectations precisely around the ambition to create virtual alter egos and then has largely deflated, is indicative of how uncertain the prospects are when it comes to companies such as high rate of innovation.

"Buying real estate on these platforms", ​​Ravenscraft wrote, "is like buying land in Manhattan, but in a world where anyone can create an infinite number of Manhattan alternatives that are just as easy to reach." After all, it is a common and very ancient pattern that objects, materials or stocks of all kinds quickly acquire an apparently disproportionate value, consequent to the growth in demand, pushing more and more people to buy these goods just because they fear being cut off from a market trend. We will see if in a few years we will have to regret not having invested our money in Meta or if we can consider ourselves lucky not to have done so.