- Clocktower Group’s Marko Papic sees big potential for the metaverse.
- In a recent note, he shared a few ways investors can gain exposure to the space.
- Papic also broke down some of its fundamental tailwinds.
Much has been made about the coming of the metaverse, the digital world that’s a sort of combination of virtual reality, social media, and video games.
But from an investing point of view, is it really worth looking at? Will virtual yachts and plots of land actually be good investments?
Maybe, maybe not. But according to Marko Papic, the chief strategist at Clocktower Group, which manages $1.5 billion in assets, investors shouldn’t be focused on instances of wild speculation in the metaverse. Instead, there are opportunities that are actually fundamentally sound.
“Our first valuation framework posits that digital real estate is just the most recent iteration of Tulipmania (wrapped in a techno-utopian pipe dream) that will end in tears. Virtual real estate agents will eventually run out of greater fools, liquidity will dry up, and activity in these worlds will cease,” Papic said in a Tuesday note.
“Our second valuation framework is more interesting,” he continued. “Blockchain-based virtual worlds represent society’s embrace of immersive digital experiences. In these worlds, we can experience meaningful personal connection and conduct economic activity. We can work, play, relax, and even fall in love.”
In the note, Papic cited multiple reasons why he’s bullish on the metaverse, comparing it to the internet in 1999 in terms of the potential it brings for investors.
One is its total addressable market, or TAM, especially when considering how many gamers there are in the world and the metaverse’s potential in the video game space. The chart below, based on World Bank data, shows that more than half of the world’s population plays video games.
He also cited the growing number of virtual reality headsets being sold monthly.
Papic also highlighted the growing market for virtual goods in the metaverse. In 2021, it grew about 33%, going from around $60 billion in 2020 to around $80 billion.
Shawnee Sande, whose firm helps introduce brands into the metaverse, told Insider recently that there are growing opportunities for individuals to monetize their skills in the virtual world. This goes for areas like real estate, landscaping, and design, she said.
“It’s really not that different from the physical world,” Sande said.
3 ways to invest in the metaverse
In addition to recommending his firm’s Metaverse index, Papic shared three of his best ideas for investing in the metaverse.
One is to invest in another index: the Goldman Sachs Metaverse basket.
“We believe that the Goldman Sachs Metaverse basket is largely representative of the companies and technologies that will underpin and populate the future virtual world,” Papic said. “As such, investors who want a one-stop exposure to the Metaverse theme may consider being long the Goldman index relative to S&P 500.”
Another is by investing in individual stocks leading innovation in the space. Papic highlighted market sub-sectors like semiconductor companies, gaming platforms, and producers of virtual reality equipment.
He pointed to the recent outperformance of stocks in these areas, including names like Roblox (RBLX), NVIDIA (NVDA), and GoerTek (002241.SZ).
Lastly, Papic recommended buying crypto tokens tied to the Metaverse. He talked about Index Coop’s Metaverse Index, which is made up of crypto protocols built on ethereum. But he preferred to recommend buying tokens of layer 1 blockchains themselves, because the metaverse will probably be built on top of them.
“To trade these indices [like the Index Coop Metaverse Index] or the underlying crypto tokens, one must first set up an Ethereum wallet, then open an account at a credible crypto exchange, and then figure out how to custody the tokens. This only occurs after the investor understands and digests the operational, regulatory, and counterparty risks that act as hurdles to participation,” Papic said.
“Even if a crypto-savvy investor resolves the logistical issues, we’d also warrant caution in picking winning protocols before mass consumer adoption,” he added. “As such, we’d suggest diversified exposure to a basket of layer 1, smart contract blockchains.”
Layer 1 blockchains he cited as examples include ethereum, solana, terra, and avalanche.