One of the surprising stories of the crypto market so far in 2023 has been the comeback of metaverse tokens. In 2022, the top metaverse cryptos fell by 90% or more. This year, though, such tokens have been among the market's standout performers. In January, for example, Decentraland (MANA 0.99%) led the way with a sizzling 152% gain.
However, Decentraland, currently trading around $0.63, now faces a moment of truth. Its performance started to trail off in February, and it's down by 13.4% over the past 30 days. As a result, risk-seeking crypto investors might decide to look elsewhere -- such as to artificial intelligence-related tokens -- for upside potential. So does Decentraland have a realistic shot to break through the $1 threshold in 2023?
Momentum vs. metrics
When weighing that question, it's important to differentiate between momentum and metrics. Momentum refers to investor sentiment, and is much more influenced by speculation, hype, and buzz. Metrics refer to real-world numbers and real-world performance. Yes, the metaverse might be a $1 trillion market opportunity in the future, but how much activity is actually happening within these virtual worlds today?
That's why I'm concerned about Decentraland. So much of the crypto's huge rally in 2023 seems to be based on momentum, and not enough on metrics. Right now, the Decentraland metaverse platform -- the virtual 3D world, as opposed to the token -- only has 10,000 core users, down from a peak of 50,000 daily active users in early 2022. That represents an 80% drop in activity. Until and unless Decentraland can start to win back a significant portion of those users, or attract an entirely new demographic to its version of the metaverse, then it's hard to see how the underlying metrics at Decentraland are going to change.
Image source: Getty Images.
When you factor in all the new metaverse players -- ranging from new virtual worlds built on various blockchains to new gaming options for mobile devices -- then it's hard to see how Decentraland is going to consolidate and improve its position. For the token to break the $1 mark this year, it would need to gain nearly 60% in price. As a rough approximation, that would imply a similar gain in daily active users, or a similar gain in overall transaction activity taking place on the platform.
Real-world utility
One reason why I'm skeptical about the likelihood of this type of gain taking place is that the Decentraland token has yet to establish any sort of real-world utility. It's still very much a governance token for a specific small metaverse world. In short, there are limited ways to use your MANA in the real world. Unlike a digital currency like Bitcoin (BTC 0.56%), for example, you can't use MANA to buy things online that aren't directly related to the Decentraland metaverse world (such as virtual items for your in-game avatar).
That's not to say it's not possible to find economic use cases for Decentraland. But many of these use cases -- such as buying and selling virtual land plots within that virtual world, or hosting paid virtual events within it -- require a tremendous amount of time, attention, and expense from budding metaverse entrepreneurs, and may not appeal to average internet users.
Is Decentraland a buy?
As a concept, the metaverse is compelling. There's a good reason why big Silicon Valley tech players like Meta Platforms (META -10.56%) have spent literally billions of dollars trying to bring their metaverse ambitions to fruition. And it's understandable why Apple (AAPL 0.52%) may be planning to enter the metaverse business this year with a new virtual reality (VR) headset. Some company, eventually, is going to figure out how to monetize the metaverse, make using it a core activity for mainstream consumers, and make massive profits in the process.
Unfortunately, I don't think Decentraland is going to do that. Until it transforms into more than just a virtual gaming world, I don't see how it is ever going to win back its lost users. There are just so many choices available today for metaverse enthusiasts, and gamers are notoriously fickle as they continually search for newer and better virtual experiences.
For these reasons, I'm not confident at all that Decentraland can hit the $1 mark in 2023. For investors who believe in the long-term appeal of the metaverse, I'd recommend searching out a themed exchange-traded fund (ETF) that is much more diversified across the full range of potential metaverse opportunities.
