The central theses
- Eliminating cryptocurrency and the metaverse entirely from your portfolio could mean missing out on two of the biggest potential growth markets of a generation.
- A snapshot of the META, U, MSFT, RIOT, SQ, NVDA, and Q.ai bitcoin breakout kit.
- Cryptocurrency and the metaverse are new and untested markets, which is riskier in the short-term but promising for long-term investors. For the bulls, that would mean these stocks could make up 5-10% of your portfolio.
Both the Metaverse and cryptocurrency have seen major setbacks this year. The stronger US dollar has hit profit margins at technology companies particularly hard, as these companies tend to do a lot of international business.
Additionally, public enthusiasm for the metaverse and crypto has waned in recent months as more and more people step away from their screens and back into the “real world.” The crypto market experienced a crash that disillusioned the general public.
But these hits in the market could make this a good time to buy low if you’re a believer. If the Metaverse becomes what Mark Zuckerburg dreams of, prices to buy it in that market will be significantly lower than they have been in years.
If crypto rallies or ever goes mainstream, shares of related companies are currently lower than they have been since the big crypto surge of late 2020 and early 2021.
If you’re buying into any of these markets for the long term, here are some top stocks to keep an eye on.
Of course, one of the first stocks that comes to mind when it comes to the Metaverse is Meta (META). Facebook’s parent company has invested heavily in its rebranding, focusing on VR. When Zuckerburg’s judgment can be trusted and the metaverse takes off, you’ll be hard pressed to find another company investing so heavily in becoming the consumer platform of choice.
In the short term, however, Meta’s reality labs lost $10.2 billion in 2021 and $5.8 billion in the first half of 2022. It’s important to remember that Meta isn’t just Facebook’s version of the Metaverse is – it also includes Facebook itself, Instagram and WhatsApp. While VR never takes off, the company is diversified enough to take the hit.
The stock took a nosedive in February 2022 after Apple rolled out new privacy measures for iOS users. These changes made it difficult for advertisers to dig deep into consumer demographics, which is the main reason why advertisers are drawn to the Facebook platform.
The change is estimated to cost the company $10 billion in revenue this year alone. META has yet to recover and present a comprehensible response strategy. If the company can switch and fix its revenue streams, it might be a good time for longtime investors to consider buying shares.
The consumer market isn’t the only Metaverse market. The US military is also getting into AR and has commissioned Microsoft to manufacture HoloLens headsets. Microsoft also has an operating system called Mesh – think Windows 10 for XR. With military contracts and one of the leading XR operating systems, Microsoft cannot be ignored as a potential Metaverse investment option.
Microsoft has seen its stock prices fall after a rally that lasted nearly two years. Aided by the pandemic, much of the ongoing MSFT rally was due to so many companies running their businesses remotely, increasing the need for cloud services.
However, the strong US dollar has threatened Microsoft’s projected earnings this year, and its Hololens was on shaky ground in early 2022, threatening its military contract. While they have since recovered and the product has lived up to expectations, the temporary question mark was one of the many factors that caused investor confidence to drop.
While it’s true that MSFT is down compared to this time last year, it’s still up compared to pre-pandemic numbers. At the end of December 2019, the stock was trading at just $158.96. Compare that to the current “dip” price of $256.06 in early September 2022, and you can see that the company still has a relatively good reputation in the eyes of investors.
Unity (U) creates software that allows developers to create apps. In 2021 there were 5 billion downloads of apps built with Unity software. As the metaverse grows, Unity will bring in even more since its framework is compatible with 3D programming. It also helps app developers to place in-app ads.
Unity is another software company that has been hit by the strong US dollar. There have also been problems with the algorithm that delivers its ad services, which has led to further price reductions. At its peak in November 2021, U traded for $196.65. In September 2022, the price is only $40.79. Since May 2022, it has traded below its original September 2020 IPO price.
If Unity can fix its algorithm, this could be a good time to buy into a huge company with a sizeable market share. If that’s not possible, things could get worse from here.
Riot Blockchain Inc. is one of the largest bitcoin miners in America. Cryptocurrencies, like any other commodity, are all about supply and demand. Should cryptocurrency demand pick up again, mining operations will be an integral part of meeting demand.
Another thing that makes RIOT appealing to certain investors is its effort to be “greener” than the competition since its operations are powered by renewable energy.
Perhaps unsurprisingly, RIOT shares traded below $10 as of December 2020. When the cryptocurrency craze kicked off in late 2020 and early 2021, shares surged to $71.33. Today prices have settled back down to $6.33.
In America, cryptocurrency markets remain largely unregulated. That makes any related investment riskier than your typical long-term buy-and-hold stocks. But if crypto ever truly becomes a more stable mainstream currency, you could see huge returns from investing in this space. However, being able to endure the extreme risks and price fluctuations is a must.
Square has rebranded and is now called Block Inc (SQ). It facilitates many online transactions and is making great strides when it comes to normalizing cryptocurrency transactions.
For example, Block allows users to transfer money directly, receive paychecks, and pay bills with cryptocurrency through the Cash app, and is taking steps to add this functionality to digital wallets in general. It is also engaged in mining.
As cryptocurrency becomes commonplace, Block is in a unique position to facilitate these transactions without requiring consumers to knowingly interact with a third-party intermediary.
SQ is also a slightly safer investment over other options like RIOT since Block is not exclusively about cryptocurrency. It also deals with “real” currencies. So if the crypto market never goes back up, the company may still have room to pivot accordingly.
You can follow the 2020/2021 cryptocurrency surge in SQ stock prices. At its peak in February 2021, SQ traded for $276.57. Before the pandemic, it was trading at $83.33. Today it is at $66.33 in September 2022. While these are some big swings, Block’s diversified business model is reflected in a much higher strike price than many other crypto stocks.
Beneath the Metaverse’s consumer experience lies technology like that of Nvidia Corp. (NVDA) manufactured chips. Nvidia chips are also heavily used by Bitcoin mining operations.
Because the company is so closely associated with crypto mining and metaverse trends, it hasn’t had a great year. It started 2022 at $301.21 and stands at $136.47 on September 4th.
There are several factors contributing to the loss in revenue and therefore stock value, including the crypto crash, reduced consumer demand for gaming systems, and a general lull in the excitement of the Metaverse.
However, Nvidia is versatile and has recouped some of its losses with a new line of business dedicated to making electric vehicles. If we see any surge in interest in crypto or the Metaverse going forward, Nvidia stock is likely to rebound strongly if it can maintain its position as the main maker of the underlying hardware.
Risk Management in the Cryptocurrency and Metaverse Markets
Cryptocurrency and the Metaverse are new and unproven markets. That makes them comparatively riskier for long-term investors. However, if you eliminate them from your portfolio entirely, you could be missing out on two of the biggest potential growth markets of our generation, depending on how things play out.
For that reason, you might want to use investment vehicles that can help you plan for the long term, while also shorting those segments of the market if things go wrong. Q.ai’s Bitcoin Breakout Kit and Crypto Kit will help you with that.
Download Q.ai today for access to AI-supported investment strategies. If you deposit $100, we’ll add another $100 to your account.