Bear markets are for Metaverse-building
This week I’m reminded of Sir John Templeton, one of the most successful investors of all time, who made a fortune in 1939 by buying European stocks before World War II. He once said, “When pessimism is high, buy; when optimism is high, sell.”
Templeton’s gamble on pessimism paid off, making him one of the world’s wealthiest investors and launching a global investment advice powerhouse that carries his name.
As I write this, pessimism is omnipresent as assets fall in response to stomach-churning macroeconomic data. Bitcoin and Ethereum, the decade’s best-performing assets, are trading 55% below their all-time high from last year.
Digital asset prices are significantly associated with NASDAQ prices. Investors are selling crypto as aggressively as equities. When the largest tech stocks are selling 85% below their all-time highs, this is not good news for crypto investors.
Investors must remember Sir John’s timeless wisdom when fear is pervasive. This is true for crypto investors who have seen this previously. As a digital asset trader for nearly a decade, I’m in my third bear market.
Bear markets are as important to crypto’s progress as bull markets, and the cycle has become commonplace. Cryptobulls are enthusiastic. Everyone thinks they’re great because their assets rise exponentially. Greed and hubris overtake prudence. The market believes 20% APY stablecoin rates are sustainable and the ‘new normal’ Founders and rabid followers mock due diligence and probing questions on social media.
The market always self-corrects, as we’ve seen this month, and fraudulent projects fail. If the bull market is a street party, the bear market is the power washer that cleans up the next morning.
Bear markets are when the best and most profitable crypto projects are formed.
Another recent lesson. NFTs entered the public vocabulary in 2021 when artist Mike Winkelmann (known as Beeple) sold ‘Everydays: The First 5,000 Days’ for $69 million. The first NFTs, such CryptoKitties and Cryptopunks, debuted near the close of the 2017 bull market.
In the following two years, as Bitcoin’s price plummeted 85%, most people, even crypto industry veterans, forgot about NFTs. A few entrepreneurial creators didn’t at the time. In the summer of 2018, they constructed a proof-of-concept NFT marketplace and raised $8 million. This team discreetly constructed its platform for three years in an inconspicuous part of the crypto market. Beeple’s sale electrified the world, and OpenSea found itself atop a tidal wave. The company raised $13 billion this year, a 1,600x return in less than four years.
Crypto investors should seek opportunities like this. Not the newest DeFi ponzi or celebrity-endorsed NFT dump, but ground-breaking and scalable infrastructure to support the digital asset ecosystem’s progress.
I believe the metaverse will drive that evolution and be the next bull market’s theme. Those who invested in NFT infrastructure saw skyrocketing profits in the previous cycle. Those who invest in the metaverse will see similar returns in the coming years.
The metaverse presents a multi-trillion dollar investment trend over the next decade, with Citi predicting it might reach $13 trillion by 2030, with five billion active users.
The metaverse is still in its “Cambrian explosion” phase. Few platforms can onboard users at scale, and even the most advanced deliver clumsy and uncomfortable user experiences. My team tracks 350 active metaverse initiatives, many of which are staffed by clever and inventive people. We’ve invested in 26 of these startups, and we expect several to develop transformational technology that drives the next crypto bull market.
Metaverse investing focuses on crypto and games. (Video games, not Las Vegas) The digital asset market has grown tremendously over the past decade, but it also has dramatic periods of wealth creation and destruction. Gaming has expanded rapidly over the past decade and grew 27% in the US in 2020, the first year of the epidemic. Most cautious predictions put future growth at 7-10% yearly.
Digital assets and video games will promote metaverse growth and development. Long-term investors should join in its expansion now, despite a possible global slump. Those who invested in NFT infrastructure during the last bear market cycle were rewarded, when fear overtook greed in the digital asset markets. Investors who heed Sir John Templeton’s instructions will likely be rewarded when this bad market ends.
This article is inspired by Kevin Virgil who is Every Realm’s Managing Director of Asset Management. Metaverse News hereby brings it in a heavily edited edition