The virtual real estate market is cooling, what is the outlook for the Metaverse?

At the end of 2021, a "land speculation" wave swept through the virtual world, but with the burst of the bubble in the first half of this year, the future of virtual real estate and the Metaverse has once again attracted market attention.

According to statistics from data platforms, due to decreased user interest and a sluggish cryptocurrency market, virtual land prices plummeted significantly in 2022. From the perspective of six major Ethereum Metaverse platforms, the average price of a digital plot dropped from about $17,000 in January to around $2,500 in August, a decrease of nearly 85%.

At the same time, the unfavorable macroeconomic environment has led to an overall decline in the cryptocurrency industry, further causing the market value of Metaverse platform tokens to drop by over 80%. On average, the land transaction volume of the six major Metaverse projects has fallen from a peak of $1 billion in November 2021 to about $157 million in August 2022.

1. Virtual Real Estate from "Popularity" to "Collapse"

In the second half of 2021, the concept of the Metaverse became popular worldwide, leading to a surge in "land speculation."

By constructing a virtual world parallel to the physical world in virtual space, the new type of Metaverse platform has become an important carrier of the Metaverse concept. Unlike the virtual spaces in regular games, the land in Metaverse projects has the following characteristics:

First is scarcity and liquidity. The virtual platforms under the concept of the Metaverse are not infinite, but consist of a fixed number of parcels, and the prices of the parcels vary depending on geographical location and foot traffic. The parcels exist in the form of NFTs to ensure the uniqueness and traceability of the underlying real estate rights.

Second, the platform establishes its own economic and governance system. Most virtual plots are decentralized, and the platform facilitates transactions through the issuance of tokens, creating an internal economic system within the virtual world. Moreover, token holders can participate in the management and development planning of the platform through voting, achieving platform autonomy.

Third is the real estate attribute. This is reflected in the ability of virtual landholders to buy, sell, transfer, and develop land. For example, resale and leasing, as well as creating buildings and landscapes on the purchased plots. By embedding corresponding functions and services, various commercial or non-commercial activities can also be conducted on the plots.

Fourth, it possesses parallel dimensions of space and time. Based on blockchain technology, all activities in the Metaverse will be timestamped and permanently recorded. This allows the Metaverse to have a temporal and spatial dimension parallel to the real world, where virtual entities and events occurring within the platform possess a historical dimension.

Fifth is to support the construction of offline scenarios. Many activities that take place in the physical world can also be conducted in the Metaverse, including shopping, working, learning, socializing, and holding carnivals. In the future, more and more offline scenarios will be moved to the Metaverse and carried out in a way that is not restricted by physical conditions.

The characteristics of the Metaverse platform redefine virtual space, and under people's attention, this market continues to ferment.

In the second half of 2021, as the concept of the Metaverse became popular worldwide, Metaverse platforms also rose in prominence and secured a place in the investment field, with various digital land transactions repeatedly reaching new highs. In November 2021, a piece of digital land in a certain virtual world platform was sold for a high price of $2.43 million. In December, another piece of virtual land on a different virtual gaming platform was sold for $4.3 million, a price that was surpassed that same month by a transaction at $5 million.

At the same time, the ecosystem within the Metaverse platform is expanding comprehensively. A British artist has established an art town on a certain Metaverse platform to host NFT art exhibitions and concerts. A well-known sports brand has created a virtual world through a gaming platform, offering a series of brand experiences such as fan meet-and-greets, social events, and promotional activities. A university plans to launch a Metaverse campus, becoming the virtual campus for its Guangzhou campus to provide an immersive campus experience. A certain country has set up a virtual embassy on a Metaverse platform, becoming a center for promoting strengthened bilateral relations with various governments.

However, since 2022, the market enthusiasm has sharply declined, and the hype around virtual land in the virtual world has gradually receded.

From prices that can easily compare to luxury apartments in first-tier cities in the country to a market that is completely overlooked. The entire Metaverse project market is in a bear market. According to data platform statistics, as of the date of this report, the trading volume and trading amount of the top ten Metaverse projects in the past seven days have significantly decreased compared to the beginning of the year.

2. The Burst of the Virtual Real Estate Bubble

Why did the Metaverse project encounter a " Waterloo"? 2022 was a year full of uncertainty, with instability in the international economy and political situation increasing, and the continued decline of the cryptocurrency industry set the main tone for the entire market. In addition, the explorability and inherent value of the Metaverse platform cannot support the prices that were previously inflated by speculators.

1) Global cryptocurrency market bear market

The year 2022 was full of changes. Still not fully out of the atmosphere shrouded by the pandemic, against the backdrop of the Federal Reserve's interest rate hikes and the Russia-Ukraine conflict, the international economic and political situation is turbulent. The uncertainty in the international arena has caused cryptocurrencies to continue to decline, and the implosion of the stablecoin UST in May has further caused the cryptocurrency market to plummet, casting a shadow over the overall crypto market.

According to statistics from cryptocurrency price tracking websites, mainstream cryptocurrencies have experienced a large-scale decline year-to-date. With the exception of stablecoins, the top-ranking currencies by market capitalization have seen declines mostly in the range of 40%-60%. The overall market capitalization of cryptocurrencies is currently close to $1.04 trillion, which is nearly a 50% drop compared to the beginning of the year.

NFT has also been severely impacted. Data shows that the performance of NFTs weakened in 2022, with significant declines in trading volume, transaction amount, and the number of buyers and sellers. Among them, the transaction amount in the second quarter decreased by 85.68% compared to the first quarter, and the trading volume decreased by 80.05% compared to the first quarter, while the number of buyers and sellers decreased by 68.57% and 57.33%, respectively, compared to the first quarter.

Virtual real estate uses cryptocurrency as the main medium of transaction and NFTs as the primary carrier. However, with the decline in token prices across various platforms, the value of virtual real estate has plummeted. A large number of speculators previously flooded into the market and then exited simultaneously, directly causing the collapse of the virtual real estate bubble. Looking at the sales volume and prices of virtual real estate, the market has shown a downward trend since 2022, except for May, and exhibits a significant correlation with the cryptocurrency and NFT markets.

2) The loss of desolation and immersion

Virtual real estate, like physical real estate, relies on planning, design, and foot traffic to thrive and appreciate in value. In the virtual world, desolate cities resemble the apocalypse. Currently, the virtual real estate ecosystem has yet to flourish, and the foot traffic is not satisfactory.

On one hand, Metaverse platforms are actively creating mirror worlds, moving physical brand stores, experience stores, office buildings, and more into virtual spaces, allowing players to enjoy various services. However, after the novelty of this experience wears off, the issues of service singularity and limitation begin to emerge. Moreover, most Metaverse projects are still in the "pioneering phase," with limited playability and explorability within the platforms.

On the other hand, the lack of immersion is another important factor. VR/AR technology has entered a high-speed development stage, but it has not yet been widely applied to mainstream Metaverse projects. The visual and auditory experiences on a two-dimensional plane are difficult to present the realism comparable to the real world, and real-time interaction with virtual scenes is still in its infancy. The single sensory dimension remains a common issue among mainstream Metaverse platforms.

3) Loss of Monopoly and Scarcity

At the beginning of the rise of Metaverse projects, people had high hopes for it.

The real world is always unsatisfactory; the pandemic sweeps across the globe, the traditional economy faces difficulties, and social competition is severe. People's desire to "live towards the virtual" is becoming increasingly strong. Unlike the virtual world that is disconnected from reality, the Metaverse platform opens up a new domain parallel to the physical world, where humanity can redesign urban landscapes, establish business rules, and create social order.

But the reality is that the construction of the Metaverse equally relies on the power of capital. From buying land and construction to deciding the functions and rules of the plots, capitalists are gradually monopolizing. Those who cannot afford to buy a house in real life cannot do so in the virtual world either. Players' perceptions and experiences in the virtual world are all within established frameworks, making the vision of freedom and equality difficult to achieve on Metaverse platforms.

At the same time, as more and more Metaverse projects emerge, the scarcity of land has been called into question. Land in a Metaverse is limited, but the Metaverse itself can be infinite. Clearly, current Metaverse platforms do not yet possess uniqueness, and there is severe homogenization among the platforms. As the supply of land in Metaverse projects gradually increases, it will also be difficult to maintain the value of the land.

4) Choices between reality and ideals

The virtual real estate market continues to decline, partly due to the influx and exit of speculators, and partly because current Metaverse projects lack "confidence". However, in the long run, this market still has tremendous development potential.

In the current trend of digital economy development, Metaverse projects have become an important port. Mobile banking, cloud shopping platforms, and online courses are increasingly becoming the forms of life that people rely on. Creating game-like perceptible interactive scenarios can adapt to the growing online life scenes. In addition, new business forms such as virtual clothing and virtual concerts are also on the rise, creating new economic growth points for the virtual world.

In the bear market of the cryptocurrency industry, the concept of the Metaverse has not cooled down. On the contrary, various technologies related to the Metaverse are accelerating their development. Virtual land, as a testing ground for the Metaverse, is currently the product that is closest to the concept of the Metaverse. The Metaverse has yet to be defined, and humanity's limited imagination is not sufficient to encapsulate it. At this stage, humanity's construction of Metaverse platforms has pioneering significance and is shaping and influencing the final form of the Metaverse.

The construction of the Metaverse is not about creating a utopia, relying on the protection of the virtual world to escape reality, which will lead to a regression of human civilization. However, while blending the virtual and the real, the monopolies and restlessness in the real world are also difficult to avoid being brought in. But the scalability of the Metaverse gives us the choice, allowing humanity to switch between different Metaverses in search of and building ideal habitats.

In reality and in ideals, the exploration of the Metaverse platform will become an important outlet for us.

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