Investing in the metaverse: UBS’s analysis

UBS added the Metaverse to its list of long-term investments last month. 

UBS is Switzerland’s largest and most important bank, formed in 1998 by the merger of the Union of Swiss Banks and the Swiss Bank Corporation. But its roots go back to 1862, when the Bank of Winterthur was founded.

The bank recently made headlines for taking over the near-bankrupt Credit Suisse, further increasing its size and role as the undisputed leader in Switzerland. 

Indeed, Switzerland is the main European crypto hub, with Zug and Lugano the leading cities in the sector. On the other hand, UBS itself has been following this market for at least two years, when it began to explore what services it could offer in relation to cryptocurrencies.

UBS and the metaverse

On its official website, in the section dedicated to so-called “long-term investments”, UBS lists many different sectors. 

They range from robotics to big data, from the environment to energy efficiency, from fintech to genetics, from space to water scarcity. 

Not many of these sectors are specifically related to finance, with the exception of fintech, family businesses and partly the metaverse itself. 

In the visual one-pager on the metaverse, they write that they see it as a deeply immersive virtual experience that will have a broad impact on business. 

Among the industries that could use the metaverse, they obviously mention media and entertainment, which are already using it, but also advertising and even clothing. 

The paper also explicitly mentions cryptocurrencies, noting that, according to Bloomberg, token-based transactions will reach $10 billion in 2022 and are expected to continue growing at a compound annual rate of 35 percent until at least 2030. 

This trend, they say, is being driven by mass adoption of cryptocurrencies and digital wallets, particularly among younger people.

Investing in the metaverse

According to UBS analysts, the metaverse could take at least a decade to fully materialise, during which time iterative improvements in the underlying infrastructure and artificial intelligence are likely. 

This would not, therefore, be a sector capable of generating returns on investment in the short term, and perhaps not even in the medium term. 

On the contrary, they claim that the sector will benefit from positive secular trends in the medium and long term, which should lead to above-average earnings growth over the next decade.

It should be noted that one of the strengths of the metaverse cited by UBS is the fact that it is blockchain-based. 

Indeed, they point out that blockchain can provide portability for digital objects and identities, and could even serve as a single record of truth if combined with interoperable standards for tracking digital purchases.

The Metaverse

The UBS metaverse analysis paper explicitly mentions a number of metaverses, namely Decentraland, The Sandbox, Cryptovoxels and Somnium. Decentraland, in particular, is mentioned several times, not least because it involves some well-known historical brands from the world of physics and finance. 

However, it should be mentioned that the current market value of Decentraland’s MANA token is 90 per cent below its all-time high in November 2021. 

MANA has been around since 2017, and apart from a brief period during the bubble in early 2018, its price had never been higher than $0.1 before the last major bull run. 

However, it is currently trading at $0.5, more than five times higher than three years ago. By 2021, however, it will have reached almost $6, more than ten times its current level. 

So in the long term, its performance looks good, while in the short term it depends very much on the general trend of the crypto markets. 

The UBS document also mentions about fifty companies that are somehow connected or related to the metaverse, including Apple, Alphabet (formerly Google), Meta (formerly Facebook), Microsoft, but also Netflix, Nvidia, Samsung, Siemens, Sony, Spotify, Xerox and many others that seem to have nothing directly to do with this world yet. 

Conclusions

In the conclusions of the analysis paper, UBS writes that it is still very early days for the metaverse, which makes it difficult to correctly identify real investment opportunities. This explains, for example, why they mention some of the related companies that seem to have nothing to do with the technology. 

They reiterate that the full realisation of the metaverse could take up to a decade, but reveal that they believe that the next five years could see a significant increase in investment in infrastructure, platforms and enabling technologies for the metaverse.

They also point out that the younger population is becoming an increasingly large part of the consumer base, and they are digital natives who have grown up in a world where technology is ubiquitous.

So when all the groundwork is really laid, more engaging experiences will emerge to capture the attention of consumers. As the digital native population grows, the adoption of the metaverse will increase.