Sam Reynolds

<div id="highlights-block_61cdb3616a743" class="highlights">
        <ul>
                <li>Bring on the metaverse! As the idea of a metaverse matures from something nebulous into something practical investors are hungry to get exposure</li>
                <li>But it’s not all about gaming. Including too many periphery stocks in an index would distract the ETF from its mission and make it too susceptible to macro factors</li>
            </ul>
    
</div>



<p>What is the metaverse, and how can I invest in it?</p>



<p>With the dream of a “<a href="https://www.goodreads.com/book/show/9969571-ready-player-one?from_search=true&amp;from_srp=true&amp;qid=CG8AsCDRv7&amp;rank=1" target="_blank" rel="noreferrer noopener">Ready Player One</a>” virtual, interoperable world bound together by NFTs and blockchain still a long way away, the metaverse is beginning to take shape in the form of metaverse ETFs. So far, <a href="https://cms.blockworks.co/proshares-files-for-metaverse-etf/" target="_blank" rel="noreferrer noopener">two of them</a>, the Global Metaverse Index ETF which is already trading in Toronto, and the ProShares Metaverse ETF which is awaiting approval, are tracking the same Solactive Global Metaverse Index.</p>



<p>But here’s the problem: The Solactive Global Metaverse Index includes some companies that are irrelevant to the metaverse, or that have not expressed much interest in the metaverse at all. Some of these companies are more exposed to macro factors rather than market interest in the metaverse. Likewise, if there’s too much overlap between a metaverse ETF and a gaming ETF there would be no point in the specialized investment vehicle.</p>



<p>In the first part of this two-part article, we’ll take a look at what should be excluded from a metaverse-focused fund. In Part 2, the companies and projects that are essential pieces of the emerging metaverse puzzle.</p>



<h2 class="wp-block-heading"><strong>What to exclude</strong></h2>



<h3 class="wp-block-heading"><strong>Big tech driven by macro tailwinds, e.g. Alphabet (a.k.a. Google) </strong></h3>



<p>Yes, Google has an interest in the metaverse. Google’s vision for the metaverse involved an augmented reality, where data is overlaid onto the user’s vision. A few years ago Google experimented with this with <a href="https://screenrant.com/google-glass-smart-glasses-what-happened-explained/" target="_blank" rel="noreferrer noopener">Google Glass</a>, but at the time the technology was rather primitive, and the camera-on-glasses approach in public made <a href="https://www.firstpost.com/tech/news-analysis/why-google-glass-might-be-creepiest-gadget-ever-invented-2-3620937.html" target="_blank" rel="noreferrer noopener">many uncomfortable, with some calling it</a> “the <a href="https://en.wikipedia.org/wiki/Panopticon" target="_blank" rel="noreferrer noopener">panopticon</a> made real”.&nbsp;</p>



<p>After the initial run of Google Glass came to an end, the company re-focused and pivoted the vertical more <a href="https://blog.google/products/devices-services/glass-enterprise-edition-2/" target="_blank" rel="noreferrer noopener">toward enterprise use</a>, designed to assist workers that need to pull up data while on the job like mechanics or paramedics. After Google purchased a startup called North, which holds many AR patents, <a href="https://9to5google.com/2021/12/13/google-augmented-reality-os/" target="_blank" rel="noreferrer noopener">work continues</a> on the next generation of the project.&nbsp;</p>



<p>Nevertheless, Google’s augmented reality ambitions make up such a small percentage of the company’s overall revenue. <a href="https://abc.xyz/investor/static/pdf/20210203_alphabet_10K.pdf?cache=b44182d" target="_blank" rel="noreferrer noopener">Eighty percent of revenue</a> from Google’s parent company, Alphabet, comes from ads on search while another 13%, or $20 billion in revenue, is from ads on YouTube. The two of these are driven by macro tailwinds — the capital available from firms to spend on advertising — and advances in its vision of the metaverse would make up a fraction of this.</p>



<h3 class="wp-block-heading"><strong>Game companies little metaverse interest</strong>, e.g. <strong>Nintendo</strong></h3>



<p>Nintendo is notorious for being hyper-protective of its IP. Its library of game franchises, such as Mario, Pokémon and Zelda, are <a href="https://www.statista.com/statistics/1247964/best-selling-video-gaming-franchises/">some of the most profitable in the world</a>. </p>



<p>Investors have pleaded for Nintendo to expand this IP library past its own consoles to the fast-growing <a href="https://venturebeat.com/2021/09/23/newzoo-mobile-games-will-grow-4-4-in-2021-to-90-7b/" target="_blank" rel="noreferrer noopener">world of mobile gaming</a>, which has <a href="https://kakuchopurei.com/2021/06/25/mobile-games-revenue-is-now-bigger-than-console-pc-combined/" target="_blank" rel="noreferrer noopener">surpassed revenue</a> from consoles and PCs thanks to growth from mobile-first Asia. They were given this in piecemeal form through Super Mario Run on the iPhone and the AR game Pokémon Go (via a partnership with Niantic).</p>



<p>In October, Nintendo and Niantic launched <a href="https://pikminbloom.com/en/" target="_blank" rel="noreferrer noopener">Pikmin Bloom</a> for mobile devices. Pikmin Bloom is another AR game similar to Pokémon Go.</p>



<p>Despite the Pikmin Bloom launch, Nintendo President Shuntaro Furukawa has been quoted as saying the company was &#8220;not necessarily looking&#8221; at launching &#8220;many&#8221; more mobile games. While there is potential for profit, the company seems to prefer to focus on building the perfect experience around their consoles rather than taking a risk with third-party licensing and tarnishing the image.</p>



<p>Will we ever see licensed Nintendo NFTs? Definitely not; Nintendo’s lawyers have already taken a <a href="https://www.nintendolife.com/news/2021/11/nintendos-lawyers-strike-again-this-time-against-a-mario-nft-gambling-game" target="_blank" rel="noreferrer noopener">scorched earth policy</a> towards any project attempting this. Don’t count on Nintendo characters being part of an interoperable virtual world, as it&#8217;s just something the company doesn’t do. There’s not really an avenue for Nintendo to become part of the metaverse, as it&#8217;s just not interested in being meta.</p>



<figure class="wp-block-image size-large"><img loading="lazy" decoding="async" width="1024" height="768" src="https://blockworks-co.imgix.net/wp-content/uploads/2021/12/shutterstock_457850722-1024x768-1.jpg" alt="" class="wp-image-13341" srcset="https://blockworks-co.imgix.net/wp-content/uploads/2021/12/shutterstock_457850722-1024x768-1.jpg?w=1024 1024w, https://blockworks-co.imgix.net/wp-content/uploads/2021/12/shutterstock_457850722-1024x768-1.jpg?w=300 300w, https://blockworks-co.imgix.net/wp-content/uploads/2021/12/shutterstock_457850722-1024x768-1.jpg?w=768 768w, https://blockworks-co.imgix.net/wp-content/uploads/2021/12/shutterstock_457850722-1024x768-1.jpg?w=343 343w, https://blockworks-co.imgix.net/wp-content/uploads/2021/12/shutterstock_457850722-1024x768-1.jpg?w=348 348w, https://blockworks-co.imgix.net/wp-content/uploads/2021/12/shutterstock_457850722-1024x768-1.jpg?w=292 292w, https://blockworks-co.imgix.net/wp-content/uploads/2021/12/shutterstock_457850722-1024x768-1.jpg?w=80 80w, https://blockworks-co.imgix.net/wp-content/uploads/2021/12/shutterstock_457850722-1024x768-1.jpg?w=1200 1200w" sizes="auto, (max-width: 1024px) 100vw, 1024px" /><figcaption><meta charset="utf-8">Pokémon Go, not yet with a metaverse presence; Source: Shutterstock</figcaption></figure>



<h3 class="wp-block-heading"><strong>Take-Two</strong></h3>



<p>Take-Two is another gaming company that has recognizable IP, such as Grand Theft Auto as well as Red Dead Redemption, but hasn’t really expressed interest in expanding these titles past their respective walled gardens. </p>



<p>While Sony began to allow <a href="https://arstechnica.com/gaming/2018/09/sonys-walled-garden-cracks-open-cross-console-play-comes-to-ps4/">cross-platform play for Fortnite</a> in 2018, something one might argue as a precursor to the interoperable metaverse, Rockstar has no interest in doing the same. It’s mega-popular Grand Theft Auto’s multiplayer mode is still <a href="https://www.gtabase.com/grand-theft-auto-v/guides/is-gta-5-crossplay-cross-platform-support-for-pc-xbox-ps5" target="_blank" rel="noreferrer noopener">locked down</a> to specific consoles, keeping Xbox, PC, and Playstation players away from each other via big virtual walls.&nbsp;</p>



<p>Granted, there is an <a href="https://www.gta5-mods.com/">active community of people creating mods</a> for GTA V in the form of customized cars, new skins for characters, or even all-new levels. But these are all kept in the lonely sandbox of single player mode and can’t be experienced outside this isolated world, and certainly not monetized.</p>



<h3 class="wp-block-heading">Ahead, in part 2&#8230;</h3>



<p>Tomorrow, we’ll ring in the new year with a take on the metaverse names to definitely include, and even double-down on! <a href="https://cms.blockworks.co/dreaming-of-the-perfect-metaverse-etf-part-2/" target="_blank" rel="noreferrer noopener">Read Part 2 now.</a></p>



<p><meta charset="utf-8"><em>Not investment advice. The author has no positions in the above-mentioned equities.</em></p>



<hr class="wp-block-separator">
<p><strong>Get the day’s top crypto news and insights delivered to your inbox every evening.&nbsp;<a href="https://cms.blockworks.co/newsletter/?source=end" target="_blank" rel="noreferrer noopener">Subscribe to Blockworks’ free newsletter</a>&nbsp;now.</strong></p>
<hr class="wp-block-separator">


Take-Two

Newsletter

Blockworks Research