As bitcoin drifts towards mainstream maturity in 2022, daring crypto investors are eyeing up new sources of explosive action: “altcoins” that power online games and worlds.
But, be warned, the foothills of the unformed metaverse are no place for the faint-hearted.
Bitcoin, which like the rest of the market had been largely sinking since late 2021, has risen about 16% over the past two weeks to push above $41,000, prompting many market players to declare an end to the “crypto winter“.
Yet newer and smaller coins linked to virtual platforms have enjoyed stronger rallies amid the buzz around the metaverse.
Those used on gaming platform Axie Infinity and 3D virtual environment Decentraland, for example – the Axie and Mana – have gained 35% and 57% respectively in the same period since Jan. 24. The token of the Gala gaming platform has jumped 125%, according to CoinMarketCap.
“When people think of crypto they tend to think of bitcoin,” said Ed Hindi, a chief investment officer of Swiss-based cryptocurrency hedge fund Tyr Capital. “But this ignores the fact that crypto is not a one-risk asset class.”
To give an idea of scale, though, the combined market cap of Axie, Gala and Mana are about $12.7 billion, a fraction of the $800 billion-plus for bitcoin, which commands 40% of the market.
Some investors are looking to altcoins to diversify their holdings as 13-year-old bitcoin and No. 2 player ether increasingly move in step with traditional stock markets and become more sensitive to macroeconomic developments.
In a possible sign of this drive, multi-asset funds managing a combination of coins saw inflows totaling $32 million in the week ending on Jan. 28, the largest since June 2021, according to data from CoinShares.
Yet the sheer novelty of many of these coins and the consequent lack of track records significantly ups the danger stakes for investors in an already risky and nebulous crypto world. Furthermore, the fortunes of the likes of Axie and Gala are tied to the success of their gaming platforms, as well as the wider virtual economy.
