The unreality of the metaverse has something to teach about the nature of all money and investing.
At first blush, it sounded insane. A young friend had announced, intensely and with pride in his voice, that he had purchased real estate in the metaverse and planned to build a house on it. I asked why he needed a residence, why did he not just visit, shoot a few curls with Zuck, as per the promotional material, and then leave after taking in a virtual concert with avatars of his virtual friends. It was an investment of sorts, he explained.
A little thought convinced me that his plan was neither as crazy as it at first seemed nor as new or revolutionary as he might have thought. My young friend’s expectations about the metaverse were entirely consistent with the basics of all money and investing. Just as there is nothing real or substantive about the house he planned or the metaverse for that matter, neither is there anything real or substantive about money or investing. In neither place is there any intrinsic value.
To be sure, a metaverse house cannot keep its owner warm in the cold and cool in the heat. Nor can it keep the rain off his head, even if he is willing to keep that plastic helmet on 24/7. In that sense, it has less intrinsic value than a real structure on a real plot. But the shelter that real structure provides, the intrinsic part, contributes little to its value. A home on a secure beachfront is worth a lot more than the same building on a fading Main Street.
It is the same with stocks and bonds. Though securities appear to have a closer link to the physical world than does the metaverse, that link has little or nothing to do with their value or their prospects for appreciation. Investors will hold a bond only because they trust that the bond will pay interest as scheduled and return the principal at maturity.
Indeed, the whole process is further removed from the physical world because investors also must believe that the cash the bond or stock issuer is expected to pay will itself hold its value in terms of other things people want. And that in turn depends entirely on what people think cash is worth or will be worth when the investment pays. Nothing about the cash is intrinsic. Today’s inflation is an ongoing re-assessment of people’s notion of what that cash is worth in terms of other things.
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