When the artist known as Beeple sold a digital artwork for nearly $70 million a little over a year ago, the public awakened to the possibility of digital ownership through non-fungible tokens (NFTs) and a frenzy took hold. In 2019, fans flocked to Arthur Ashe Stadium, not for tennis, but for the annual Fortnite video game tournament where a 16-year-old won a $3 million grand prize. In 2016, the augmented reality (AR) game Pokémon Go was a worldwide phenomenon, with downloads topping more than 500 million. We believe these seemingly one-off events collectively point to a paradigm shift taking place among businesses and consumers that is driving burgeoning opportunities in the digital world known as the metaverse.

The rise of the metaverse and growing popularity of NFTs is not coincidental to the increasing adoption of another digital phenomenon, cryptocurrency (crypto). A key underpinning of this entire digital universe is blockchain technology, which was conceptualized decades ago but finally found a practical application with bitcoin in 2009. Blockchain has unlocked a mechanism to confer digital ownership and verify authenticity, essential elements for a functioning metaverse and NFT marketplace.

Say you are not a (digital) art collector, crypto speculator or gamer, does any of this matter, particularly for investors? In our view, yes, but for reasons that may not be readily apparent. While the artistic merit — and more importantly long-term viability — of popular NFTs like CryptoPunks or Bored Ape Yacht Club is debatable, and not everyone will warm to the idea of having a digital mortgage on digital real estate, the technological forces that are aligning to make these ideas possible have the potential to reshape many aspects of our daily lives, much like the evolution and impact of the internet over the past 30 years. Furthermore, the metaverse is gaining momentum among mainstream businesses as many seek to dip their toes in the water of this experimental digital playground. Perhaps this is not the most apt description as current investments in the metaverse are in the millions and even billions of dollars, with significant growth expected.

Undoubtedly there is much yet to be determined in the metaverse, but we are confident the innovation story has just begun. In our second quarter Strategy Insights, we focus on why the metaverse matters for investors and how its story is inter-connected to crypto markets.

The Metaverse: A Virtual Reality