Q9 Markets: Banking on the Metaverse
18th March 2022
Q9 Capital: www.q9capital.com
- EU votes not to ban PoW, Fed approves 1st interest rate hike
- Aave rallies 34% on v3 launch
- HSBC enters the metaverse, buys land in The Sandbox
Crypto markets responded positively this week to the Fed approving its first interest rate increase in more than three years, and the EU voting not to ban proof-of-work cryptocurrencies. BTC and ETH rallied 3.8% and 7.9%, with most other digital assets also posting positive gains, bringing the total market cap of crypto to above $1.8tn.
The Fed will bring interest rates into a range of 0.25%-0.5% to address spiralling inflation without torpedoing economic growth. The central bank pencilled in increases at each of the six remaining meetings this year, pointing to a consensus funds rate of 1.9% by year’s end.
Federal Funds Effective Rate
The EU voted on Monday to advance a version of the Markets in Crypto Assets bill (or MiCA) and omitted language that would have effectively banned proof-of-work (PoW) based cryptocurrencies. The initial draft had included explicit language that would have banned BTC and other proof-of-work-based digital currencies due to energy consumption concerns. This framework will also make it easier for crypto firms to expand within the EU’s 27-member states.
AAVEing a Blast
AAVE, one of the largest lending platforms in DeFi took a giant step forward with the launch of its Version 3 product which will feature a range of new functionalities and mechanisms designed to improve user experience, risk management and capital efficiency. The token rallied 34% on the news.
Aave is currently the second largest lender with over $11bn in total value locked (TVL), trailing only the Terra blockchain-based Anchor with over $13bn.
HSBC Enters the Metaverse
HSBC has joined JP Morgan in betting on a metaverse future. This is big news considering the HK based bank has been incredibly anti-crypto until recently. The press release says the bank will be buying a plot of land in Sandbox and centre it around sports, e-sports, and gaming.
After the announcement the platform’s native cryptocurrency, SAND, jumped more than 13% to finish the week at $3.21. Other metaverse tokens MANA, GALA, ENJ and AXS were all dragged up by the news, posting positive weekly gains.
HSBC’s move to buy digital real estate comes hot on the heels of JPM’s venture into the metaverse last month. The American banking giant created a lounge in rival metaverse world, Decentraland (MANA), featuring a spiral staircase, a “live” tiger, and an illuminated picture of CEO Jamie Dimon.
Major players are now predicting big bucks to be made inside the Metaverse. JPM wrote in a report last month that it represents a $1tn market opportunity in the coming years. Goldman Sachs said in January that the metaverse could be more like an $8tn opportunity. Morgan Stanley followed up in February by saying the metaverse would be worth $8tn in China alone.
So far, HSBC and JPMorgan are the only major banks that have announced digital real estate outposts in the metaverse. Each has chosen two different platforms, with different strengths.
HSBC joins over 200 existing partnerships including Gucci, Warner Music Group, Ubisoft, The Walking Dead, Snoop Dogg, Adidas, Deadmau5, Steve Aoki and The Smurfs, all following the Sandbox’s vision of empowering players to create their own experiences using both original and well-known characters and worlds.
While the Sandbox is more games-focused, Decentraland is more focused on experiences and socialising. The major difference, though, is that Decentraland is up and running, whereas the Sandbox is still beta testing and rolling out updates and developments.
Going to Market in the Metaverse
This is a fantastic blog post by Andreessen Horowitz about Go-to-Market strategy in Web3 and the Metaverse and is worth a read considering the sheer volume of news of different firms getting involved.
It highlights brand new techniques and tactics to acquire customers, create network effects, incentivize use, and convince customers to spend their money, time, and attention on new products and service in a brand-new digital realm.
With so many companies now piling in to the metaverse (whatever that actually is) each has to figure out a strategy that differs to that of Web2. Web2 was all about investing significantly in sales and marketing teams and focuses on lead gen and acquiring and retaining customers.
Web3 completely changes the entire idea of GTM for companies. While some traditional customer acquisition frameworks are still relevant, the introduction of tokens, NFTs, airdrops, decentralised marketplaces and novel organisational structures such as DAOs requires a variety of new go-to-market approaches such as using tokens to bring in early users, who can then be rewarded for their early contributions when network effects weren’t yet obvious or started.
Mark Zuckerberg confirmed rumours at SXSW this week that Instagram will get into the NFT game, but he didn’t go into detail on how this will look and admitted there is still work to do before that can happen.
We’re seeing this across every industry now. Everybody’s rushing in to stake their claim as the potential is enormous. A get in now figure it out later approach. Nobody really knows how its all going to play out. New business models, methods, techniques and strategies will emerge along the way and there will be winners and losers. The important thing is that its beginning — and at breakneck pace. Its going to be incredibly exciting to see how go to market strategies evolve and innovate over the next few years.
Our Auto-Invest basket of diversified Metaverse tokens (launching next week — so keep an eye out) performed 467% over the last year. That’s almost a 5X return on investment. But today these tokens still only represent 0.7% of the total market cap of crypto’s overall $1.8tn value. If the metaverse truly does becomes a thing and corporates and celebrities continue to rush in then these relative values will have to catch up. There’s still a lot of room to grow.
In the News…
- South Korea’s incoming president vows big cryptocurrency push
- Russians liquidating crypto in the UAE as they seek safe havens
- Edward Snowden discusses Bitcoin’s lack of privacy
- Kazakhstan shuts down over 100 crypto mining farms
- El Salvador’s president launching Bitcoin ‘volcano bond’
- Not everyone wants NFTs to be the future of gaming
- US creates new crypto task force to choke flow of Russian billionaires’ money
- Elon Musk confirms he won’t sell crypto
- American Express files trademark applications for metaverse and NFT logos
Legacy Markets
Oil futures dropped -3.95% while the SPX rallied +3.6% week-on-week. 10-year US treasury yields climbed 17bps, the US Dollar index rose +0.1% and the Gold and Silver index fell -2.3%.
Crypto Markets
- BTC and ETH rallied posting gains of 3.8% and 7.9% respectively. The total market cap of crypto crossed $1.8tln and Bitcoin’s dominance stayed north of 42%
- SOL advanced +6% from last week’s levels, AAVE was the outperformer this week among large cap DeFi names with a 30.8% rally
- Annualized realised volatility in crypto was broadly unchanged vs the previous week: 66% for BTC and 81% for ETH
Flows
- Client activity dominated by sellers (10x sellers vs buyers) but on muted volumes
- Net sellers in BTC, ETH and SUSHI
- Mild buying activity in SOL and AXS
Q9 Capital: www.q9capital.com
