This article is excerpted from Tom Yeung’s Moonshot Investor newsletter. To make sure you don’t miss any of Tom’s potential 100x picks, subscribe to his mailing list here.
GameStop Gets Tokenized
That’s right: GameStop (NYSE:GME) is launching an NFT exchange.
That news immediately sent the meme stock up 30%, a potential outcome I outlined in a December newsletter. GameStop is blazing a trail with NFTs in the Metaverse, and it seems investors are loving every moment.
Today, we’ll take a closer look at the Web3 games that potentially inspired GameStop, and see which ones (and the associated NFTs) are going to the moon.
Metaverse Cryptos Are Hot. But Are They Any Good?
So-called stock experts have a bad habit of talking up companies they know very little about.
Interview Host: “What does Upstart (Holdings) do?”
Analyst: “Uhh… Well, I’m sorry… Yeah… You’re breaking up. [ends interview]”
I wish I was joking. But this was an actual segment from CNBC’s Power Lunch in October.
Now, I’m not saying that experts need to try every product themselves. I recommend biotechs all the time without personally trying out their drugs (and my doctor thanks me for that). And luckily, analyzing the L-Brands split in August didn’t necessitate a Victoria’s Secret lingerie fitting.
But great investors are at least aware of a company’s product, if not intimately acquainted with its quality.
Taking the Metaverse for a Ride
That’s why I dedicated this week to playing video games. And before you grumble that I was extending my holiday break, consider the ones I picked:
Together, these represent the top Metaverse NFT games today.
And here’s the crux for investors: only the most fun games will survive.
The most-played multiplayer game ever — Activision Blizzard’s (NASDAQ:ATVI) World of Warcraft — gathered 116 million subscribers because it was good. Players would spend hundreds (if not thousands) of hours fighting orcs and dwarves in the online world of Azeroth.
Meanwhile, disappointments like Anthem and Cyberpunk 2077 were the polar opposite. These duds alienated users with buggy gameplay, lack of content and broken promises — sometimes all of the above. Bethesda director Todd Howard saw his reputation destroyed virtually overnight by the Fallout 76 fiasco in 2018.
Today, the stakes are even higher. Fortunes have already been created and lost over Metaverse cryptocurrencies; in December, a virtual plot of “land” in Decentraland sold for $2.4 million, to the FOMO of those who sold out at $106 in 2017.
So, to figure out which of these cryptocurrencies have any hope of going up more, I booted up my gaming PC and logged right in.
TL;DR: A ghost town by and large, but one with real potential
Getting into Decentraland was surprisingly easy. A simple visit to their website quickly transformed my desktop browser into a cartoonish online world.
Then things got weird.
There were hundreds of other people’s avatars around mine. But I quickly realized they weren’t moving… or really doing much of anything. These “zombies,” it seems, were AFK (away-from-keyboard) users who left their sims running.
The graphics too were a disappointment. The blocky imagery looked as if someone had rewound the clock two decades. Cutting edge Unreal Engine 5 visuals, these were not.
As I left the starting zone, another truth dawned: There wasn’t particularly much to do outside of the central squares. With the exception of the occasional house, much of Decentraland is undeveloped and uninhabited. Unless you want to play a knockoff version of Minecraft or lose money in one of Decentraland’s many online casinos, you can probably pass on the game.
Here’s where things get interesting. Decentraland is purposely built in the cloud, making it easy to deploy graphical improvements. And some of the more lavishly built properties have a strange extravagance to them. Squint hard enough, and Decentraland looks like a potential Metaverse winner.
That brings us to the real question:
Should You Buy MANA?
Short answer, MANA is certainly a token to watch, but investors looking to truly cash in on Decentraland should consider something else:
The limited supply of 16×16 meter plots are Decentraland’s building blocks. Ownership is represented by NFTs and prime “locations” (i.e., plots near roads or central squares) can sell for millions.
Investors can also get in for relatively cheap, at least by NFT standards. Prices currently start at $13,000, and reasonable locations are still available for $20,000 or less. Just be sure not to overpay.
Most importantly, owners can develop their plots of land. Savvy programmers have already earned millions by creating lavish 3D models in the Decentraland SDK. And with land parcels capped at 90,601 lots, they’re a far better store of value than any easy-to-replicate NFT in the MANA world.
Bottom line: Decentraland Land looks more attractive than other MANA NFTs.
TL;DR: SAND is off to a promising start, but it’s still too early to buy
The second contender for “Metaverse Star” is the Sandbox, a game developed by Animoca Brands.
The Sandbox is an even larger version of Decentraland, spanning about 65 times the amount of virtual land. Plots are also bigger, at 96 x 96 meters apiece, giving developers far more room to experiment. Graphics likewise have more polish.
The Sandbox, however, was a game that I could not play. The original Alpha Season 1 was already closed by the time I got around to signing up, and ponying up the $10,000 for a full pass gave me serious Fyre Fest vibes.
Nevertheless, online reviewers have taken to the web to give their thoughts.
“The look and feel of The Sandbox is quite good… it has longevity,” said one YouTube commentator. “However, gameplay and polish, I’m not as impressed… the combat felt quite clunky… it prevents the game from feeling very fun or rewarding.”
Sandbox’s land — averaging $15,000 per plot — also looks like a questionable investment. Not only is the game incomplete (so you can’t yet visit your land), but current owners have turned the map into a virtual classified ads page, with owners looking to flip properties as fast as they can.
That’s bad news for SAND. With deep-pocketed development firms from Square Enix (OTCMKTS:SQNXF) (Final Fantasy) to Microsoft (NASDAQ:MSFT) (Minecraft, Halo) entering the NFT/Metaverse world, Animoca Brands will need more than reasonable graphics to keep up.
Bottom line: Without a working game, SAND remains a highly speculative play.
Axie Infinity (AXS)
TL;DR: Axie is a great way to build sweat equity… if you enjoy Pokémon-style games
Finally, there’s Axie Infinity, a Pokémon-style fighting game where players breed and nurture “Axies” to fight.
Getting started wasn’t so easy. You need 3 “Axies” to join, and the only way to acquire them is by spending roughly $200 on Axie’s marketplace (Those looking to buy a balanced team will need $500 or more).
But for those willing to shell out the cash, Axie Infinity is rather decent. The turn-based fighting game is cute, well-balanced and well, addictive. I quickly found myself watching hours of YouTube videos to figure out the best combination of abilities and groups.
That’s because Axie Infinity also contains elements found in games like Hearthstone — a wildly successful competitive online game. Not only are players incentivized to collect Pokémon-styled critters for their rarity, they also receive monetary compensation for the effort. Top Hearthstone players can earn hundreds of thousands of dollars; some Axie players now reportedly earn $2,000 per month or more.
Should You Buy AXS?
Investing in AXS — or its cousin Smooth Love Potion (CCC:SLP-USD) — is a separate matter. Axie Infinity has an inflation problem on its hands. “Players [are] cashing out rather than putting their money back into the game,” notes analytics firm Naavik — a fact I can attest to having become the office’s expert in the game.
NFT Radar puts it more bluntly.
“Axie Economy … collapses when the number of newcomers decreases or stops,” they wrote. “It is pretty much a ponzi-like scheme.”
There’s a great deal of truth to that. Axie developer Sky Mavis has admitted that “by design the Axie economy will be dependent on new entrants.” Only by collecting $500 from new players can this MLM-styled economy reward existing ones with their $2,000 per month.
Bottom line: Buy AXS/SLP if you’re playing Axie for joy. But don’t expect returns without putting in the work.
You Can’t Trust “First Mover Advantage” in Video Games
In 1997, Ultima Online took the world by storm. The massively multiplayer online role-playing game (MMORPG) would eventually corner 90% of the market, according to data scientist Randy Olson.
Ultima’s success, however, was short-lived. By 2000, Everquest and Korean-based Lineage would take the throne of top selling games. Fast forward another 4 years and World of Warcraft would do the same.
In other words, popular online games can fall out of favor almost overnight. If your friends all move onto something better — or even just different — chances are you will too.
The same principle is true for the Metaverse games I tested. Getting up from Decentraland simply involved closing my browser window. And weaning myself off Axie Infinity was achieved cold-turkey by throwing my phone out a second-story window (I told you the game was addictive).
That means Metaverse crypto investors need to tread carefully. And unless you’re willing to play the games themselves, don’t view these investments as a path to effortless riches.
FREE REPORT: 17 Reddit Penny Stocks to Buy Now
Thomas Yeung is an expert when it comes to finding fast-paced growth opportunities on Reddit. He recommended Dogecoin before it skyrocketed over 8,000%, Ripple before it flew up more than 480% and Cardano before it soared 460%. Now, in a new report, he’s naming 17 of his favorite Reddit penny stocks. Claim your FREE COPY here!
On the date of publication, Tom Yeung did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Tom Yeung, CFA, is a registered investment advisor on a mission to bring simplicity to the world of investing.