Threebody Capital: The Metaverse Bubble
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Threebody Capital: The Metaverse Bubble
Everyone wants to be a metaverse company, and big numbers are emerging: the metaverse could even be a multi-trillion-dollar opportunity, with sell-side research firms of all shapes and sizes now jumping on the narrative bandwagon.
Navigating Web3 tides with focused insightsOver two years ago, in our piece “The Next Phase of Gaming,” we first wrote about how games were being elevated into more immersive experiences. A year after that, we used the term "metaverse" for the first time and outlined several emerging opportunities we were watching.
Of course, much has changed since we wrote those notes. At one point, we believed Tencent was among the leading companies shaping the metaverse—though this may still be true despite current appearances. Throughout this period, for those paying close attention, momentum around the metaverse has been building rapidly. On one hand, companies like Roblox, Fortnite, and Minecraft are building their own versions of the metaverse within walled gardens. On the other, in the world of cryptocurrency, projects such as Axie Infinity, Decentraland, and The Sandbox are charting an alternative path—just to name a few.
This week, the ideological divide became even clearer as the Winklevoss twins raised $400 million to build a metaverse outside Facebook’s (now Meta’s) walled garden. Details remain scarce, but it will be interesting to see what they ultimately deliver.
As these digital nations take shape and opinions form around how they should be governed and how assets within them should be valued—especially when everything is intangible—users are flooding into these ecosystems seeking both entertainment and employment, particularly in emerging markets.
Thus, we now find that "metaverse" has moved from an exotic niche into mainstream vocabulary. Everyone wants to be a metaverse company, and big numbers are starting to appear: the metaverse could even represent a multi-trillion-dollar opportunity, prompting sell-side research firms of all shapes and sizes to jump on the narrative bandwagon.
What we wrote last week about Axie Infinity applies broadly to the metaverse—and this is just the beginning.
Pulling the Future Into the Present
Let’s face it: we’re staring at a potentially inflating bubble. While other markets shudder at the thought of runaway inflation, potential interest rate hikes, and the complete unraveling of one of the longest uninterrupted bull runs in history, select pockets continue to surge with intense enthusiasm—united by their shared focus on being “metaverse” games.
Contrary to popular belief, bubbles aren’t all bad. While near-term irrational exuberance often leads experts (and analysts) to make wildly aggressive forward-looking projections that prove unjustified in the short run, the underlying trends they identify can endure and accelerate over the long term.
George Soros’ famous quote about bubbles comes to mind: “When I see a bubble forming, I rush in to buy, adding fuel to the fire. That is not irrational.”
This indeed is a bubble.
Bubbles suspend disbelief, allowing human irrationality to push capital forward into the present to fund projects that would otherwise seem impractical from a capital allocation standpoint—a phenomenon aided in recent years by low-to-zero interest rate environments.
Everyone wants a piece of the action: some players are genuine leaders in the space, while others are imposters leveraging tenuous connections to position themselves as metaverse participants.
As always, caution remains key to survival.
From All Angles
One notable point: we’re witnessing a bubble forming simultaneously across two previously unrelated asset classes—equities and cryptocurrencies.
As we’ve argued for quite some time, these "asset class" labels don’t matter much to us when identifying interesting opportunities. Yet what matters to others matters to us too—and labels carry significant weight in broader markets—very significant.
In equities, names like Nvidia and Roblox are stealing the spotlight. In crypto, projects like The Sandbox and Decentraland dominate attention charts. And this is happening against a backdrop of weakness in broader tech stocks and cryptocurrency markets. How fragmented is this?
At a fundamental level, this isn’t surprising: equities have long shown thematic fragmentation, while in crypto, where capital flows traditionally had to go through "base layers" like BTC or ETH, traders (or investors) can now simply use their credit cards to directly enter any token they desire. Rightly or wrongly, not all roads lead to BTC or ETH anymore. Fragmentation exists. Liquidity dynamics have shifted.
Of course, the core narratives behind these trends remain unchanged—as seen in Nvidia’s conference presentations and recent results, their tools ready for the metaverse (or in their words, the "Omniverse," because ultimately it’s part of a much bigger story) are already available.
Having the right tools is a great start, but there’s still much work ahead.
We believe creators and designers worldwide are eager to get their hands on these new toolkits and business models, but building takes time: experimentation, failure, improvement, and iteration.
We won’t shy away from the looming bubble—it’s a great chance to make big money. But the harsh reality is that bubbles burst, so let’s enjoy it while it lasts.
And many years later, once the initial irrational promises truly materialize, even this bubble might look like a drop in the ocean.
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