ProShares Files For A Metaverse ETF – Is The Metaverse Going Mainstream?

Many savvy investors still don’t fully understand what the Metaverse really means, but its impact on the crypto world and NFTs is undeniable. Now ProShares has filed for a Metaverse ETF, new games are throwing their hats into the “play-to-earn” arena, and Facebook’s re-brand to “Meta” is still fresh. What does it all mean for investors?

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Show Highlights

ProShares Files for Metaverse ETF: “ProShares, which launched the first US-listed bitcoin ETF in October, has filed with the SEC to list a metaverse-themed ETF that would track the performance of the Solactive Metaverse Theme Index.” (Blockworks)

What Is the Metaverse, Exactly?: “Mentally replace the phrase “the metaverse” in a sentence with “cyberspace.” Ninety percent of the time, the meaning won’t substantially change.” (Wired)

People in the Philippines are earning cryptocurrency during the pandemic by playing a video game: “What matters is having money so we can eat, avoid debts and get through every day. It [Axie Infinity] sustained our daily needs, paid our bills, and debts,” said a mother of three in the documentary. “I was thankful to Axie because somehow it helped us.” (CNBC)

Thetan Arena Battles Axie Infinity in ‘Play-to-Earn’: “Thetan Arena, a new video game fueled by cryptocurrency, claims to have quickly amassed over twice as many users as Axie Infinity, the digital-asset darling that leapt to a dominant market position earlier this year in the “play-to-earn” sector.” (Coindesk) Also: Axie Infinity price risks further fall as active users drop 70% from peak (FXStreet)

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Cryptogic is THE show for crypto investors who are focused on long term results. Follow Scott Hawksworth and Andy Hagans as they explore the investable world of blockchain technology, NFTs, Bitcoin, Ethereum, and other cryptocurrencies.

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Transcript

Scott: Hello. Scott Hawksworth here, and welcome to another episode of Cryptogic. We are closing out 2021 and getting ready to head into 2022 and there’s a lot to talk about. And on today’s show, we’re going to be talking about the metaverse. And I’m, once again, joined by Andy Hagans, co-founder of Cryptogic, co-founder of the Alternative Investment Database.

Andy, welcome once again to the show.

Andy: Thanks for having me, Scott. Let’s talk some metaverse.

Scott: Yeah, let’s talk some metaverse indeed because, you know, it’s really interesting, ProShares recently filed for a Metaverse ETF and there’s a lot of interesting implications there and things to discuss, but I think, Andy, before I kind of get your take on that, want to make sure we’re all on the same page because I think there’s this big question that… whether you’re an investor or just someone who’s casually interested in the metaverse, what really is the metaverse?

What does that even mean? And how does that connect to everything from cryptocurrency to NFTs, to, you know, technology itself and the technological advances from many of the biggest tech companies out there? So basically, I read this article on “Wired” that was really interesting and it was kind of diving into this question and attempting to say, “Okay, well, what is the metaverse?”

And really, the metaverse is everything. It’s akin to asking, you know, back in the ’90s, what is the internet? And it’s really everything, when you think about not just within an online game, not just, you know, a webpage, but augmented reality, what is, you know, our social media, text messaging, all of this could be considered the metaverse.

So a lot of people might think, “Well, wait, the metaverse then, is that like a virtual reality game?” Well, that would be like saying that Google is the internet. It’s on the internet, it’s part of the internet, but the internet is so much larger than that. So I think that when we talk about the metaverse and we’re going to be talking about an ETF that’s built on this as well, you have to think about what you’re really meaning and it’s everything.

And I think that’s why there’s so much excitement with the metaverse, but we’re also in these really early, early stages. So depending on who you talk to…

Andy: Scott, sorry to interject. I think now, I’m even more confused about what the metaverse is.

Scott: It’s everything.

Andy: So, is it just the internet?

Scott: Essentially, yeah. It is the next iteration of all of our technologies, be it communication, be it gaming, be it augmented reality brought together and this idea that you could move through the metaverse with your avatar, and okay, I’m now on my social media communicating, now I’m in my favorite online game in this different world and maybe I’m walking down the street and I’m kind of seeing an augmented reality, whether I’m using something like a Google Glass, though that didn’t really work out, or something else, that this is all interconnected.

And it’s something that Mr. Mark Zuckerberg is really betting on with Facebook’s rebrand into Meta because that’s what they want it to be. They want to be a part of everything that you’re doing in this virtual world. So that’s kind of what it is. Yeah.

Andy: Yeah. I mean, it’s… Well, you know, based on what you said, some of these ideas of Web 3.0 in the metaverse of sort of taking your avatar with you into different apps, into different websites, different games, I think that that’s one conception or maybe idealistic dream of what the metaverse will be. And so I feel like, you know, those sort of idealists, we’re out there looking for pennies on the train track and here comes a locomotive called Facebook or called Google or called, you know, any of these behemoth technology companies, I got news for you, they don’t want you to own your data.

They don’t want you to take your data or your avatar with you off of their platform and go onto another platform and use it there. They want to own you. They want own your avatar. They want to own your data. They want to keep you in their ecosystem where they can make a maximum amount of revenue off of you as their product as possible.

So it seems to me that, you know, what the metaverse is, it’s still sort of being hashed out and a lot of the, you know, ideals behind Web 3.0, certainly, some of them are already coming to fruition in a variety of ways, but they’re definitely clashing with Web 2.0 with these major technology companies, these Googles, and Facebooks, and Twitters which are highly centralized which frankly want to control and censor information, as we’ve seen during the pandemic and during this preceding election.

And so I just really have a lot of questions about, you know, this sort of idealistic dream of the metaverse, how that’s going to, you know, interact with Mark Zuckerberg’s, or Twitter’s, or Google’s conception of the metaverse because they don’t seem to be complementary to me at all. It seems to me that those different ideas would clash quite a bit.

Scott: Right. And I mean, I think connected to that, you were talking about how, you know, it’s very centralized, you know, Facebook or Meta, is their concept of the metaverse is going to be, you know, controlled by them, built around their technologies and trying to keep people in their metaverse, their ideal of it and not necessarily going over to one of their competitors, going over to, you know, whatever Google has developed, that’s not their ideal.

And so then when you connect it to an ETF, like the one that ProShares has filed for, you kind of have this, you know…in that ETF, there’s Nvidia, there’s Facebook or Meta, there’s all these different companies that are kind of building the pipes for what the metaverse could be, but then the question, and I think you really pointed it out, Andy, is, well, they’re building these pipes, are they going to then all come together and sing Kumbaya and say, “Okay, great. We solved it. We developed this great platform, go ahead and let’s share it with all the other companies and so people can move freely and it’s all great and we have this technology shared.”

Is that really going to happen?

Andy: Yeah. You know, it’s funny. I was listening to “On the Margin,” one of the Blockworks podcasts, the other day, and they kind of made the point that there’s this ebb and flow between centralization and decentralization, right? And part of this ideal idea of Web 2.0 was that, well, we don’t need these newspapers, major media companies like New York Times, Wall Street Journal, CNN, whatever, controlling the flow of information.

We’re going to hand that power to the users where they can blog and they can tweet and they can post on Facebook and it’s going to be this user-generated content where everyone has a voice and then lo and behold… You know, in the past two years, we’ve seen how much censorship there is and manipulation there is on these major platforms and they’re becoming more and more of these closed ecosystems that throw their weight around.

They can cancel or ban users from their platforms. I mean, we…

Scott: Right, deplatform order.

Andy: I could be canceled or de-platformed for saying what I’m saying right now, right? So it’s just ironic to me that there’s this ebb and flow and we’re now at a point to where these platforms are highly centralized again. And again, to me, they really rub against the ethos of crypto and blockchain and Defi and all of this decentralization.

So it’s kind of interesting to me how there’s these like mini-cycles with internet technologies, how we centralize, and then we say, “No, we want to decentralize again.” And then, you know, in come the VCs, in come the major platforms. And, you know, I’m old enough to remember when Microsoft Windows and Bill Gates were sort of the evil empire, wanting to keep everybody on their closed ecosystem, and now, of course, it’s Meta, you know, or Google, or Apple, or whoever.

So I don’t know, you know, who wins out, but again, I just want to point out that these companies in this ETF, you know, your Apple, or your Google, or your Facebook, they’re not interested in decentralizing power in revenue and letting users own all their data and their avatar to take it anywhere they want.

So, to me, it really remains to be seen how that’s going to play out and what kind of Web 3.0 we’re going to have. And wasn’t that Jack Dorsey’s…basically his point?

Scott: That was his point in that episode that we had, you know, a week or so ago, we were talking about that very thing. That was his point was, you know, Web 3.0 is already being owned by, you know, in large part, by venture capitalists. And so this kind of ideal that like yep, it’s going to be all, you know… there’s going to be no centralized control, it’s going to be this amazing thing, like that is just not… That’s not…

Andy: A sucker is born. A sucker is born every minute. You know, and I really find the whole Meta thing… I’m sorry, if I could just go on a little mini ramt here.

Scott: Please.

Andy: Well, I think there’s a lot of people like me. I’m not interested in spending more time on Facebook. I’m interested in spending less time in Facebook. I’m not interested in spending more time in the virtual world. I’m interested in spending less time in the virtual world. So this idea that we’re all really excited to go spend our tokens on an e-wardrobe in Facebook’s virtual world…

I mean, to me, that’s just… I’ll tell you what, maybe it succeeds, but if it does, it’s not going to involve me. I have zero interest in being in Facebook’s metaverse and buying virtual clothing or whatever the heck their monetization plan is.

Scott: Well, Andy, I think kind of to that point, from the investor perspective then, kind of dialing it out, when we talk about the metaverse, we have these technology companies that are publicly traded that are investing heavily in this, then you have sort of the other side where you have cryptocurrencies, you have NFTs which, really, a ton of the passion around NFTs is the idea of owning this digital asset, an NFT of a Picasso on the metaverse, in the metaverse rather.

What’s your take from an investor perspective potentially on these really new technologies and this concept of a metaverse that really hasn’t even been fully fleshed out?

Andy: Well, you know, that’s an interesting question. I would say, you know, the more hate that NFTs get, to me, is almost a bullish signal. Like they seem to drive some people crazy that people would buy digital artwork, but I think also, you know, the digital artwork is just one use case of NFTs.

And what I am a big believer in is just the inherent efficiency of the technology. So you know what, maybe there is a bubble, or maybe there will be a bubble and maybe that bubble will burst, kind of like how there was an internet bubble that, you know, bursted 20 years ago. But then what happened after that?

The underlying technology still led to massive productivity gains, this massive new ecosystem, you know, so many billion-dollar companies that sprang out of that ecosystem. So in the long run, I’m definitely emboldened, doesn’t mean that, you know, we might not get overheated in certain areas, of course. But another thing that I think is kind of interesting is that all of this is being framed as something brand new but it’s not clear to me that, you know, Meta or the vision of that is really inherently that different from Second Life, which…how old is Second Life?

That has to be close to 20 years old, right?

Scott: Yeah, at this point. Yeah.

Andy: So it’s not clear to me that it’s really anything totally new. It’s just sort of a reframing of where the internet, where virtual reality, where tokenization is going and it’s kind of like a buzzword. And I think that “Wired” article that you sent me mentioned that cyberspace, which is like kind of this buzzword that was really popular at the beginning of the internet, you know, like the first 5 to 7 years, and now we sort of laugh about it., and I wonder if, in 10, 15 years, you know, we’ll be using all of these things, whether we’re talking about augmented reality, or tokenization, or, you know, a lot more blockchain, like, of course, we’ll be using those things, but we might sort of laugh at the concept of metaverse in hindsight.

I could be wrong. I don’t know. Does that make me a hater, Scott?

Scott: I mean, it makes you a skeptic, but I think that’s okay and I think that’s warranted. I mean, when we talk about some of these technologies, and earlier I mentioned Google Glass, you know, these things are developed and yeah, there’s a lot of excitement about their potential, but then there’s this huge piece of, well, what are humans, consumers, what have you, what are they going to actually do?

How are people going to change their lives and behavior? You know, Andy, you were just saying like, “Hey, I just…I’m not going to go onto Mark Zuckerberg’s Meta and buy some digital shirts. Like, that’s just not how I’m going to orient my life.” And so a lot of people, whether it’s Google Glass, or I had a friend who recently, for Christmas, she got new Ray-Bans that were like smart glasses and they have this whole thing where you can take photos with your glasses.

And so she got it, she wore them around, and she realized, “Well, this is just kind of odd, like leaning in and looking at and taking a… Like I’d rather take my camera or my phone and do that.” So there’s this almost disconnect that can happen when we talk about the excitement for a metaverse and what may actually come to pass.

So that really ties into what you were saying. And so I think some skepticism is warranted. I kind of want to tie it too to what we’ve seen about this play-to-earn model that is blowing up in the gaming world, specifically with Axie Infinity and what we saw there. And, you know, I’ve got this article here that, you know, through the pandemic, you know, people in the Philippines were earning cryptocurrency and they were playing a video game.

And so from the crypto perspective, a lot of excitement, “Wow, this is the new way of gamification, this is going to really revolutionize things.” But then, you know, on the flip side, looking recently, and I’ll just pull this up just so folks can kind of see what I’m talking about here, Axie Infinity price risks have further fallen as active users have dropped 70% from that peak.

So there’s also these sort of hype cycles that I think happen with these technologies where this is the thing, this is going to solve it, and are the users going to remain? Is the technology going to truly take hold in the form that you first heard about it in? I don’t know necessarily.

I’m curious to hear your thoughts on that.

Andy: Well, you know, that’s so interesting. What really comes to mind is pets.com, right, Which is sort of the poster child of the internet bust. But what am I doing in 2021? I’m buying dog food on chewy.com. So, you know, that vision of, “Hey, we’re going to be selling pet food over the internet,” was spot on.

It’s just the timing was probably way early, the economics, you know, they hadn’t quite figured out those economics yet like…

Scott: Right. And execution may have been off slightly, ever, right?

Andy: Yeah. And also we needed the infrastructure of distribution 7uhjcenters, you know, that Amazon, FedEx, some of these companies have built to sort of make the economics of delivering heavy things like big boxes of big bags of dog food. So it was just early, but it was, you know, directionally correct. And honestly, almost everything that we’ve mentioned so far on the show, I would say, yeah, that’s directionally correct.

It may be early and there may be some sort of boom and bust, like you said, it’s like a mini hype cycle, but I think that all of those trends have staying power. Like let’s talk about the gaming. I think that’s a really interesting concept that you would get paid to play a game.

Scott: Right. You can earn money.

Andy: Well, you think about media and gaming and it’s you pay to play. Right? But if you flip it on its head, when you realize you are Google’s product, you are Facebook’s product, you are Twitter’s product, it sort of makes sense that your attention and your participation in that ecosystem is actually worth something, right? And why wouldn’t you get compensated for that?

So, for me, that’s actually a really big use case for Web 3.0 and frankly, like a lot of really cool technologies or apps that we love like Discord, those were born out of gaming. So I actually think that if you want to look where this stuff is going, the stuff that’s happening in gaming maybe is the best that, you know, canary in the coal mine, sort of, signal leading indicator.

And I think, you know, you mentioned that this game is down from its peak users. Well, this game may stink. Like it may not be that fun to play, right? But at some point, somebody’s going to publish a game that is really fun to play that has more staying power, whether it’s a World of Warcraft, League of Legends, Second Life, Minecraft, whatever the heck the kids are playing these days, you know, where there’s going to be a token or a cryptocurrency that’s supported by the game that, you know, users get the token airdropped to them.

And I could see that being massive. Now, which game is it going to be and when exactly is it going to happen? I don’t know. But to me, Scott, that game is not a nothing burger at all and I think that a lot of, you know, VC funds and, you know, institutional investors are probably looking at that and going, “Wow. This is probably a really good sneaky way to get a cryptocurrency off the ground.”

Right? I mean, think about all of the hype cycles that we have where people launch their tokens, right? Now, think about putting a game behind it, if it was actually a good game and, you know, doing airdrops of tokens or paying people to participate in the game, you could definitely see that be a major factor in crypto ecosystems going forward.

Scott: Yeah. And just jumping in, I just pulled this up, you know, “Thetan Arena Battles Axie Infinity in Play-to-Earn.” So there are other games now that have seen the potential here and are being developed. So, you know, cat’s out of the bag for that.

And when you talk about gaming too, I want to kind of turn it back to NFTs because I think there’s still a lot of skepticism about, “Well, why would I want to own a digital copy of a piece of art? How does this make sense?” And, you know, full disclosure, I’m a gamer. I’ve been a gamer since, you know, I got a Nintendo when I was seven and I’ve played MMOs and I’ve played some of these games where you have gear, you have fancy unique items.

We all know there’s the microtransactions, the rise of that and wanting special skins and things of that at nature. There is a kind of tying it all to maybe the truth and the thesis that underlies everything even if, right now, the technology isn’t quite there or it hasn’t been solved, kind of what you were talking about with Chewy versus pets.com.

People like status. People like to have, you know, elite products or something to show off, whether it’s a skin, a piece of art, or you’re playing some game and you have the fanciest weapon, those things are true and people really enjoy that and they want to stand in the capital city of whatever the MMO is and show their shiny armor and say, “Look at me. Look at how I’ve beat this game and what I’m doing here.”

And I think that’s one of the big, big theses of the metaverse itself and how NFTs might have a role to play in that because, hey, if you have that NFT of that Picasso, you know, you can say, “Hey, come on over to my virtual metaverse mansion here and check out all the cool stuff I have.” That’s where I do think there is that status and that’s just very natural to human behavior, whether it’s in the real world, “Hey, look at my new Tesla” or in a virtual world.

Andy: No, you’re right. I mean, and that’s been one of the big psychological drivers behind adoption of crypto is people see the run-up and they see that early adopters made a lot of money, and what do human beings like? Well, they like money, right?

So that always attracts new entrants into crypto after a big bull run. And then what else do human beings like? What do they like even more than money? Status. I think you hit the nail on the head. And so a lot of these blockchain technologies are using status, you know, that element of human nature, to grow their user bases and to get adoption.

And I mean, that’s why I’d be a long-run bull on NFTs and on the metaverse. But again, in the case of the metaverse, I don’t know exactly how it’s all going to shake out, whether it’s going to be something that’s owned by these closed ecosystem, giant mega-corporations, or if it’ll be more distributed and decentralized.

And, you know, quite frankly, it might be a mix of both of those things. And we may not be using the word metaverse. And it’s my belief, in 5 or 10 years, we may not be using that word, but we will be utilizing those underlying technologies and concepts in the way that we use the internet, the way that we use cyberspace.

Scott: Right. It’s early days. We are in these early days. And there’s even arguments, when we talk about the metaverse, like are we even at the pets.com era of the internet yet or are we even before that? And so I think the caution for investors is, “Hey, there is so much potential here.” Long run, absolutely be bullish on this because I don’t think that this is going away.

These are not flash-in-the-pan technologies, but it hasn’t all been sorted out yet. And you could have a Chewy or you could have a pets.com, or you could be… The Chewy hasn’t arrived yet in terms of the metaverse, to kind of keep that analogy going, and you maybe need to just wait and see what shakes out, right?

And…

Andy: Yeah. You know, Scott, it kind of reminds me, I got the Apple Watch 3, and then I was like, “Nah, I don’t like this.” And then I think I got like the 6 and I was like, “This thing is still too thick.” So I’m going to try again in like 10 years and get like the Apple Watch 23 or whatever and by then, maybe I’ll feel like this is worth putting this thing on my wrist.

And I feel the same way about those glasses, you know, those augmented reality goggles or whatever they’re called.

Scott: Right, yeah.

Andy: I’ll probably, you know, get a pair in another five years when the technology is a little better, when they’re a little less clunky and a little more comfortable or whatever. So, I mean, I think a lot of these things just are not quite good enough that they really make the case for mass adoption. But they’ll get there eventually, you know, and maybe I’ll eat my words. Maybe in five years, we’ll be having a virtual lunch in the Facebook cafe and paying 10 real dollars.

Scott: Zuckerberg. His avatar will. And say, “I told you so, Andy.” But, you know, to kind of put a bookend on that too, I’m thinking about just this concept of adoption and how individuals have their different paces and you have your early adopters, you have people who, you know, are slow to change.

I’m even like that in a lot of ways. I remember I had such a pushback on the idea of streaming my music. I was all in the Steve Jobs camp of, “No, I want to pay 99 cents for a digital song and then I own it and it’s in my library, and I’m never going to do this pay a subscription for a streaming service.” Well, I held off for years, and then finally, Spotify got me and now, I’m a Spotify guy and that’s how I get all my music.

So that shows you where the technology was there but then there’s also that behavioral component to when enough people are in that metaverse and they’re showing off their NFTs and they’re using…they’re going out to the cafe with their augmented reality glasses or whatever wearable they might have.

Yeah, enough people are going to be doing that that eventually, all the other folks will start to come along.

Andy: Yeah, you know, and it might take me another five years to get the wearable, but I really have an itch for a Bored Ape NFT. So, you know, there’s some things that, you know, I’m willing to adopt a little bit more quickly. Now, I know the prices are up on the Bored Ape so maybe I can’t afford one, but, you know, they’re cool. You got to admit, Scott, they’re cool.

Scott: They’re pretty cool. And I think really…

Andy: What are they up to right now? What are they, 50 Eth?

Scott: Is that what they are now? So, Andy, thank you for joining me again today. It’s going to be interesting to see where all this metaverse goes. And I’m curious to your prediction… We’re going to have to do a follow-up show five years from now, and is metaverse still even a thing, are we even calling it that, or is it something completely different?

Andy: Yeah. And is Meta still known as Meta?

Scott: Right. We’ll see. They may be rebranded again because they’re like, “Oh, wait. Too many grandmas on the platform. We got to reach the kids.” All right. Thanks again, Andy.

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Scott Hawksworth

Hailing from Evanston, Illinois, Scott is co-founder of Cryptogic as well as host of the several popular crypto podcasts. Scott believes that cryptocurrencies and NFTs represent a once-in-a-generation opportunity for investors of all types to participate in the future of decentralized networks.