What happened
It's undeniable that metaverse-related cryptocurrencies have been among the least likely candidates for price appreciation heading into 2023. Indeed, the price action with this group of assets has been dismal, with many tokens in this space losing 80% of their value, or more, in 2022 alone.
However, with a new year has come improved optimism for this sector. As of 1:45 p.m. ET, Flow (FLOW -0.90%), Decentraland (MANA 0.13%), and The Sandbox (SAND -0.72%) have surged 13.7%, 12.6%, and 12.1% higher, respectively, over the past 24 hours.
These moves appear to be tied to a series of interesting catalysts for these projects.
Flow has reported stabilizing transaction volume over the past month, which is important to investors, as this is a non-fungible token (NFT)-focused blockchain project that's been in decline for some time. Flow is also among the projects that have reduced their headcount, making its growth prospects appear less likely to materialize.
Decentraland reported on Jan. 6 that an upcoming architecture and design competition will be able to accommodate 50,000 visitors over a five-day period. This event will be closely watched by those bullish on the potential for digital real estate over the long term.
Finally, The Sandbox has reported some rather impressive sales of digital land parcels in recent weeks, with proceeds totaling more than $1.6 million. Thus, while demand appears to remain very low in this space, The Sandbox remains among the key places investors appear to be looking right now.
So what
Whether it's transaction volumes, building activity, or any metric of activity with metaverse-related crypto projects, it's been a dire year in this sector. Accordingly, investors looking to justify the high valuations placed on these tokens in 2021 on anticipated growth have had little to grasp on to during this crypto winter.
That said, these three projects certainly provide speculative upside potential for investors looking to play this crypto rally. Overall, cryptocurrencies and other digital assets such as NFTs are difficult to value. This can lead to significant overestimates and underestimates in terms of valuation from time to time. If another rally is starting, these high-beta tokens could be among the best way for aggressive investors to catch this rally.
Now what
Whether it's smart to try to catch this rally (or what could instead be a falling knife) will be seen in hindsight. Today's rally is rather widespread, with most risk assets taking a leg higher. Various macro forces appear to be driving such risk-on sentiment, so until sentiment cools, it's possible the crypto market could be in for a decent year.
That said, until these metaverse projects can show some meaningful growth, it's hard to point to a fundamental catalyst for this group. In the absence of fundamentals, this rally becomes much more precarious. Thus, this is one sector I'm going to keep an eye on from the sidelines, at least for now.
