Detective Economics for Metaverse

At first glance, it seemed crazy. A young friend loudly and proudly announced that he had bought real estate in the Metaverse area and planned to build a house there. I asked him why he needed a residency, why he hadn’t just visited, shot some braids with Zuck, according to promotional materials, and then left after attending a virtual party with avatars of his virtual friends. He explained that it is a kind of investment. He explained that in the midst of all this desirable activity, it was necessary to appreciate the place.

A little thought convinced me that his plan was neither as crazy as it at first seemed nor as new or revolutionary as he thought. The expectations of my young friend from Metaverse were completely in line with the fundamentals of all money and investing. Just as there is nothing real or substantive about the home he planned or metaverses for that matter, there is nothing real or substantive about money or investing. There is no intrinsic value in any of these places. All values ​​and all possibilities of return depend solely on what people want and what others think. There is nothing else.

True, the house of Metaverse cannot keep its owner warm in the cold and cool in the heat. Nor can he stop rain from falling on his head, even if he’s willing to keep that plastic helmet on 24/7. In this sense, it has less intrinsic value than a real structure on a real plot of land. But the shelter provided by the real structure, the intrinsic part, contributes little to its value. A home on a safe waterfront is worth a lot more than the same building on a declining main street. This difference depends entirely on people’s preferences for the seaside, and the success of the investment depends on people’s continued preference for the beach over Main Street. Just over a hundred years ago, fashion and flair made the High Street location more attractive, and values ​​reflected this difference, as did profits, at least until preferences changed.

The same applies to stocks and bonds. Although stocks seem to have a closer connection to the physical world than the metaverse, this connection has little or no relationship to its value or its upside potential. Investors hold the bond only because they are confident that the bond will pay interest as expected and return the bond’s principal at maturity. Stocks also offer nothing more substantial than the belief that the issuer produces something that people will appreciate and continue to appreciate in the future. The value and appreciation are entirely dependent on these beliefs. There is nothing intrinsic or real world beyond them.

In fact, the whole process has been removed from the physical world as investors must also believe that the money which is expected to be paid by the bond or stock issue will retain its value in terms of other things that people want. It all depends on what people think the money is or is worth when the investment pays off. Nothing in money is essential. Inflation today is a constant reassessment of people’s perception of the value of that money in relation to other things. Even when people had gold coins in their pockets, there was nothing substantial. Gold has an intrinsic value only to the jeweler and the people who wear it, and even then it is only because they or others are held in high esteem. Other than that, gold coins were only valuable because society had agreed that they had value.

The story of a remote Polynesian island might offer a point. Those who first visited the place told how members of the community stored valuables in giant stone wheels that they rolled into the lake for safety. Once a prosperous member of society had amassed enough wealth, they used it—perhaps in the form of seashells which were themselves just a store of value because society had agreed they were—to buy a wheel. Society keeps track of who owns which wheels. If that prosperous member of the community then decides to build a house, he can sell the wheel and use the payment from the seashells to purchase labor and materials. (If a society had a banking system, it could instead borrow against the value of its wheel.) Later, it could decide to downsize and the whole process could be reversed so that it could have a safe store of value to will for its children.

Nothing in the Metaverse has less substance than the thriving Polynesian and his community believed to be valuable. None of this is less substantial than all recent investments. The young investor does not need to think materialistic or intrinsic. As with any other investment, all he needs to think about is how others will value his stake. It’s a bet, and perhaps a good bet, on the future popularity of metaverses. Mr. Zuckerberg owns a huge amount of property in Metaverse. Since the place is digital and he created it, its holdings can be considered unlimited. He has a great interest in promoting the attractions of the virtual resort he is building. If he succeeds, he will get a large number of seashells with which he will probably buy an actual island or a large yacht.

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