Creating $Meta — How the Metaverse ETF thinkers picked stocks so you can invest in the metaverse

The metaverse feels like it could be years away from reaching its full fruition, but a group of visionaries think of it as the future of  the internet and believe that you can invest in it now.

Led by Matthew Ball of EpyllionCo, they teamed up with Roundhill Investments to register a Metaverse ETF. It’s an exchange-traded fund (ETF), or a basket of securities that trade on an exchange, just like a stock. This particular ETF lets people invest in a bunch of the companies that are either already making the metaverse happen or are positioned to do so in the future. The fund has now surpassed $300 million in assets under management.

As GamesBeat readers may have memorized by now, the metaverse is the universe of virtual worlds that are all interconnected, like in novels such as Snow Crash and Ready Player One.

I moderated a session for GamesBeat Summit Next with a group of these visionaries. They include Ball, a futurist and investor and the author of an upcoming book called The Metaverse; Jacob Navok, CEO of Genvid Technologies; Anna Sweet, CEO of Bad Robot Games; and Imran Sarwar, former game designer at Rockstar Games.

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They have done the hard work researching the metaverse so you don’t have to, and in doing so, they’re espousing the notion that the metaverse can democratize everything. In this case, they’re democratizing investments in the metaverse by creating an ETF that anybody can invest in and reap the benefits of the metaverse.

“We wanted to create an ETF, an index that would allow the average individual or retail investor to invest alongside it,” Ball said. “If you put that in context, we all look back and we wish that in 1995, we had purchased Apple stock. But some people didn’t buy Apple. Some people bought Nokia or Samsung. And, in truth, if you had conviction in the mobile internet, in social networking in the internet at large e-commerce companies, purchasing any appropriately constructed diversified portfolio of company in the internet space would have provided extraordinary returns.”

Above: The GamesBeat Summit Next panel on the Metaverse ETF.

Image Credit: GamesBeat

He added, “And so we saw that as a market need for an index or ETF focused on the metaverse. But individually, we were fascinated with that fundamental question of how do you actually design a methodology that fulfills that? It’s one thing to say create a basket of metaverse companies. We can all rattle off some of them — Unity, Roblox, and Tencent. We’re trying to figure out how to design for that multi-decade transformation. That’s the fascinating intellectual question, the one that certainly required more than myself.”

Bloomberg recently estimated the metaverse’s market size at $800 billion, but with stocks like Nvidia in it, the value of the Metaverse ETF is likely in the trillions of dollars.

“I believe wholeheartedly that it’s the future iteration of the internet,” Navok said. “Everything I have been involved with for the last 15 years tells me that this is the direction that human interaction is moving. It’s going from simple multiplayer games to battle royales.”

Sweet said she was inspired by game developers and believes they will lead the way in the metaverse.

“They are the ones who lead the way in new formats and new ways for people to interact both with each other, and worlds they love,” Sweet said. “When I was working at Valve, we saw this in the early days of the Steam platform. In VR, with both Valve and Oculus, we saw game developers just invent these incredibly creative and inspiring new ways to interact. And so for me, the metaverse is an even bigger opportunity for game developers to lean in and define the future of how we’re all going to spend time together, which is just an incredibly exciting thing to be a part of.”

Sarwar saw the metaverse as an extension of gaming.

“I really thought it was an extension of where games are at,” Sarwar said. “We started with single player, and then you huddle around the TV and play multiplayer. Back in the day, we had our online games and now they are more social. I saw the metaverse as an extension of something where gaming becomes a little bit more real. You’re not just playing it, you’re participating in something. And it’s something that can become more than just a place to go to have fun.”

He added, “Games have a social use. It really is an extension of you in the digital world. And I think that’s pretty insane and could redefine digital entertainment in a big way.

Defining the metaverse

The Sandbox

Above: The Sandbox wants to build the metaverse.

Image Credit: The Sandbox

Ball said the metaverse is defined as the successor-state to today’s mobile internet, but which will involve countless interoperable and persistent virtual worlds, be richly integrated into the physical world as well, thereby creating a new medium and economy for work, leisure, and innovation.

In a somewhat sarcastic way, Take-Two Interactive CEO Strauss Zelnick has said that the metaverse is already here in the form of Grand Theft Auto Online, which is a virtual world where people can engage in any kind of mayhem.

While it seems early, Ball believes the metaverse will be participatory as a more user-centric version of the internet — something that hearkens back to the original internet.

“Some of these experiences have existed for quite some time,” Ball said. “One of the challenges with discussing the metaverse is that question of is it here? And if it’s not here, when is it? And anytime that you’re taking a look at different ways of technological change whether that was mainframe, personal computing, mobile computing, there is no clear before and after. People debate when exactly the internet existed. They usually say 40 years ago, but that is just having the capability to have internetworked networks.”

The Roundhill Ball Metaverse ETF is designed to offer investors exposure to the metaverse by tracking, before fees and expenses, the performance of the Ball Metaverse Index (“META Index”). The META Index is managed by Ball Metaverse Research Partners, a newly-formed indexing and research firm led by Ball.

“It’s very clear that compared to five years ago, social investment in virtual worlds, the capacity of these virtual worlds for highly social and concurrent user experiences is growing very rapidly,” Ball said. “We very much see this not just as a thing that can be for the average person in which allows the average person to economically benefit from this extraordinary growth. But which is very of this moment, in a way that was not true a year and a half ago.”

Ball believes the emergence of the metaverse will be transformative and valuable as the emergence of mobile internet and the fixed-line internet that preceded it. He believes it will touch every industry and profession, enlarging and/or disrupting today’s leaders, and leading to countless new companies and technologies.

“Frankly, when we started this conversation in November 2020, we sat around that same question. Is it too early for a Metaverse ETF?,” Ball said. “And then it just so happened that in June (2020), Epic did a capital raise and they said it explicitly for the metaverse. Earlier this year Roblox went public. Unity had their IPO. And then of course, we saw the Mark Zuckerberg and Microsoft announcements. It’s very clear that now is the time this for the product.”

The ETF required approval from the Securities & Exchange Commission, and it is on the New York Stock Exchange. Ball said the methodology is designed to be forward compatible, so if Epic Games goes public then it could be added as one of the stocks. But private companies aren’t part of the index.

It just means that in the game engine category, Unity picks up more of the slack because Epic Games isn’t public. Over time, the number of companies in the index will likely change. Each company is weighted in the index based on its importance and investment value. But the fund doesn’t exist purely to produce outstanding returns. It is meant to raise awareness of the metaverse opportunity.

Travis Scott's concert in Fortnite drew 27.7 million viewers.

Above: Travis Scott’s concert in Fortnite drew 27.7 million viewers. 2 million watched it on iOS.

Image Credit: Epic Games

The Expert Council created the index and licensed it and the name to Roundhill, which is a securities provider and registered investment adviser.

“We’ve seen individuals who believe firmly that the metaverse experiences about VR,” Ball said. “The crypto community in particular envisioned it as being based on Web 3. There are nomenclature differences around whether or not going to be a metaverse, a singular metaverse, or there are multiple different metaverses, like one from Facebook and so forth.”

One of the things that they have discussed is whether digital twins, where people take an existing car and put it in the metaverse, is a simulation technology that should be considered part of the metaverse.

“The definition of the metaverse now is probably one of the most up in the air and consistent things that we see,” Navok said. “I’ll say CEO being interviewed by your team refer to individual games as metaverses, or who say there’ll be many different metaverses that are fundamentally inconsistent with our definition of the next generation internet.”

He added, “We have to cut through the hype and the snake oil. If we don’t do that, I think we’re our jobs responsibly in trying to think about where the future of this next generation will go.”

Sweet said the social pillars are really important to the metaverse.

“One of the really interesting pieces is ‘What are the core pillars that metaverse experiences must have?’” Sweet said. “For me, it requires a true social connection and also the ability to express your identity and individuality. And so for me, when we were at Oculus working on all the variety of potential experiences that can exist in VR, the ones that really stuck out were the social ones where you were in a space together. And you for the first time had this just incredible, unique experience of connecting with someone who both wasn’t there and in many very important ways really was there.”

The ultimate metaverse essay

The seven sectors of the metaverse.

Above: The seven sectors of the metaverse.

Image Credit: Matthew Ball

In the meantime, Ball has written a large essay on the metaverse that Ball, who has written numerous essays on the metaverse, has been working on for quite some time. It’s going to be about 30,000 words and tries to explain what the metaverse is.

The META Index should provide investors with an efficient and comprehensive way to invest across all of the major categories and areas of the Metaverse, and proportional to their likely share of revenues. Specifically, the META Index was developed and will be maintained by an “expert council” whose backgrounds and specialized knowledge reflects the range of relevant sectors.

Other members of the group who didn’t participate in the panel include Jerry Heinz, vice president of engineering at ActZero; Jesse Walden, managing partner of Variant Fund; and Jonathan Glick, former head of product and tech at the New York Times Electronic Media Company.

META holdings include a wide range of companies that are part of the building blocks of the metaverse. They include graphics processing unit (GPU) companies like Nvidia; virtual platform providers, like Tencent and Roblox; cloud computing services, like Fastly; and gaming engines like Unity. It also has content and app creators.

If you look at the early internet in thee 1990s, many early internet companies were in hardware and networking. Now, some of the biggest companies are content companies, Ball said.

“These different constituent parts will wax and wane,” Ball said.

Part of the interesting discussion in deciding which stocks to include is all about defining the metaverse. Ball sees seven categories of companies in a kind of market map. These include:

  • hardware, computing, networking, virtual platforms
  • interchange tools and standards
  • payment services
  • content services and assets.

What can we predict?

Diving on what will later be the dam in 1984 Verdansk in Warzone.

Above: Diving on what will later be the dam in 1984 Verdansk in Warzone.

Image Credit: Activision

Some say that a virtual world or a simulation is not the same thing as a metaverse. Simulations and virtual worlds have been around for quite some time. Call of Duty: Warzone is a large virtual world, but it’s a standalone world that perhaps you could access from within a larger metaverse.

“People who are trying to sort of jump on that bandwagon and say, ‘I’m a Metaverse company’ versus ones that are really more critical,” Navok said. “Is this company really going to be part of it? We don’t buy into the hype so much as we look at the fundamentals of where they are today and where it can be years from now.

He added, “When you think about Facebook’s opportunity in the metaverse, there’s a lot of conversation on their virtual reality hardware and their interest in that space. But VR is not the metaverse. It is more like just one way of participating.”

Still, he noted, a lot of the fundamentals, like identification systems and other connective technologies, are there for Facebook to play a greater role in the metaverse.

The future of the metaverse looks a lot like the present of Roblox.

Above: The future of the metaverse looks a lot like the present of Roblox.

Image Credit: Meta, I guess

While this group of thinkers may like to think big, Sweet said that the metaverse remains hard to predict.

“I would go back to what I said at the beginning, which is that game developers are the very unique creative force,” Sweet said. “We saw this at Valve when we opened the gates to more types of games and more developers on Steam. We got genres of games that we never would have predicted, and they were all amazing. The same thing happened with VR. If you tried to guess, when the Rift launched, what the popular content would be five years later, we would have been wildly wrong. When we give them the time to game developers, the outcomes are always unexpected. What we should be doing is just waiting for creative, amazing game developers to do their best work.”

As for the future, Ball said a lot of other enabling companies aren’t listed here, and companies that haven’t been created yet are probably necessary to create the metaverse. Quantum computing probably fits in that category.

“Is there someone who will solve a technology problem in a way we truly don’t expect? Is there someone who will come up with an innovative solution to solve for core problems of the metaverse?” Ball said. “People start talking about if quantum computing will be required to address the more advanced visions of the metaverse. I’m not talking about 2025, but as you start getting into later this century, these technologies could be critical.”

In that sense, the job of the Metaverse ETF founders will probably never be done.

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