As the NFT markets continue on their upwards hike to prominence, one has to wonder whether or not its tributaries – with a specific focus on the area of Virtual Property and its owners – have what it takes to gain recognition as an emerging asset class, or are their engines fueled purely on hype?
With the first cryptocurrency and blockchain project – Bitcoin (BTC) – being a product of innovation, it was only natural that the digital economic ecosystem that stems from it would be oozing with – innovation that is. One such innovative use of blockchain technology was to apply provable scarcity and ownership to items that are manifested in virtual worlds.
These virtual items that went through a “blochainification” – if I may – are officially referred to as Non-Fungible Tokens (NFT’s), the term referring directly to the scarcity and digital “individuality” of each one. At this point in time, the most prominent examples of NFTs have been digital art and in-game purchases – most notably Virtual Properties, the very subject of this article.
The Virtual Property Market Boom
Earlier this year, when digital artists started making headlines over the sales they were making, it is doubtful that any observers would have expected the meteoric rise in the price of in-game Virtual Properties that would follow the success of the artists.
These new developments in the NFT space startled observers when reports of 500% returns on Virtual Property on metaverse game, Decemtraland made it to mainstream news. Another example of explosive growth in this particular segment came when a sale of eight digital property lots on the Axie Infinity metavesold sold for a combined total of $1.5 million.
Naturally, many have attributed this growth to hype an FOMO ( Fear Of Missing Out) – with the chief operating officer of Non-Fungible.com, Gauthier Zuppinger, stating that
“There is obviously some fear-of-missing-out phenomenon behind this.”
“The best, rarest places are almost all purchased. The secondary market shows that the first buyers sell their assets for way more than the initial price.”
Investing In Virtual Property, Could Actually Work?
According to a report published by Global Property Guide on the 10th of March, the future of the real world property market looks bright from 2021 moving forward. This outlook is derived from the rise in property value throughout most of the developed world and the Asia pacific, with the US recording the highest inflation adjusted price increase at 9.42% during 2020.
This, according to GPG, can be directly associated with lowered interest rates fueling demand and growth in property sales outside of major cities – likely a direct result of the Covid-19 outbreak.
Such as any other investment, property carries its own risks. The lower interest rates may fuel growth in the real world property market now, however, it may have adverse effects overtime. One should also consider the fact that the current state of interest rates is a delicate balancing act that is in the hands of multiple different central banks who will handle the task differently. Therefore, there are few guarantees to how the situation eventually plays out.
As for Virtual Property, the market also looks quite rose and it’s also a beneficiary of government’s response to covid-19 – mainly in the form of lockdown and stimulus checks being invested in crypto. The biggest difference between the two is the potential returns, which are especially attractive on the Virtual side of property investing.
In fact, the Virtual Property market has become so attractive that one real estate firm, Republic Real Estate, has gone as far as opening an invite only fund dedicated to acquiring and developing Virtual Properties across numerous metaverses. Yes, they plan to do this for a profit.
“Buying land today in virtual worlds may end up feeling a lot like buying land in Manhattan in the 1750s,” “There is massive growth ahead, and now is the time to get in on the ground floor.” As per Ms Jasmin Yorio, Head of Republic Real Estate.
However, the cryptocurrency and blockchain markets are fraught with risk, and the NFT market is not isolated from it. The sharp rises and falls of virtual asset prices may act as a barrier to new entrants, which it will need in order to be considered a viable investment. Another issue is the given metaverse’s user base. If one purchases Virtual Land as an investment and the given metaverse falls out of favour with its users, the bit of land may lose value rapidly or become impossible to sell as nobody wants it.
Conclusion
Investing in Virtual Properties is the same as investing in other assets, Virtual or physical, you will expose yourself to the risk of losing a portion of your capital. So what asset you invest in is best decided by your own appetite for risk.
