Can This Metaverse Crypto Reach $1?

One of the surprising stories of the crypto market so far in 2023 has been the comeback of metaverse tokens. In 2022, the top metaverse cryptos dropped by 90% or more. This year, however, such tokens have been among the market’s standout performers. In January, for example, Decentralized country (MANA -4.49%) led the way with a sizzling gain of 152%.

However, Decentraland, currently trading around $0.63, is now facing a moment of truth. Performance started to decline in February and it has decreased by 13.4% in the last 30 days. As a result, risk-seeking crypto investors may decide to look elsewhere—for example, to artificial intelligence-related tokens—for upside potential. So does Decentraland have a realistic chance of breaking through the $1 threshold in 2023?

Momentum vs. calculations

When weighing that question, it’s important to distinguish between momentum and metrics. Momentum refers to investor sentiment, and is much more influenced by speculation, hype and buzz. Metrics refer to real-world numbers and real-world performance. Yes, the metaverse may be a $1 trillion market opportunity in the future, but how much activity is actually happening in these virtual worlds today?

That is why I am worried about Decentraland. So much of crypto’s huge rally in 2023 seems to be based on momentum, and not enough on calculations. Right now, the Decentraland metaverse platform – the 3D virtual world, as opposed to the token – has only 10,000 core users, down from a peak of 50,000 daily active users in early 2022. That represents an 80% drop in activity. Until and unless Decentraland can start to win back a significant portion of these users, or attract an entirely new demographic to its version of the metaverse, it’s hard to see how the underlying metrics at Decentraland will change.

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Image source: Getty Images.

When you factor in all the new metaverse players – everything from new virtual worlds built on different blockchains to new gaming options for mobile devices – it’s hard to see how Decentraland will consolidate and improve its position. For the token to break the $1 mark this year, it needs to gain almost 60% in price. As a rough approximation, that would imply a similar gain in daily active users, or a similar gain in total transaction activity taking place on the platform.

Real tool

One reason I am skeptical of the likelihood of this type of gain taking place is that the Decentraland token has yet to establish any form of real utility. It’s still very much a governance system for a specific little metaverse’s world. In short, there are limited ways to use MANA in the real world. Unlike a digital currency which Bitcoin (BTC -4.05%)for example, you cannot use MANA to buy things online that are not directly related to the Decentraland metaverse world (such as virtual items for your in-game avatar).

This is not to say that it is not possible to find economic use cases for Decentraland. But many of these use cases—such as buying and selling virtual plots of land in the virtual world, or hosting paid virtual events in it—require enormous amounts of time, attention, and expense from budding metaverse entrepreneurs, and may not appeal to average Internet users.

Is Decentraland a bargain?

As a concept, the metaverse is compelling. There’s a good reason why big Silicon Valley tech players like it Meta platforms (META 0.64%) has spent literally billions of dollars trying to realize its metaverse ambitions. And it’s understandable why apple (AAPL 0.41%) may be planning to enter the metaverse business this year with a new virtual reality (VR) headset. Some companies will eventually figure out how to monetize the metaverse, making its use a core activity for ordinary consumers and making massive profits in the process.

Unfortunately, I don’t think Decentraland is going to do that. Until it transforms into more than just a virtual game world, I don’t see how it will ever win back its lost users. There are only so many choices available today for metaverse enthusiasts, and players are notoriously fickle as they continually search for newer and better virtual experiences.

For these reasons, I am not at all confident that Decentraland can reach the $1 mark in 2023. For investors who believe in the metaverse’s long-term appeal, I would recommend searching for a themed exchange-traded fund (ETF). which is much more diversified across the spectrum of potential metaverse possibilities.