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The idea of a metaverse -- a virtual world where you can work, play, and learn -- may sound more suited to science fiction than a financial website. That's not surprising since the term comes from Neal Stephenson's cyberpunk novel "Snow Crash."
But the term has taken on a life of its own, especially as big companies like Facebook (now Meta) and Microsoft have announced their own metaverse plans. And Ark Invest's Cathie Wood believes this is only the start.
What is the metaverse?
The idea of metaverses is still evolving and there are several different definitions. But the simplest way to understand them is that they are interconnected virtual universes. You don't need virtual reality equipment to access them, you can enter a metaverse through your computer browser or even a phone.
Metaverses have their own economies. Right now, they use cryptocurrencies as a form of payment. Two top blockchain metaverses we can visit today are Sandbox (SAND) and Decentraland (MANA), and you'll need their tokens to buy items in each world.
One aspect of these worlds that's caught people's attention is that you can buy and develop virtual real estate. Metaverse land sales have already attracted significant sums of money. According to DappRadar, land sales on Sandbox generated $86 million in trading volume in the final week of November.
Land and other metaverse items come in the form of non-fungible tokens (NFTs). These are essentially ownership certificates for digital items, so you -- and not the company that runs the metaverse -- own the items you create or buy in these worlds.
Why Cathie Wood thinks it will be worth trillions
Cathie Wood is Ark Invest's Chief Executive Officer and Chief Investment Officer. She has a reputation as a prolific stock picker who focuses on innovation and disruptive technologies. The well-known investor told CNBC the metaverse is a multi-trillion dollar opportunity.
Wood believes the metaverse will go way beyond the gaming and consumer goods industry -- she thinks it could infiltrate every sector of the economy. She believes the metaverse could be like other types of technology that now play a part in all corners of our lives.
Wood is not alone in believing the metaverse is only getting started. A recent report from Grayscale said metaverses represent a $1 trillion market opportunity, and the CEO of Epic Games, Tim Sweeney, told a conference in mid-November that it could become a multi-trillion dollar part of the world economy.
Should you invest?
Metaverses may well become a trillion dollar industry, but it is still very early days. We don't yet know how they will unfold or which metaverses will capture people's attention. And we don't know for sure that this isn't a passing phase. There's been talk of these virtual worlds before and they haven't managed to reach the mainstream.
The involvement of big corporations does make it more likely that this time will be different. But as an investor, the challenge is that those same corporations may not want to rely on existing decentralized cryptocurrencies. It simply isn't clear what shape the metaverse industry will take.
The prices of metaverse cryptocurrencies are soaring right now because so many people are scared of missing out on the next big thing. That's great news if you already own metaverse tokens. But be cautious if you're thinking of buying now -- speculation often pushes crypto prices to unsustainable highs and the prices may fall again in the coming months. There can be big benefits to investing early, but it also carries more risks.
As with any crypto investment, it's important to only spend money you can afford to lose and make sure you buy from a reputable cryptocurrency exchange. Try not to let fear of missing out drive your decisions -- take your time and research each metaverse token carefully before jumping in.
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Emma Newbery owns Decentraland and Sandbox.
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