Decentraland: A Great Live Test of the Greater Fool Theory

decentralization (CCC:mana-dollar) “It defines itself as a virtual reality platform powered by the Ethereum blockchain that allows users to create, experiment and monetize content and applications.”

Source: shutterstock.com/Piotr Swat

I define it as a great live test of the big lie theory in investing. In the past months, investors have tried to assess whether the metaverse is the future of the Internet. Some say it may be, as tech giants have invested or plan to invest heavily in this hot new trend. Will the metaverse become more than just a hot trend, a reality anytime soon?

When I try to understand the concept behind Decentraland as a business idea and investment opportunity, I am struck by three biases in the investment world that are likely to always be present.

Decentraland allows buying and selling of land, names and digital assets. Virtual land, not real land. It is mainly based on three concepts. Explore, create, trade.

I love technology, and so I love the idea of ​​digital creators creating digital assets or online experiences out of nothing. Decentraland offers digital creators the opportunity to create scenes, artwork, and challenges using its simple Builder tool. Even better, they can get paid by participating in events to win prizes.

The concept of trading is what makes me as I have said many times not at all a fan of the cryptocurrency market. The fortunes were made by daring investors who took risks and invested in coins and tokens that traded for a fraction of a dollar.

Unfortunately, they got lucky by investors who got into this “irrational game” of investing in cryptocurrency late and with inflated prices that have collapsed. Is the MANA token a different story? I would argue that it is not.

“Decentraland was launched after an initial coin offering of $24 million (ICO) that took place in 2017.” look at me CoinMarketCap Details about Decentraland In the early morning of January 12, 2022, I am overwhelmed by the stats that “Today’s live Decentraland price is $3.10 with a 24-hour trading volume of $674,129,855. We update our price from MANA to USD in real time.” Decentraland is up 9.43% in the last 24 hours The current CoinMarketCap has a rating of 32, with a direct market capitalization of $5,624,112,596 It has a circulating supply of 1,824,526,935 MANA coins and a max. The offer is not available.

Market value is $5,624,112,596? This is crazy, irrational, and beyond any logic. I’m trying to understand why the MANA price reached $0.12 in early 2021, reached a high of around $5.5, and now appears to be trading in the near $2.80-$3.40 range for the first week of 2022. It’s time so I wonder what If the market cap of $5.6 billion is worth it.

big lie theory

In simple words, the big lie theory means that there will always be a “bigger fool” in the financial markets who will be willing to pay a price based on a higher valuation of an already overvalued financial security to make a profit.

Instead of focusing on whether an asset, whether digital or not, is overvalued or not, “biggest idiots” investors evaluate the likelihood of selling the investment to someone else at a higher price than they paid.

If someone in the future is going to write a book on the theory of the big lie for sure, Decentraland will be among the best candidates. While visiting the platform market, I saw $300 worth of digital clothes. when? Come on, who will buy this? And why?

How about selling digital land for $7000? I’m about to get dizzy without having any alcohol, just coffee. It gets even more frustrating, as the BabyDoge name sold for $50,000.

Instead of buying a shiny, fast new car, why not buy that name? What are the odds of reselling the investment to another “idiot” and making money? I think the odds are slim to none. I’ll bet nothing.

As an economist, I have a broad interpretation of money. When it comes to waste, it’s for personal needs like buying a new TV when you don’t need it just because it’s the latest model for a brand name, and this purchase will make you happy. When it comes to investing, my criteria change a lot. Investing to make money, irrational movements are not the best options.

Why should someone buy digital land? Can you visit it in real life, throw a party, drink a cocktail under the hot summer sun, or just plant a tree, a real tree that you will show to your kids 50 years later as your legacy of living in real life?

I consider that the profits from investing in Decentraland will be available only to a very niche market, even if the platform has thousands of users. Platform users are part of a niche market. Everyday “fools” compete to distort the way the real financial markets work.

Does the community need a shared virtual environment?

What are the real costs and benefits? Can the virtual world improve human relationships, and make our lives better and more exciting? Are you detached from reality by wearing digital gear to shop, play and work? Is this a feature of our lives?

I consider Decentraland useful only for fun and not for investment. The Metaverse may be a hot trend, but it is not loved by everyone, and to the extent we will have to accept it against our will, it is a huge defeat for the freedom of choices we enjoy using the Internet. Virtual reality will not be a great experience for all people online if it becomes a standard for everyday tasks in the future.

At the date of publication, Stavros Georgiadis, CFA (directly or indirectly) did not hold any positions in the securities mentioned in this article. The opinions expressed in this article are those of the author, and are subject to InvestorPlace.com Posting Guidelines.

Stavros Georgiadis is a CFA Certified Equity Research Analyst and Economist. Focuses on US stocks and has his own stock market blog at the address thestockmarketontheinternet.com/. In the past he has written various articles for other publications and can be accessed at Twitter and on LinkedIn.