The virtual real estate market faces a cold winter, where does the Metaverse go from here?

At the end of 2021, a wave of "land speculation" swept through the virtual world, but with the collapse of the bubble in the first half of this year, the prospects for virtual real estate and the Metaverse have once again attracted market attention.

According to data platform statistics, due to declining user interest and the impact of the crypto bear market, the prices of virtual land significantly decreased in 2022. From the perspective of six major Ethereum Metaverse platforms, the average price of a digital plot fell from about $17,000 in January to about $2,500 in August, a drop of nearly 85%.

At the same time, unfavorable macroeconomic conditions have led to an overall decline in the cryptocurrency industry, further causing the market valuation of Metaverse platform tokens to drop by over 80%. On average, the land trading volume of the six major Metaverse projects has fallen from a peak of $1 billion in November 2021 to approximately $157 million in August 2022.

1. Virtual Real Estate from "Rising Star" to "Collapse"

In the second half of 2021, the concept of the Metaverse became popular worldwide, leading to a wave of "land speculation."

By creating a virtual world that parallels the physical world in virtual space, new Metaverse platforms have become important carriers of the Metaverse concept. Unlike the virtual spaces in typical games, the land in Metaverse projects has the following characteristics:

First, scarcity and liquidity. The virtual platforms under the concept of the Metaverse are not infinite, but consist of a fixed number of plots, and the prices of the plots vary based on geographical location and foot traffic. The plots exist in the form of NFTs to ensure the uniqueness and traceability of the underlying property rights.

Second, the platform has its own economic and governance system. Most virtual plots are decentralized, and the platform facilitates transactions by issuing tokens, creating an internal economic system within the virtual world. Additionally, token holders can participate in the management and development planning of the platform through voting, achieving platform autonomy.

Third is the real estate attribute. This reflects that virtual landholders can buy, sell, transfer, and develop the land. For example, resale and leasing, as well as creating buildings and landscapes on the purchased plots. By embedding corresponding functions and services, various commercial or non-commercial activities can also be conducted on the plots.

Fourth, it has parallel dimensions of space and time. Based on blockchain, all activities in the Metaverse will be timestamped and permanently recorded. This gives the Metaverse parallel dimensions of space and time to the real world, where virtual entities and events within the platform possess a historical dimension.

Five is to support the construction of offline scenarios. Many activities done in the physical world can also take place in the Metaverse, including shopping, working, learning, socializing, and holding carnivals. In the future, more and more offline scenarios will be moved to the Metaverse and developed in a way that is not limited by physical conditions.

The characteristics of these Metaverse platforms redefine virtual space, and under people's attention, this market continues to ferment.

In the second half of 2021, as the concept of the Metaverse became popular worldwide, Metaverse platforms also rose significantly in prominence, taking a place in the investment sector, with various digital land transactions reaching new highs. In November 2021, a piece of digital land in a certain virtual world platform was sold for a high price of $2.43 million. In December, another piece of virtual land on a different virtual gaming platform was sold for $4.3 million, a price that was later surpassed in the same month with a transaction of $5 million.

At the same time, the ecosystem within the Metaverse platform is expanding comprehensively. A British artist has established an art town on a certain platform for hosting NFT art exhibitions and concerts. A well-known sports brand is creating a virtual world through a gaming platform, offering a series of brand experiences such as fan meet-and-greets, social interactions, and promotional events. A certain university plans to launch a Metaverse campus, becoming a virtual campus for another campus of the school, providing an immersive campus experience. A certain country has set up a virtual embassy in the virtual world, becoming a hub for promoting bilateral relations with various governments.

However, since 2022, the market enthusiasm has sharply declined, and the hype around the virtual world's land speculation has gradually waned.

From the prices that can rival luxury apartments in first-tier cities in the country to the entire market being deserted. The entire Metaverse project market is in a bear market. According to data platforms, as of the date of publication, the trading volume and transaction amount of the top ten Metaverse projects in the past seven days have significantly decreased compared to the beginning of the year.

2. The Burst of the Virtual Real Estate Bubble

Why did the Metaverse project encounter a "Waterloo"? The year 2022 was filled with uncertainty, with instability in the international economy and political situation increasing. The decline of the cryptocurrency industry set the main tone for the entire market. In addition, the explorability and intrinsic value of the Metaverse platform could not support the previously inflated prices raised by speculators.

1) Global cryptocurrency market bear market

The year 2022 was filled with changes. Still not fully emerging from the shadow of the pandemic, the international economic and political situation was turbulent against the backdrop of the Federal Reserve's interest rate hikes and the Russia-Ukraine conflict. The uncertainty in the international situation caused cryptocurrencies to continue to decline, and the implosion of stablecoins in May further led to a sharp drop in the cryptocurrency market, casting a shadow over the overall crypto market.

According to statistics, since the beginning of the year, mainstream cryptocurrencies have experienced a massive decline. Except for stablecoins, the drop in the market value of the currencies ranked higher is mostly in the range of 40%-60%. The overall market value of cryptocurrencies is currently close to $1.04 trillion, nearly a 50% drop compared to the beginning of the year.

NFTs were also severely affected. Data shows that the performance of NFTs weakened in 2022, with significant declines in trading volume, transaction value, and the number of buyers and sellers. Specifically, the transaction value in the second quarter decreased by 85.68% compared to the first quarter, and the trading volume decreased by 80.05% compared to the first quarter, while the number of buyers and sellers decreased by 68.57% and 57.33%, respectively, compared to the first quarter.

Virtual real estate uses cryptocurrency as the main medium of transaction, with NFTs as the primary carrier. However, as the prices of tokens on various platforms have fallen, the value of virtual real estate has also plummeted. A large influx of speculators previously entered the market, only to exit en masse, directly triggering the collapse of the virtual real estate bubble. In terms of sales volume and price of virtual real estate, the market has shown a downward trend since 2022, with the exception of May, and there is a significant correlation with the cryptocurrency market and the NFT market.

2) The lack of desolation and immersion.

Virtual real estate, like physical real estate, relies on planning, design, and foot traffic to thrive and appreciate in value. In the virtual world, desolate cities resemble the end of the world. Currently, virtual real estate has not yet established a prosperous ecosystem, and the foot traffic is also less than satisfactory.

On one hand, Metaverse platforms are creating mirror worlds, moving brand stores, experience centers, office buildings, etc. from the physical world into virtual space, allowing players to enjoy various services. However, after the novelty of this experience wears off, the issues of service singularity and limitations begin to surface. Moreover, most Metaverse projects are still in the "pioneering stage," and the playability and explorability within the platforms are limited.

On the other hand, the lack of immersion is another important factor. VR/AR technology has entered a stage of rapid development, but it has not yet been widely applied to mainstream Metaverse projects. The visual and auditory experience on a two-dimensional plane is difficult to present the realism comparable to the real world, and real-time interaction with virtual scenes is still in its infancy. The singularity of sensory dimensions remains a common issue among mainstream Metaverse platforms.

3) Loss of Monopoly and Scarcity

At the beginning of the rise of the Metaverse projects, people had high hopes for it.

The real world is often unsatisfactory, with the pandemic sweeping across the globe, traditional economies facing difficulties, and severe social involution. People’s desire to "live towards the virtual" is becoming increasingly strong. Unlike the virtual world that is disconnected from reality, the Metaverse platform opens up a new domain parallel to the physical world, where humanity can replan urban appearances, establish business rules, and create social order.

But the reality is that the construction of the Metaverse is also inseparable from the power of capital. From buying land and construction to determining the functions and rules of the plots, capitalists are gradually monopolizing. Those who cannot afford a house in real life cannot do so in the virtual world either. Players' perceptions and experiences in the virtual world are all within established frameworks, making the vision of freedom and equality difficult to achieve on Metaverse platforms.

At the same time, with the emergence of more and more Metaverse projects, the scarcity of land has been called into question. A plot of land in a Metaverse is limited, but the Metaverse itself can be infinite. Clearly, current Metaverse platforms do not possess irreplaceability, and there is severe homogeneity among the platforms. As the supply of land in Metaverse projects gradually increases, it will be difficult to maintain the value of the land.

4) Choices between reality and ideals

The virtual real estate market continues to decline, partly due to the influx and exit of speculators, and partly because the current Metaverse projects lack "confidence". However, in the long run, this market still has tremendous development potential.

As the digital economy becomes a trend in development, Metaverse projects have become an important portal. Mobile banking, cloud shopping platforms, and online courses are increasingly becoming the forms of life that people rely on. Creating game-like perceivable interactive scenarios can adapt to the growing online living situations. In addition, new types of businesses such as virtual clothing and virtual concerts are also riding the wave, creating new economic growth points for the virtual world.

In the bear market of the crypto industry, the concept of the Metaverse has not cooled down. On the contrary, various technologies related to the Metaverse are accelerating their development. Virtual land, as a testing ground for the Metaverse, is currently the product closest to the concept of the Metaverse. The Metaverse has not yet been defined, and humanity's limited imagination is insufficient to encapsulate it. At this stage, humanity's efforts in building Metaverse platforms are of pioneering significance, shaping and influencing the final form of the Metaverse.

The construction of the Metaverse is not about creating a utopia, relying on the protection of the virtual world to escape reality, which will lead to a retreat of human civilization. At the same time, while blending the virtual and the real, the monopolies and restlessness in the real world are also difficult to avoid being brought in. However, the expansibility of the Metaverse gives us the choice, and humanity can switch between different Metaverses to seek and build ideal habitats.

In reality and in ideals, the exploration of the Metaverse platform will become an important outlet for us.