A Virtual Real Estate Boom
Real estate sales are booming in the metaverse as investors are spending millions of dollars to acquire virtual tracks of land, according to a Yahoo Finance article [1] . What is behind this boom? How may investors gain exposure to the metaverse?
Sales Are Booming
Recently, sales of digital land have totaled in the millions. According to Yahoo Finance, one week of sales in late November 2021 totaled $100 million. What are some factors driving this boom?
Location, Location, Location
Imitating the physical world, location is crucial in metaverse real estate. The metaverse is made up of multiple virtual worlds. Demand and prices are highest in the most desirable virtual worlds.
Sandbox and Decentraland, two popular virtual worlds, saw sales totaling $86 million and $15 million, respectively, during that one week in November. As most virtual real estate transactions are conducted in cryptocurrency, one plot on Fashion Street in Decentraland sold for the equivalent of $2.48 million. In addition, one plot of land in Sandbox sold for a record $4.3 million. [2]
Scarcity
Creators of virtual worlds only create a finite number of plots. Decentraland has carved out 90,000 parcels measuring 50ft. X 50ft. As these plots are purchased, prices are likely to rise.
The Appeal of Digital Land
As the metaverse is built out, more people are joining online communities. As such, they may have a creative desire to express themselves by owning things in these virtual worlds, including land. In several instances, individuals are acquiring virtual “stuff.” This includes, but is not limited to, items used in online games. To store these things, users need digital homes.
Online Shopping and Events
Retailers are setting up virtual stores where individuals may purchase goods for both the digital and physical world.
Events are held in virtual worlds. Superstars such as Justin Bieber, Ariana Grande, and the Weeknd held concerts in virtual worlds.
Companies may use their digital real estate for advertising. Virtual world real estate is being snapped up as companies bet that more people will shop and attend events in digital spaces, thus driving up the value of digital land.
Becoming a Digital Landlord
A lot of companies are buying large tracts of digital space in hopes of renting it out to retailers or event planners. For example, they may construct a virtual mall and rent out stores within that mall. One firm is constructing an 18-story building with plans to lease it to lawyers and cryptocurrency exchanges.
As in the real world, zoning rules dominate the metaverse, dictating what can be built and where.
As more individuals join virtual worlds, the potential value of digital real estate may increase.
The Fount Metaverse ETF (MTVR)
The Fount Metaverse ETF seeks to provide investment results that, before fees and expenses, generally correspond to the performance of the Fount Metaverse Index. The index was designed to measure the performance of companies that develop, manufacture, distribute, or sell products related to metaverse technology.
MTVR may provide an attractive vehicle for individuals to gain exposure to the metaverse.
1 Bizouati-Kennedy, Yael, Metaverse Virtual Real Estate is Booming: What’s the Appeal?, Yahoo Finance, 12/3/21
2 Putzier, Konrad, Metaverse Real Estate Piles Up Record Sales in Sandbox and Other Virtual Realms, Wall Street Journal, 11/30/21
Investors should consider the investment objectives, risks, charges and expenses carefully before investing. For a prospectus or summary prospectus with this and other information about the Fund, please call 855-425-7426 or visit our website at www.fountetfs.com. Read the prospectus or summary prospectus carefully before investing.
Exchange Traded Concepts, LLC. serves as the investment advisor to the Funds. The Funds are distributed by SEI Investments Distribution Co., (SIDCO) 1 Freedom Valley Drive, Oaks, PA 19456. SIDCO is not affiliated with Exchange Traded Concepts, LLC. or Fount Investment Co. Ltd.
Risk Disclosure:
Investing involves risk, including possible loss of principal. There is no guarantee the Funds will achieve their stated objectives. In addition to the normal risks associated with investing, international investments may involve the risk of capital loss from unfavorable fluctuation in currency values, differences in generally accepted accounting principles, or social, economic, or political instability in other nations. Emerging markets involve heightened risks related to the same factors, as well as increased volatility and lower trading volume.
The Funds’ concentration in an industry or sector can increase the impact of, and potential losses associated with, the risks from investing in those industries/sectors. For MTVR, the Fund may be concentrated in the entertainment and interactive media & services industries. The entertainment industry is highly competitive and relies on consumer spending and the availability of disposable income for success, which may cause the prices of the securities of companies to fluctuate widely. The prices of the securities of companies in the interactive media & services industry are closely tied to the overall economy's performance. Changes in general economic growth, consumer confidence, and consumer spending may affect them. MTVR may also be subject to the specific risks associated with metaverse companies. These risks include but are not limited to small or limited markets, changes in business cycles, world economic growth, technological progress, rapid obsolescence, and government regulation. Smaller, start-up companies tend to be more volatile than securities of companies that do not rely heavily on technology. Metaverse Companies may rely on a combination of patents, copyrights, trademarks, and trade secret laws to establish and protect their proprietary rights. There can be no assurance that these steps will be adequate to prevent the misappropriation of their technology or that competitors will not develop technologies that are equivalent or superior to such companies’ technology.
For SUBS, the Fund may be concentrated in the software industry. Technological changes, pricing, retaining skilled employees, changes in demand, research & development, and product obsolescence can affect the profitability of software companies causing fluctuations in the market price of company securities.
Both Funds are subject to communication services sector risk, which can involve the same risks as being concentrated in the software industry. Network security breaches, potential proprietary or consumer information theft, or service disruption can negatively affect companies’ stock prices.
The Funds are non-diversified. The Funds are new and have limited operating histories for investors to evaluate. New and smaller funds may not attract sufficient assets to achieve investment and trading efficiencies. In addition to the normal risks associated with investing, investments in smaller companies typically exhibit higher volatility.
