Fortune recently reported that the cheapest parcel of digital land on the Decentraland (CCC:MANA-USD) platform is valued at $13,211.
A one-by-one plot in digital real estate is the real-world equivalent of 16 meters by 16 meters. For those who aren’t metric literate, that’s 52.5 feet by 52.5 feet or 0.06 acres. So you would have to pay $22 million [100/0.06*$13,211] for an acre of actual land based on this calculation.
That might be cheap in New York City, but I don’t think you’ll get many takers in the middle of West Texas or some other desolate place.
Mark Twain used to say, “Buy land, they’re not making it anymore.” So I suppose Twain could make the same argument about digital real estate.
If that’s true, and Mark Twain was alive today, he’d be all over Decentraland like a fat kid on a Smarties. My apologies to any fat kids reading this.
Anyway, do the same rules of real estate investing apply to digital real estate? Let’s consider the possibilities.
Is Decentraland the Future?
According to Fortune, a one-by-one plot was worth approximately $1,000 in March 2021. This is based on a value of 0.5 Ether. So, as Fortune points out, digital real estate prices have appreciated by more than 900% over the past year.
A big part of the appreciation in the second half of 2021 had to do with Mark Zuckerberg’s announcement that Facebook was changing its name to Meta Platforms (NASDAQ:FB) as part of its $50 billion commitment to building out the metaverse over the next two years.
However, that wasn’t the only thing that pushed Decentraland’s price higher.
“But not all of the hype can be attributed to Meta. Both Decentraland and Sandbox have said they will release only a limited number of digital parcels—ever. Only 166,464 parcels of land will be available in the Sandbox, and only 90,601 will be available in Decentraland,” Fortune contributor Marco Quiroz Gutierrez wrote on Jan. 5. He stated that, “In short, the platforms have intentionally (and artificially) made land scarce.”
The move by the two platforms is the digital real estate equivalent of scarcity in apparel. For years, apparel retailers artificially kept inventory levels low, creating an aura of scarcity, driving sales higher.
Decentraland is benefiting from the Mark Twain effect. However, that might not always be the case.
Digital Real Estate Is Maturing Before Our Very Eyes
I barely knew what Decentraland was when I first wrote about it in November. I wasn’t too complimentary comparing digital real estate to Florida swampland.
“I have a tough time understanding why someone would want to own virtual land. You can’t use it, you can’t rent it out to a farmer, and you can’t build a home on it. At least, not one that you could live in,” I wrote on Nov. 18.
“With non-fungible tokens (NFTs), you’re paying for someone’s creativity or talent, whether it be an artwork, photo or a video. However, with Decentraland, all you get are a bunch of squares representing parcels of land.”
But as I said, I’m willing to have someone change my mind.
The Fortune article I’ve referenced names several existing digital real estate businesses and/or organizations.
- Meta Metric Solutions: As far as I can tell, it only has a Twitter page. It says it “is a provider of Metaverse data and insights.” Beyond this, I wouldn’t know whether it’s a going concern or not.
- MetaGameHub DAO: The DAO is developing a platform for investors to access decentralized non-fungible token (NFT) pools and NFT pool tokens. It has an algorithm that values digital land on the Sandbox platform. Its site provides a lot more information. I’ll be sure to look at it more closely.
- Republic Realm: It invests in digital real estate. As its website states, it is one of the largest owners of digital real estate on the Sandbox, Decentraland, and Axie Infinity platforms. In addition, it filed a Form D with the Securities and Exchange Commission (SEC) in late October that indicated a capital raise of $6.25 million. That gives it some street cred.
- Metaverse Group: It calls itself a “vertically integrated real company for the immersive economy.” It’s got some big talent behind it. I’d say it’s worth sniffing around its site some more. I even signed up for its newsletter.
If we’re using a baseball analogy, cryptocurrencies are in the fifth inning, NFTs are in the second, and digital real estate is just coming to bat in the first inning.
Even though I don’t get it, Mark Twain might, being a creative sort and all. However, I’m not convinced that his quote about land applies to digital real estate.
The minute I change my mind, you’ll be the first to know.
On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia.
