Decentraland (MANA-USD) has been falling since November as part of the “crypto winter.” And despite some signs of life in the last month, the general trend for MANA remains bearish. This is confounding some investors who believed cryptocurrency assets would have an inverse correlation with the broader market. However, virtually all cryptocurrencies are trading in lock step with Bitcoin (BTC-USD).
Decentraland is in the business of creating an alternate reality. And the words “alternate reality” may be an apt description for the price action of some cryptos in 2021. That is changing. And the more that Decentraland continues to behave like a stock in the real world, the better its future may be in the virtual world.
Buying the Metaverse
Decentraland is a metaverse play. But the metaverse has many meanings. For Decentraland, the metaverse is a world that closely approximates the digital world envisioned by Meta Platforms (NASDAQ:FB). Essentially, it is the idea of a 3D internet where your avatar can walk around, interact with other avatars, and enter digital structures in a place known as the LAND.
The primary use case for MANA is to buy virtual real estate that comes in the form of a non fungible token (NFT). These digital assets exist on the Ethereum (ETH-USD) blockchain and transaction fees are paid in ETH.
Many companies are starting to buy real estate in Decentraland so they can sell virtual or real-world goods. For example, Skechers (NYSE:SKX) just announced that it will build a virtual store in the metaverse. And they’re not alone. Samsung bought real estate in Decentraland in January. And JPMorgan Chase (NYSE:JPM) opened a virtual lounge in the digital world.
JPMorgan believes the metaverse will be a $1 trillion industry. The belief behind this lofty estimate is that businesses will realize that this is a space they must be present in to compete for customers who will see the metaverse — and specifically the LAND — as their de facto hangout space to socialize, shop and perhaps consume entertainment, like concerts.
This suggests that the metaverse will grow. However, that growth is not being reflected in the price of MANA.
A Use Case for Crypto
As it is with many things, I’m not the target audience for Decentraland. That makes it hard for me to appreciate what appears to be legitimate growth in the space. However, as the saying goes: life happens when you’re busy making other plans. So, I’m sure that the metaverse will continue to grow whether I care to participate or not.
And I do believe that the metaverse, however it is defined, will be a catalyst for cryptocurrency because that is its only viable currency in the digital world. Nevertheless, it has to be a little concerning that MANA can’t maintain any of its recent gains.
Bottom Line for Decentraland Stock
The Russian invasion of Ukraine is shining a bright light on cryptocurrency. On the one hand, there is a desire to ensure that bad actors, such as Russia, cannot benefit from cryptocurrency. On the other hand, cryptocurrency is a lifeline for the people of Ukraine. It is a situation that is illustrating the “for better or for worse” element of having a decentralized currency.
I do believe that having such a decentralized world will make the possibility for crypto adoption much higher. However, I also believe that the correction in crypto prices was necessary and will also be helpful. Manias are not sustainable.
Nevertheless, Decentraland is showing no signs of slowing its growth. Ideally this will mean that, at some point, MANA should move significantly higher. But what crypto should do and what it will do are two different things.
With that in mind, I do think MANA can make sense as a small part of a broad-based crypto portfolio. But if you’re looking for a short-term trade, there are likely to be better options.
On the date of publication, Chris Markoch held a LONG position in ETH. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.