With cryptos stabilizing after last month’s sell-off, the Decentraland (CCC:MANA-USD) pullback has slowed down as well. The metaverse token has found support between $3 and $4. Even so, you may want to think twice before buying it in the hopes it bounces back and starts to again hit new highs.
Why? Despite trading for 46% below its high-water mark, it’s still punching above its weight valuation-wise. I won’t deny that the virtual world this token is used in isn’t continuing to grow in popularity. As seen in recent headlines, Snoop Dogg has hopped on the Decentraland bandwagon.
So has real estate firm Jamestown. Jamestown is the owner of New York’s One Times Square (home of the New Year’s Eve ball drop). Creating a digital version of its landmark property, Jamestown held a virtual New Year’s Eve bash within the platform to ring in 2022.
But given that it’s still up massively from where it was before Meta Platforms (NASDAQ:FB) put the metaverse on the map, increased usage, exemplified by the Snoop and Jamestown connections, is already factored into its valuation and then some. Subsequent headlines of celebrity and “smart money” involvement with this platform will likely help it hold steady. Just keep in mind it may take time for it to hit new highs again (if it happens at all).
Decentraland Rose Too Far, Too Fast
Although it gave back a large chunk of its gains during the last month of 2021, it’s an understatement to say MANA finished the year a winner. Speculators who got into it a year ago (at around 8 cents per token) were up around 40 times.
A fair amount of these gains came about well before Decentraland was one of the more talked-about cryptocurrencies. During the spring “crypto bubble,” it made its way to above $1 for the first time. Shortly after that, it fell back, due to the May/June “crypto meltdown.”
However, it was of course the entrance of “metaverse” into the public lexicon last fall that resulted in MANA’s rocking to the moon. During this time, it zoomed from around 82 cents per token on Oct. 25, up to $5.90 per token just before Thanksgiving. Was such a move justified? Yes and no. Facebook’s “metamorphosis” into Meta Platforms helped to make this niche segment of the digital economy mainstream.
Yet by growing in price more than seven times, the potential increased usage of this platform became more than baked-into its token price. If you have a long-term investing horizon, this may not matter so much. It may be able to hold steady for the next few years, “grow into its valuation” until it’s ready to trek higher. Or will it?
Three Factors Could Push MANA to Lower Prices
In my last article on Decentraland, I discussed several risks with buying it as a long-term bet on the metaverse’s rise. For instance, there’s the risk that rival platforms like The Sandbox (CCC:SAND-USD) — or perhaps a yet-to-be-established platform — would end up dominating the space.
Along with this, consider the risk that “metacoins” play out the same way “pupcoins” played out a few months back. Decentraland could end up being a flash in the pan fad that fails to get back to the levels of hype seen during its peak. Both risks are still on the table, but there’s something else at play that could push MANA down to even lower prices.
That would be the potential for a continued slide in crypto prices across-the-board. Again, crypto prices have stabilized, after falling sharply from late November through mid-December. However, the factor that drove this sell-off (a more hawkish U.S. Federal Reserve) is still in play. Some may argue that the impact of tapering and rate hikes is already factored into the price of cryptocurrencies, from established names like Bitcoin (CCC:BTC-USD) and Ethereum (CCC:ETH-USD), all the way down to more speculative names.
Then again, it’s not set in stone the market has absorbed the impact of higher interest rates. Worse yet, the Fed’s inflation fighting efforts fail to work, it may end up taking more drastic measures. This could apply further pressure on asset classes like crypto.
Any Decentraland Rebound Will Take Time
Years down the road, MANA and other metaverse-themed coins could prove skeptics such as myself wrong. Virtual worlds could become as widely used as crypto itself. This token may just well make its way to prices well above what it trades for at present.
However, unless you’re willing to buy it and forget it, HODLing it even if more high volatility rocks cryptocurrencies, it’s best to stay away. Decentraland has little appeal as a short-term play. It has only a slim chance of experiencing a rapid rebound in the months ahead.
On the date of publication, Thomas Niel held LONG positions in Bitcoin and Ethereum. He did not hold any of the 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.