The metaverse hype that started in 2021 died down almost entirely in late 2022, when major projects in the space, Decentraland and The Sandbox, lost 95% of their market value. The most important reason for the decline was the lack of growth in the number of users.
However, the meta-narrative is far from dead and will only grow in the future. It was reported that Apple will release its own virtual reality gear in the spring of 2023. This announcement was a positive stimulus for Decentraland’s MANA and Sandbox’s SAND, causing a double-digit price increase.
While there is evidence of positive buying volume supporting the pump, weak fundamentals from the metaverse platforms and overheated market indicators suggest that the price bomb is at risk of a quick reversal.
Pump and dump by Apple
One of the most prominent catalysts for the metaverse has been the invasion of Facebook (Meta) into the metaverse. The idea of Decentraland and Sandbox growth is that the decentralized metaverse will thrive more than the centralized Meta version.
However, the technology has not yet become popular among the masses. In 2022, the share of VR users among Steam gamers will be less than 2%, and usage still hasn’t grown over the past two years. This is frustrating for technology adoption because the gaming industry has been an early adopter.
The technology suffers from a fundamental problem where VR headsets are not suitable for long hours. Studies have found that prolonged use of headphones can cause mental health problems.
Recent virtual reality news from Apple has caused a huge spike in metaverse tokens, but it doesn’t necessarily translate into the success of these projects. Meta-owned Samsung and Oculus already have hardware on the market, which raises the question of the potential impact of Apple’s new hardware on VR adoption.
Poor usage data is hampered by the fact that metaverse codes are constantly being restored
It can be said that the euphoria of the metaverse peaked in the last quarter of the same year, when Facebook was renamed Meta. However, usage stats for the two most popular metaverse platforms, The Sandbox and Decentraland, remained modest during the price increase. Fewer than 5,000 unique active wallets (UAWs) interacting with smart contracts were at their peak on both platforms.
Since then, usage has fallen below 1,000 UAWs per day, reflecting poor fundamentals.
Moreover, despite the rise in token prices, sales of non-fungible tokens to sandbox lands at similar prices and volumes have not improved since the last quarter of 2022. This once again confirms that the activity on the platform is subdued.
Code mitigation risks
Decentraland is also on the list of creditors for Genesis, which filed for bankruptcy last week. According to court filings, the defunct loan company owed Decentral and $55 million.
However, according to Decentraland’s Discord, Genesis only owes $7.8 million. A spokesperson for the society added: “The treasury remains intact and the value of the trust does not represent a significant part of the foundation’s treasury.”
The composition issue has been known for a long time. Therefore, it is possible that the organization has already solved the problem. However, it is likely to affect the pace of growth of its ecosystem, which is small to begin with.
On the other hand, the SAND token is suffering from mitigation risks due to monthly unlocks until the end of Q3 2024. If market conditions do not improve, some investors may be tempted to sell their stake in the token.
Despite its shortcomings, as long as there is a potential for technology to become part of the future, the market will continue to evaluate the pioneers in this field. The problem is that long-term views may not support rallies in the short to medium term.
The sudden rally after days of low volatility caused the RSI gauge to show overheated readings. The situation is getting more difficult as the price is trading at the resistance of the FTX breakdown area.
Nansen data shows that foreign exchange inflows to MANA and SAND were $8.4 million and $12.6 million, respectively. This indicates that more investors moved to sell than buy on the bullish breakout.
However, the recent increase in MANA has been supported by good volume, as reported by data from analytics firm Santiment, which is encouraging for buyers. But mana/USD must clear the $0.735 support and resistance area to continue higher.
A similar trade setup for SAND sees the token’s resistance around $0.93. If buyers hold this level against the metaverse tokens, we can expect the rally to continue. However, based on fundamentals and short-term risks, the price is unlikely to break the resistance.
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