Since hitting an all-time high of $5.90 per token on Thanksgiving, Decentraland (CCC:MANA-USD) has been sliding. The same thing’s going on with other metaverse-themed cryptos. For example, The Sandbox (CCC:SAND-USD). After spiking on Nov. 24, it’s been falling back in price as well.
With this sell-off in “metacoins,” traders are clearly taking profit. But is this also a sign that “meta mania” has peaked?
It’s possible. Sure, unlike with other manic crypto run-ups seen this year, like the “pupcoin mania” that sent Shiba Inu (CCC:SHIB-USD) “to the moon,” there’s at least a bull case to be made when it comes to MANA-USD’s utility.
Then again, the market may have gone overboard with pricing-in increased usage for metaverse cryptos. Facebook’s corporate rebranding of itself as Meta Platforms (NASDAQ:FB) of course has played a big role in this. Yet, just because Mark Zuckerberg is betting his company’s future on this being the “next big thing,” doesn’t mean Decentraland’s platform, which runs on the Ethereum (CCC:ETH-USD) blockchain, will end up becoming the one that’s most widely used.
In short, approach cautiously, as it may continue to drift lower.
Has Decentraland Peaked in Price or Just Taking a Breather?
With MANA-USD’s drop after its recent spike in price, my gut reaction is that this is a bubble in the midst of deflation. However, I will concede that we may not have reached the top with this, and other metaverse-themed cryptos. As argued by crypto investment firm Greyscale in a recent report, the metaverse is a $1 trillion annual revenue opportunity. Virtual property has become a serious business.
It may still seem absurd that real money is being pumped into a “fantasy world.” But given how cryptocurrencies went from the fringe to the mainstream in the span of a decade, I wouldn’t discount the chances metaverse platforms become a noticeable part of everyday life. As this trend plays out, and platforms like Decentraland grow in usage then there’s possibly some growth opportunities here.
Its native token could in the coming years become worth far more than what it’s worth today. Taking all this into account, buying MANA now, while it pulls back, could be a highly profitable move in hindsight. It could be like buying Bitcoin (CCC:BTC-USD) in the mid-2010s, or like getting into Ethereum between 2018 and 2020.
On the other hand, that may not be a wise bet because a move into the CoinMarketCap’s Top Ten is not set in stone. Much less, making its way to the level of a Bitcoin or Ethereum.
Why ‘MANA Mania’ Could Fizzle Out
The metaverse may be less of a fantasy than it appears on the surface. Yet that doesn’t mean Decentraland stands to rise to even higher prices. Nor does it mean that it will be immune from a big drop in price.
First off, this specific metaverse platform is far from being the largest one out there. As my InvestorPlace colleague Alex Sirois recently discussed, The Sandbox is a formidable competitor. Not only that, it has also seen in the past week a far greater volume of virtual land sales compared to Decentraland’s platform.
As metaverse platforms rise in popularity, chances are new competitors will crop up. A technologically more advanced, and better-capitalized, metaverse could emerge, leaving this one in the dust.
Besides the risk that it fails to rise in value further in the long run, there’s still the risk my above-mentioned “gut reaction” is on the money. “MANA Mania,” kicked off by the Facebook/Meta news, may have run its course. Just like what happened to “pupcoins” after they stopped being the flavor of the month, MANA and its “metacoin” peers could see big declines from here.
The Best Move Today with MANA-USD
The jury is still out whether the metaverse is a flash in the pan trend. There’s much to suggest it won’t wind up as one. But like I discussed in my last article, Facebook involvement notwithstanding, it’s not guaranteed metaverse platforms will ever gain critical mass.
Adding to this, is the uncertainty of whether this particular platform will be widely used when metaverse goes mainstream. Its rival The Sandbox, or perhaps a rival that hasn’t even started yet, could end up dominating the space. This will make it harder for MANA-USD to see much long-term price appreciation. To top it all off, besides the risks of buying it as a wager on its user growth, is the risk that “metacoins” drop, as traders chase the next hot trend.
Between the risk of pulling back further in the short-term, and its debatable long-term potential, be careful with Decentraland right now.
On the date of publication, Thomas Niel held long positions in Bitcoin and Ethereum. He did not have (either directly or indirectly) any positions in any other securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Thomas Niel, contributor for InvestorPlace.com, has been writing single-stock analysis for web-based publications since 2016.