Market Lab Report - Why land in the metaverse is valuable; Inventory-to-sales ratio may force Fed to halt hikes

Market Lab Report / Dr. K's Crypto-Corner

by Dr. Chris Kacher

The (R)Evolution Will Not Be Centralized™

Some argue that digital land is infinite and can be easily duplicated so question its inherent value. One can also travel in an instant from one area of the metaverse to another. But just as in the physical world, in the metaverse, it's all about location, location, location. Think of it this way. Imagine if Google allowed you to place your ad on Google's landing page google.com. It would be seen by hundreds of millions of users. This might be the most expensive digital real estate.

With web3, it's the person who owns the digital real estate that matters rather than in web2 where it's the company who owns it. NFTs identify the owners. Big names will attract more eyeballs thus businesses will want to adspend in such places. Big name concerts in the metaverse will attract huge audiences. Advertisers will want to adspend on such occasions. While the Superbowl attracted 208 million viewers, a Superbowl held in the metaverse through multiple streaming sites can attract even more.

Online land will be worth more than physical land. Why? Because in the physical world, a business without online presence can only serve people local to that area, but the audience for the metaverse is global. So the number of eyeballs seeing your ad is orders of magnitude greater in the metaverse than in the physical world enabling customers to buy your product from anywhere on the planet. While e-commerce has massively impacted retail sales over the years #amazonetal, metaversal constructs from live performances to gaming platforms are already having an economic impact on advertising. People in avatar form might walk out of a virtual concert together and then meander down an adjacent virtual shopping strip. Just like in the physical world, then, the shops closest to the virtual conference hall will get the most “foot traffic.”

The metaverse is likely to have key clusters which pull in many eyeballs. Entrepreneurs can try to launch their own businesses in these clusters by developing novel resources that serve as hubs that would attract others to build around. This means digital land can be especially valuable to users when it sits atop a platform architecture that’s already popular such as The Sandbox which integrates many digital communities. Some metaverse platforms will be built to support digital versions of day-to-day tasks while others will be multidimensional gaming worlds. Composability, a core feature of web3, lets people build on/add to existing frameworks to offer new services. Metaversal land is decentralized so anyone can create and benefit as opposed to web2 digital space which is controlled by central entities such as Google, Facebook (Meta), and Youtube. But just as with these centralized systems, the most successful metaversal platforms will be the ones that provide the greatest utility thus will attract the most users.

It's always good to keep a watch list of potential leading names. SAND, MANA, and ENJ are three such names that led in the prior cycle. If any lead in the next bull cycle, it will be reflected in their price. I watch for names that are showing outperformance against their peers as well as against BTC and ETH. I then use various techniques discussed on this website to initiate a buy. All three still have formidable valuations though just as with all other cryptocurrencies, are off around -85% peak-to-trough since they peaked in late 2021. It will come down to the utility each provides their users. Utility can take the form of entertainment, finance, business, marketing, art, and music, among other themes. Each company has a vast network of users.

SAND jumped 20% recently when it was rumored it could be the target of a buyout. A property in SAND was recently acquired by HSBC, one of the world's top banks. The Metaverse Standards Forum was recently unveiled and is comprised of Sony and Alibaba, but any company can join the group. It is designed to facilitate coordination and cooperation among the hundreds of enterprises competing for position in the metaverse.

Markets

President Biden is trying to reduce the price of oil by way of a 3 month moratorium on taxes to encourage oil production. Together with this news, stocks and crypto are bouncing after being seriously oversold. M2 money supply is decreasing but not by a material amount. The dead cat bounce will likely roll over on the next piece of bad news such as any upcoming reports on inflation or unemployment. While the U.S. labor market always is at its strongest before recession, watch for weekly jobless claims continuing to rise. Companies eventually start to fire people en masse causing the near record low unemployment levels to spike higher over a period of a few months as shown in prior recessions.

With wage inflation, the number of employee hours worked is first reduced. Such currently is just coming off peak levels. Layoffs then soar. The Fed's hands are tied until they can bring down inflation by any meaningful amount. They will then likely reverse course and start halting hikes or reducing rates. That will likely be close to a major buy signal in both stocks and cryptocurrencies.

As for inflation, luxury goods, commodities, and wages will continue climb higher overall, but general goods will drop in price as the inventory/sales ratio is spiking. This is known as the bullwhip effect and is disinflationary for the CPI so will give the Fed room to pause rate hikes or reverse course.


On June 30, the PCE measure of core inflation will be reported. It tracks the cost of goods and services less food and energy. If it comes in at or below expectations, the dead cat bounce could push higher. Supply chains remain broken though the queue of cargo ships in Long Beach is reportedly back to pre-COVID levels.