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Crypto Weekly

The ostentatious billionaires of today have the resources (and the inventiveness) to realize their favorite science fiction ideas. Through the pandemic, technology accelerated, thrusting us into a futuristic economic environment where anything is possible, even a virtual universe that fits in the palm of your hand. The metaverse is a network of digitally rendered 3D worlds where users can interact virtually. Those who have seen movies like Ready Player One or Avatar have some idea of this digital technology. The metaverse's implementation is perfectly positioned for the digitally-fueled post-pandemic economy where remote and mobile interactions are becoming the norm. Uses of the metaverse are much more extensive than most people realize, with functionality that ranges from gaming & pure social interactions to a virtual workplace predicated on productive remote collaboration.

Daniel Laboe

The Metaverse's Creator

The metaverse was initially coined in 1992 by renowned author Neal Stephenson, known for his work in speculative fiction and making some of his ostensibly visionary speculations come to fruition. Stephenson's revolutionary work with futuristic ideas explores mathematics, physics, cryptography, and many other fundamentally sound concepts that have piqued the interest of some very influential Silicon Valley magnates.

Stephenson has influenced some of the most influential technologists of the world, including Bill Gates, Peter Theil, John Carmack (the original developer of the Oculus VR), and Jeff Bezos hired Stephenson to work for Blue Origin seven years in the early 2000s. Stephenson's hypothetical theories

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of digital currencies (Cryptonomicon published in 1999) arose a decade before Bitcoin was created and are widely regarded as the inspiration behind cryptocurrencies.

In His Inauguration Speech, Zuckerberg Lights the Metaverse's Flame

Facebook's CEO and founder, Mark Zuckerberg, appears to have been impressed by Stephenson's forwardthinking intellectual work. With an endless cyclone of regulation surrounding his company (the latest being an investigation into its users' emotional/mental "safety"), Zuckerberg decided it was time to shift the company's narrative. Facebook officially rebranded its parent company to "Meta," expressing the firm's total commitment to bringing the metaverse to life. Zuckerberg has had this metaverse vision ever since it purchased Oculus and its leading consumer VR operations back in 2014 for $2 billion.

Meta announced last fall that it would be pouring $10+ billion into the buildout of its virtual world. Management has stated that some aspects of the metaverse's functionality would be mainstream in as little as five years. Meta's ubiquitous reach and ownership of the world's #1 VR platform, Oculus, makes its proposed metaverse an incredibly attainable objective. With 3.6 billion humans utilizing one or more of Meta's leading social interfaces (Facebook, Instagram, WhatsApp, & Messenger), roughly 75% of the internet accessing world is connected through this company.

Microsoft (MSFT) To Acquire Activision Blizzard (ATVI)

This morning, Microsoft MSFT announced that it would be acquiring Activision Blizzard ATVI in a $68.7 billion all-cash deal to competitively position itself for the next generation of gaming in the metaverse. This would position Microsoft as the thirdlargest gaming enterprise on earth (by revenue), behind Tencent TCEHY and Sony Group SNE.

Microsoft's deepening pockets have catalyzed a recent spending spree, racking up 14 acquisitions in less than 52-weeks, not even including the eight strategic buy-ups it made in its videogame development segment in 2021 alone. Nonetheless, no prior deal comes close to the magnitude of this nearly $70 billion purchase, marking this corporation's most significant acquisition by leagues.

Microsoft saw a unique value opportunity in ATVI to significantly expand its videogame presence following the stock-crushing allegations of unaddressed workplace misconduct (specifically sexual-misconduct) at Blizzard. These allegations surfaced in July 2021 when legal suits began to flood in claiming the workplace had a female discriminating "Frat Boy" culture. Blizzard was forced to clean house at the management level, causing critical product delays and catalyzing a nearly 50% drawdown in its share price.

I see this purchase of ATVI as a revitalizing value play that would benefit both enterprises. This merger would solidify Microsoft's domestic gaming leadership and stake its claim in the nascent metaverse. At the same time, this video game giant gains the managerial expertise of this nearly 50-year old tech innovator. Activision Blizzard holds one of the top catalogs of go-to videogames across platforms capturing gamers with various degrees of dedication. Names like Call of Duty, World of Warcraft, and Candy Crush will now be a part of Microsoft's rapidly expanding gaming portfolio.

Other Plays

There are numerous ways to play this nascent metaverse industry, whether explicitly or implicitly tied to this new virtual world. Roblox (RBLX) is the most apparent explicit play for this developing technology, with Zuckerberg citing this company by name when he initially presented the idea last fall. This interactive online universe will be ripe with cyber threats, positioning CrowdStrike's CRWD best-in-class AIdriven cybersecurity operations on the top of the implicit metaverse playbook.

NVIDIA's NVDA best-in-class graphics rendering chips will undoubtedly be a core component of Oculus's visual functionality, but the stock is extraordinarily richly valued (to say the least) at 62x P/E. On the other hand, Snap's SNAP visually-powered value proposition has seen its shares pounded in recent months due to its selective youthful user base.

However, the real value of this business doesn't come from its social media profile but rather from its cutting-edge augmented reality filters, which I see as much more consequential. I wouldn't be surprised if SNAP gets snatched up by one of the mega-cap tech outfits if its market value continues to falter lower. 

Zacks Investment Research

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Cryptos Are Rising, and Capital Is Flooding In. But a ‘Crypto Winter’ May Be Coming

Venture capital is also flooding into the crypto space.

On Thursday, Bitcoin and other cryptocurrencies rallied as investors snapped up stocks and other “risk assets” after days of selling pressure. Bitcoin was ahead 2.3% in afternoon trading to $43,000. Ether, Solana, Terra, and other significant tokens were also rallying, pushing the overall market up 2.3% to $2 trillion in market value, according to CoinMarketCap.

According to a report in Bloomberg News, Google is developing a new blockchain unit in the latest sign that Big Tech is looking at how to capitalize on the crypto economy. Shivakumar Venkataraman, an engineering vice president at Google, is running a unit focused on “blockchain and other next-gen distributed computing and data storage technologies,” Bloomberg reported.

Daren Fonda

Google, the primary division of Alphabet (ticker: GOOGL), didn’t immediately respond to a request for comment. Venture capital is also flooding into the crypto space. According to the Financial Times, one of the most significant players—Andreessen Horowitz—aims to raise $4.5 billion for a new fund dedicated to blockchain-based companies. More than $30 billion of venture capital and other forms of private equity poured into crypto startups in 2021, according to PitchBook, up more than sevenfold from 2020. Yet crypto is experiencing an influx of capital when the industry and tech generally are having a tough time. As the Federal Reserve tightens monetary policy, investors have become nervous about rising interest rates. The price of high-priced tech stocks has plummeted. Cryptos have also suffered; the overall market has lost a third of its value, or $1 trillion, since peaking at $3 trillion last November.

Tighter monetary policies are one of a number of reasons that UBS, in a research note published on Jan. 14, is

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warning of a second “crypto winter.” The last such “winter” in 2018 saw Bitcoin and other cryptos fall more than 75% from previous peaks. They then took about three years to return to earlier highs from 2017.

As UBS sees, cryptos took off in 2021 partly because of abnormal monetary policies that flooded global markets with excess liquidity. But central banks are expected to gradually normalize policies, pressuring alternative currencies like Bitcoin that were boosted by “associated excess liquidity.”

According to UBS, the idea that Bitcoin is a store of value in an inflationary climate is also coming under more scrutiny. While sovereign “fiat” currencies may lose purchasing power amid high inflation, their supplies are adjustable— able to contract and expand with economic growth and other variables.

That flexibility may help sovereign currencies retain long-term value, contrasting “with the likes of Bitcoin that are supply-limited and constrained by volatility in being able to function as units of account or media of exchange,” UBS says.

Another headwind is that blockchain technology may take quite a while to reach mainstream financial markets if it ever does. Blockchain networks like Bitcoin started out as decentralized ledgers, aiming to improve the security, transparency, and accessibility over incumbent payment systems dominated by banks and other institutions. But the Bitcoin network itself is being centralized as miners, who operate the network consolidate.

Many of the newer blockchains are controlled by companies and entities. Moreover, the industry is shifting to a “proof of stake” model for processing transactions—potentially centralizing the networks in the hands of a few large operators.

“Blockchains don’t scale in practice without turning into the same ‘plutocratic’ systems they were designed to replace,” says UBS. Blockchains are also vulnerable to hacks, fraud, and theft, and they are a long way from mass adoption due to technological complexity, even to change a password for an account.

Finally, speculative excesses are rising— as blockchain-based apps and services attract more users and economic value, they will inevitably invite more regulatory scrutiny. “High-flying stablecoins and DeFi projects seem almost sure to face bigger setbacks from authorities in the coming months,” UBS says.

The takeaway isn’t necessarily that cryptos will collapse overnight, losing value like Dutch tulips that never had much utility. Venture capital is pouring in because blockchain technology could be revolutionary, opening new venues for trading and borrowing securities—along with entirely new ways to monetize digital collectibles with non-fungible tokens, or NFTs. But the market may be getting pickier about which cryptos and blockchain companies will survive as liquidity dries up, leaving less capital to go around for all. 

Barrons