INSIGHT-The 'metaverse' bet: crypto-rich investors snap up virtual real estate

* NFTs can be displayed in blockchain-based virtual worlds

* 'Metaverse' real estate plots can sell for over $500,000

* Atari tells Reuters it will open its own virtual world

* Investors warn of NFT price bubble and losses risks

By Elizabeth Howcroft

LONDON, April 19 (Reuters) - What do you do with a $69
million artwork that doesn't physically exist?

That's the question faced by the Singapore-based investor
calling himself Metakovan, who made headlines last month when he
bought the digital artwork "Everydays: The First 5000 Days" by
the American artist Beeple at Christie's.

The work is a non-fungible token (NFT) – a new type of
virtual asset that has its ownership status and authenticity
verified by blockchain. NFTs have exploded in popularity in
2021, with prices skyrocketing.

Metakovan, real name Vignesh Sundaresan, plans to put the
artwork on display in four virtual world environments. He is
working with architects to design gallery complexes that the
public can enter via web browsers or virtual reality technology.

But art is just one part of a new economy of
blockchain-based virtual worlds where land, buildings, avatars
and even names can be bought and sold as NFTs, often fetching
hundreds of thousands of dollars. In these environments,
referred to as the metaverse, people can wander around with
friends, visit virtual buildings and attend virtual events.

Metakovan's plans are an ambitious undertaking, but he says
he is the world's biggest NFT investor. His collection of NFTs
and other crypto assets, the Metapurse fund, is valued at $189
million, according to NonFungible.com, a site that aggregates
sales history data from NFT marketplaces.

"The current Cambrian explosion of NFTs that you see is all
about acquisition – people want to buy up NFTs, gobble as many
of them as they can," said Anand Venkateswaran, aka Twobadour,
who runs the Metapurse fund with Metakovan.

"But it's just the tip of the iceberg. The real explosion
will happen when they're able to ... experience these NFTs as
they were intended. If it's a plot of virtual land, you ought to
move around in it, have an immersive experience in it."

In what will be one of the biggest names to join the party,
videogame maker Atari told Reuters it planned to
launch its own blockchain-based virtual world and would soon
announce details.

Online environments are going to be "very very big",
regardless of fluctuations in the price of bitcoin, said
Frederic Chesnais, head of Atari's blockchain division and the
company's former CEO. NFT real estate could one day fetch
millions of dollars, he added.

Investors caution, however, that while big money is flowing
into NFTs, the market could represent a price bubble, with the
risk of major losses if the hype dies down. There could also be
prime opportunities for fraudsters in a market where many
participants operate under pseudonyms.

A PLOT OF VIRTUAL LAND: $500K+

The NFT frenzy has heightened interest in blockchain-based
online environments. The best known are Decentraland,
Cryptovoxels, Somnium Space and The Sandbox, where virtual real
estate prices are hitting new highs.

Decentraland has seen more than $50 million in total sales,
including land, avatars, usernames and wearables like virtual
outfits. A patch of land measuring 41,216 virtual square metres
sold for $572,000 on April 11, which the platform said was a
record.

Another Decentraland plot sold for $283,567 on March 21,
according to NonFungible.com, while Somnium Space said an estate
on its platform fetched more than $500,000 on March 16.

Metaverse enthusiasts compare the rush to buy virtual land
to the scramble for domain names in the early days of the
internet. There are currently a few thousand unique landowners
on each of the main blockchain-based platforms.

Their theory is that as more people congregate in these
environments, plots of land in central locations will be highly
sought-after because of the amount of visitor traffic.

"All of virtual land and these virtual spaces are basically
real estate on which experiences will start to centre, on which
attention will start to focus," Twobadour said.

"That's where all of the attention is and that's monetisable
in a million different ways."

So far, it's a relatively small number of people driving up
land prices on these worlds.

In Decentraland there were 334 buyers in March, sending
monthly land sales volumes past $4 million, from $767,400 in
February with 184 buyers and $246,134 in January with 111
buyers, according to NonFungible.com.

An NFT investor called Whale Shark, whose collection was
valued at more than $20 million by NonFungible.com in February,
said he spent 200 of the cryptocurrency Ether on land in
Cryptovoxels and another 200 in The Sandbox in 2018 and 2019.

Those estates cost around $60,000 each back then but are now
worth more than $400,000 apiece, he added, speaking on condition
of anonymity.

Some virtual worlds have their own cryptocurrencies:
Decentraland's MANA has skyrocketed more than 3500% over the
past year, according to Coinbase.

VIRTUAL FESTIVAL, ANYONE?

Some early virtual land investors who bought in early are
now selling to companies, said Samuel Hamilton, community and
events lead at the Decentraland Foundation.

Atari, ahead of its plans to open its own blockchain-based
world, has licensed a retro arcade within Decentraland and is
due to open a casino, while an area called "Crypto Valley" is
home to various crypto companies.

Decentraland has hosted a virtual fashion exhibition in
collaboration with Adidas, where designs were auctioned as NFTs.
It is also attracting interest from musicians who can perform in
the space, selling tickets and merchandise as NFTs.

"We're going to have several well-known global festivals all
doing stages, and when we get to that point we expect hundreds
of thousands or even millions of people," Hamilton said.

Last year, American rapper Travis Scott drew an audience of
27.7 million visitors to five concerts within Fortnite, the
popular online game owned by Epic Games.

IS 'CRYPTO WINTER' COMING?

Sebastien Borget, co-founder of The Sandbox, described the
commercial activity within virtual worlds as a new nation
forming and said the NFT-based economy would outgrow the
real-world one within a decade.

There are, however, many in the fledgling industry who warn
of dangers ahead for investors.

"I expect that there'll be a crypto winter in the next
couple of months, the whole NFT boom will explode and then all
the value will absolutely collapse," said Ben Nolan, founder of
the virtual world Cryptovoxels.

"Doing NFTs as an investment or as a way to make money is
really ill-advised."

However he does see a future for virtual worlds and NFTs.

"Do I think most people will use virtual worlds? Probably
not, but I think a lot of people will and I think NFTs are a big
part of that growth," he said.

"Actually walking around with another person in a virtual
space and looking at art together is a really nice way to spend
time," he added.

Whale Shark said the vast majority of NFTs had no commercial
viability, and expects only a small number to emerge as winners.

But some investors such as Australia-based Mateen Soudagar,
aka DCL Blogger, have little interest in moving back into
real-world investments.

Soudagar says he has made millions of dollars through
cryptocurrency and NFTs, but rather than cash out, he keeps
around 75% of his money in crypto assets and reckons many of his
peers do the same. Other than upgrading his laptop, he hasn't
changed his lifestyle.

"If you're a believer in the movement then you think that
the world will move into this space," he said. "So when you're
putting it into fiat you're going backwards."

(Reporting by Elizabeth Howcroft; Editing by Pravin Char)