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The Metaverse Is Crashing! Why These 3 Crypto Tokens Nosedived Today

By Chris MacDonald – Jan 6, 2022 at 12:29PM

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The metaverse has been red hot, but is it now cooling?

What happened

Metaverse-related cryptocurrencies are getting kicked in the pants today. There's really no nice way to put it. 

Yesterday's news that investors and traders are now factoring in a shrinking Federal Reserve balance sheet, the tapering of bond purchases, and the eventual rate hikes this year has investors in high-growth assets concerned. Bond yields have continued higher on this news, approaching 1.75% as of late morning.

These headwinds have caused a reassessment of the valuation of many of the most popular highfliers from 2021. Metaverse cryptocurrencies such as Axie Infinity (AXS) and Theta Network (THETA 0.16%) dropped more than 16% over the 24 hours ended 11 a.m. ET.

The Sandbox (SAND 0.94%) had dropped 6.9% over the same period, with other metaverse tokens seeing more muted declines.

Digital-looking infinity sign above a hand.

Image source: Getty Images.

So what

These esoteric factors may seem irrelevant to investors in top metaverse cryptocurrencies. After all, the growth of the metaverse is not necessarily likely to be affected in a meaningful way by monetary policy, right?

Well, that's not necessarily true. The monetary policy decisions made at the U.S. Central Bank have a direct impact on how much capital is available in the system. Years of cheap capital flowing into risk assets has created a perfect storm for high-risk, high-return assets. The crypto market is one of many that have benefited from these cheap money policies. 

Of course, the growth profile for popular play-to-earn metaverse game Axie Infinity or The Sandbox remains attractive to many investors. Crypto networks such as Theta that provide key infrastructure supporting the rise of the metaverse in the crypto world also provide an attractive investment thesis. However, these exogenous factors are currently being heavily priced into the valuation of most assets today, a trend that appears to have legs right now.

Now what

My view on the metaverse is that this is a space worth checking out for investors with a truly long-term time horizon. There's a lot to like about how Axie Infinity and The Sandbox are positioned right now. Theta's role as a picks-and-shovels play on this space is also attractive to me.

However, it's entirely possible that investors will be able to pick up these tokens at an even better price in the near future. In this current environment, momentum is not in favor of investors. However, those looking for discounts on their favorite tokens are now seeing some rather attractive opportunities. 

Each of these tokens is one I'm considering easing into over the very long term. That said, I'm not going to rush in anytime soon -- this sell-off could continue for some time.

Chris MacDonald has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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