Ever since the creation of the blockchain and the first cryptocurrency, advocates of decentralized platforms and ecosystems have been busy expanding functionality from peer-to-peer transactions to a plethora of other uses. One fresh application is the metaverse, specifically building video game universes complete with their own economies. That’s the groundbreaking vision behind Enjin (CCC:ENJ-USD).
Not surprisingly, the ecosystem undergirding the ENJ token has excited several analysts, including our own Alex Sirois. Noting that Enjin is more relevant than ever, he mentioned that there’s a lot to like about it. “It is highly relevant to the burgeoning non-fungible token (NFT) marketplace, it launched its own metaverse and the project has favorable token economics, or tokenomics.”
Naturally, the metaverse plays a huge role in demand for Enjin as a crypto investment. The next generation in connectivity, the metaverse leverages VR/AR technologies to facilitate unparalleled digital engagements. While the internet connected our computers, the metaverse will connect our personalities. Further, Sirois points out the following:
ENJ coin fundamentally makes sense from the economic perspective of an asset. Assets are only valuable if they are limited and unique.
That’s part of the reason cryptocurrency followers are bearish on Dogecoin (CCC:DOGE-USD): It has an unlimited supply in theory, with 5 billion additional coins to be minted annually for its lifetime.
Conversely, every asset created on the ENJ platform contains ENJ. ENJ is a minting resource locked inside of an NFT, and thus removed from circulation each time an asset is created.
In a way, it’s fair to think about it like gold smelted into jewelry: That gold is no longer in circulation, but rather locked into the piece of jewelry that gets created.
But before you get too excited about a metaverse token, you should note its risks.
Enjin Will Almost Surely Face Competition
While it appears that Enjin has powerful fundamentals working in its favor, it’s not without some vulnerabilities. First, I truly believe that investors should avoid the deflationary argument that seems to be so popular in the crypto space. Sirois mentioned that assets gain their value through limited supply and uniqueness. Respectfully, I have a different take.
Indeed, scatology helps solidify my argument. For instance, if I use the facilities to make a deposit, so to speak, the end result is both limited (I only use the facilities for so many times over a 24-hour cycle) and unique (I’m the only one that can create this particular deposit).
But will someone pay money for my deposit? You know, I’ve seen some weird things in crazy crypto land but the answer is no.
Flip to the other side of the spectrum. The U.S. dollar is neither limited nor unique (as in other nations also print fiat currencies) yet it’s the world’s reserve currency. Its power comes from the fact that the U.S. will destroy you if you don’t use it.
And even if we’re talking about cryptos specifically, I’m not entirely sure if supply and uniqueness factor into an asset’s value. For instance, while Enjin is doing very well, ranked 63 by market capitalization, speculative Dogecoin and Shiba Inu (CCC:SHIB-USD) are in the top 15. The latter two are wildly risky yet they also enjoy strong community backing.
That segues into a longer-term concern for Enjin — competition. Although the idea of a self-reliant metaverse ecosystem is compelling, the concept is not unique. Even if it were, you’re going to have several projects compete for gamers and investor dollars.
With so many options available for both categories, the metaverse could get very crowded, very quickly.
Gamble with Sofa Money
Another issue to consider is how many cryptocurrencies exist. As I write this, we’re on the cusp of nearly 15,500 coins and tokens. As we enter a turbulent period in the global markets, any one of these cryptos could be a massive winner — but surely many more will be losers.
Therefore, I don’t think anyone can make a decisive statement on Enjin other than to say if you have some loose change under the sofa cushions, you might consider throwing that into ENJ-USD. You might also find that remote just in time for Christmas.
As I said, the metaverse concept is very intriguing, as is building a self-sustaining global economy to buttress Enjin. However, competition is only a few lines of code away, which makes an overly large wager unwise.
On the date of publication, Josh Enomoto held a LONG position in DOGE. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.