The Best Way to Invest in the Crypto Gaming Industry

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person playing a mobile game on their phone
Photo by SCREEN POST on Unsplash

I’m all for going irresponsibly long on a micro-cap gaming token when I like the project. But in all honesty, this only works in bull markets.

While most gaming projects are smashed in bear markets (a.k.a. times like these), you can still make money long term. The way to do that is by investing in projects that don’t rely on a single game for success.

I break my Web3 gaming investments down into 2 areas:

  1. Gaming studios
  2. Gaming infrastructure

I’ll go into more detail on the two below, but first, let’s have a quick look at the Web3 gaming industry…

Web3 Gaming & Metaverse

We currently have around 3.2 billion gamers sitting on this planet (as of 2021). That’s about 40% of the world’s population.

Gaming revenue is expected to be more than $200 billion by the end of 2023 and Nintendo currently stands as the most valuable gaming company at $85 billion.

Compare that to the Web3 world, the total market cap for metaverse and gaming is somewhere between $15–25 billion at the time of writing. Gala Games is the most valuable Web3 gaming studio at just under a $1 billion market cap.

There’s a long way to go for Web3 gaming. Herein, lies the opportunity for us.

The way I see it, we’re already living a decent chunk of our lives in the metaverse. That little thing that lives in your pocket can suck you into any community you want, at any time, anywhere on earth.

Some people are spending north of 4–5 hours a day on their phones! Your screen time may surprise you.

We’ve seen the first iterations of Web3 games and “the metaverse” and I’m not sold quite yet. Axie Infinity and the Sandbox, while innovative in their own right, have missed the point of this industry:

It’s supposed to be a fun escape from day to day life.

While some of these projects have yet to hit the mark of “fun”, many more are being developed with a fun-first approach to the industry. The newer companies coming out are not looking for cash grabs by adding metaverse to their name. They’re looking to build long-term communities that happen to be on the blockchain.

Blockchain adds a unique opportunity for gamers and companies in the space to give power back to the user, and to develop an even tighter community with aligned incentives. The more the company grows, the more the user stands to be rewarded.

With all that being said, I’ve found 2 ways to invest in the gaming industry that provide the greatest risk to reward ratio. These investments don’t rely on one game to be considered a success. With 1 investment, you get access to multiple games and multiple chances of hitting a home run.

Let’s get into it…

Gaming studios

Let me ask you a question. How much would you give to go back to 1982 and invest in EA when it was founded? How about ’91 and Epic Games? Nintendo? Activision? Riot? You get the point.

These gaming studios have grown to behemoths in the industry valued in the billions. As I said earlier, Nintendo is worth over $85 billion!

Gaming studios are great for the obvious reason they create multiple games. They have multiple shots to make something happen. As any VC investor knows, you can have 9 duds, 1 winner and still set yourself up for life.

We’re still early days with Web3 gaming studios. Gala Games has been the standout reaching a peak market cap of over $5,000,000,000 last bull run. That’s right, $5 billion!

Gala stands alone in the Web3 space with the next studios not even worth mentioning although Vulcan Forged is building some hype. Vulcan Forged has a current market cap of $188 million at the time of writing while Gala is down to $1 billion. I smell an opportunity…

Gaming studios in Web3 also provide other perks which make them great investments. Because we’re so early in this whole crypto revolution, studios are building their own infrastructure to allow their games to run smoothly.

One I’m looking at in the near future is Myria Studios. They’re building their own layer 2 blockchain, as well as a wallet and NFT marketplace.

Not only will Myria have multiple games, but other studios can add their own games to the Myria ecosystem, increasing the likelihood of long term value.

One thing I love about Web3 gaming studios is the interoperable nature of their own little metaverse. Myria for example is building out their own “Myriaverse” — a metaverse of all their games in which you can take a character from one game (in the form of an NFT) and deploy them into another game.

Imagine how cool it would be if Nintendo allowed you to bring your Pikachu into the Legend of Zelda, or to race your Charizard against Donkey Kong in Mario Cart. Well with the power of blockchain, and specifically in the Myriaverse, this is possible.

myria characters all standing together posed for a picture
Provided by Myria Studios

Investing in Web3 gaming studios is not as simple as picking one at random (just because they’re on the blockchain) and expecting to 10x your money. You still need to do your own research.

Gala Games have been so successful because they have a team of all-stars — notably Eric Schiermeyer, John Osvald and Michael McCarthy of Zynga fame. As well as an awesome team with experience at EA, Epic Games, Activision and more. They also approach their company with a fun-first, blockchain-second mentality.

You need to combine the Web3 industry with a great team, good tokenomics, and the right timing to make it a good investment.

Gaming Infrastructure

Most of the people that got rich during the gold rush weren’t the people mining gold. It was the people selling the picks and shovels, or the clothes, or the food and the housing to miners.

The businesses that sold goods or services to the influx of miners are the ones who made consistent and sustainable income. Mining for gold was hard work and required tremendous luck. But selling jeans to the miners as Levi Strauss did was pure genius.

I call this the “picks and shovels approach to investing.” You can fit this idea into any industry you’re in. But in Web3 gaming, it’s all about investing in the things that allow this new industry to be built and thrive. When I talk infrastructure, I’m really talking about a few different things…

  • Blockchains
  • Wallets
  • Platforms
  • NFT marketplaces
  • Hardware like VR goggles
  • Cloud and data storage
  • GPU sharing
  • Node operators
  • Plus many more innovative ideas waiting to hit the market.

The reasons these work are similar to the reason gaming studios work: they don’t rely on one game.

Imagine investing in Playstation or Occulus. These businesses allowed multiple games to be played through their hardware. What about investing in Steam? The gaming mega-platform with 30,000 games, valued in the billions of dollars…

I think you get the point.

You don’t have to invest in individual games to invest in the gaming industry. Your chances of finding a successful investment substantially increase when you look at the underlying infrastructure which allows multiple games to thrive.

In the Web3 gaming and metaverse world, this is even more important. It’s still such a new industry, which really only came to mainstream attention in 2021 with the rise of Axie. All the infrastructure is still being built.

Cathie Wood, Ark Invest’s CEO, believes the metaverse is going to be a multi-trillion dollar industry. Others think the same:

“Wood is not alone in believing the metaverse is only getting started. A recent report from Grayscale said metaverses represent a $1 trillion market opportunity, and the CEO of Epic Games, Tim Sweeney, told a conference in mid-November that it could become a multi-trillion dollar part of the world economy.” — Emma Newbery

So if the metaverse does in fact become a multi-trillion dollar industry as these experts expect, and the current market cap of the “metaverse” category on Coinmarketcap.com is $23 billion, then we should see a 43x to $1 trillion, an 86x to $2 trillion, and a 130x to $3 trillion.

Given the market cap of all crypto assets peaked at around $3 trillion last bull run, this may seem farfetched. But when you take into account that everything that happens online could be considered a part of the “metaverse”, then this number seems low.

Either way, you look at it, we are still at the very, very early stages of this industry. There is so much infrastructure needed, that investing in this industry represents a great opportunity.

For me, I like the idea of investing in blockchains made for gaming. My 3 biggest investments here are:

  1. Phantasma ($SOUL) — a layer 1 blockchain popularising “smart NFT” technology.
  2. Efinity ($EFI) — a layer 1 blockchain and NFT cross-chain superhighway built on top of Polkadot by Enjin.
  3. Immutable X ($IMX) — a layer 2 scaling solution built on top of Ethereum specifically for gaming.

Maybe blockchains aren’t your thing…

Maybe you like the idea of investing in the “Steam of Blockchain Gaming” so Ultra ($UOS) is your bet. Maybe you like the idea of investing in the GPUs powering the blockchain so you go for Render ($RNDR). Maybe you enjoy watching your favourite streamers on Twitch? Then Verasity ($VRA) is for you.

Investing in individual games

I didn’t write this article to say “never invest in individual games.” I have, and I will in the future. But I realise this is more of a short term trade or gamble than a long term investment. When I do invest in individual games, I do so in bull markets and I have a plan to clip profits ruthlessly.

The worst thing you can do is invest in a game, and carry it through a bear market. It will go down 80–95% if it doesn’t die.

You’d be better off getting out when you’ve made some good profits, then getting back in at a later point when it’s dropped a significant amount — if your thesis still stands and the game is still popular.

Individual games rely on keeping the players around for long periods of time as well. Players get bored, trends change and people move on. Sure, investing in the Fifa game would have produced decent returns, but wouldn’t it have been easier to invest in EA? You get all the benefits with a fraction of the risk.

Conclusion

There’s so much innovation happening in the crypto gaming or “play and earn” space right now that it’s hard to keep up. Sure we’re in a bear market and projects are getting smashed, but when the market turns, you’ll be happy to be in the good projects.

The big reason why I’m investing in infrastructure and gaming studios is that I don’t need to bet on one horse. I can bet on many.

These are exciting times for Web3 and gaming. Don’t get left behind chasing microcap cash grabs. Invest in companies that approach this industry with a “fun first” mentality.

As many experts believe this industry is going to be worth trillions in the future, we have so far to go. You really are on the ground floor. So while you may have missed the first leg of the Web3 gaming run in 2021, we’re only just getting started.

I’d love to hear from you about your favourite gaming and metaverse projects. You can find me on Twitter here.

This is not financial advice.

I’m simply exploring my own curiosities through writing.

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