Should You Invest in the Metaverse, Crypto or the Stock Market? (2024)

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If you’re an investor looking for capital appreciation, the stock market has always been a top choice. However, in recent years, two new areas for investment have unlocked exciting new opportunities for risk-tolerant investors.

The metaverse and cryptocurrency, while related, are distinct asset classes that carry the potential for high returns in exchange for the risk of losing everything. Whether they are solid investment options — along with their risks and rewards — are still very much up for debate, though. Here’s a rundown of the investment characteristics of the metaverse, cryptocurrency and the stock market, along with a look at which type of investor might be suitable for each.

Investing in the Metaverse

The buzziest asset class in recent months has likely been the metaverse, but many investors still have no idea what it is. Part of the reason is that “the metaverse” doesn’t have one single definition. Essentially, it’s an online world that’s a blend of virtual reality, social media and augmented reality, often powered by crypto. This virtual world has been used for years by gamers and developers, but it’s rapidly evolving into a parallel online universe where real financial transactions can take place.

The current hot investment in the metaverse is virtual property, where prices have jumped about 500% over the past few months, according to the CEO of Tokens.com, Andrew Kiguel. One investor even paid $450,000 for a plot of land in the same virtual neighborhood as rapper Snoop Dogg. This may only be the start. Analysts at Bloomberg Intelligence see the value of the metaverse hitting $800 billion as soon as 2024, while Morgan Stanley analyst Brian Nowak estimates that value could top out at as much as $8 trillion.

Social media giant Facebook even rebranded its entire company as Meta Platforms, indicating its belief in the enormous future significance of the metaverse. While the metaverse has exciting potential, investors should realize this early-stage asset class may offer either huge returns or devastating losses.

Best for: Risk-tolerant investors wanting to get in on “the next big thing”

Worst for: Conservative investors looking for reasonably predictable returns

Investing in Cryptocurrency

Cryptocurrency has made millionaires out of some investors, but it’s also cost many their fortune. Bitcoin and Ethereum are the two leading cryptos, with market capitalizations of about $425 billion and $145 billion, respectively. No other crypto is currently worth more than about $70 billion, and most of the remaining thousands of cryptos have minuscule market caps.

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Cryptocurrencies are incredibly volatile, as they have yet to prove their widespread utility in real-world transactions. Some speculators hope that crypto will one day either supplant or co-exist with fiat currencies like the U.S. dollar, but its real value may be realized if the metaverse becomes a viable entity. Either way, crypto remains a highly speculative investment, with the potential to generate tremendous gains or become completely valueless. It’s best suited for investors who can stomach wild swings in value and the potential to lose their entire investment.

Best for: Highly risk-tolerant investors with capital they can afford to lose

Worst for: Those on limited incomes or with no stomach for volatility

Investing in the Stock Market

The stock market used to be considered one of the more volatile asset classes, but compared with cryptocurrency, it’s downright stable. Although the stock market experiences a 10% selloff, known as a correction, at least once per year on average, the market’s long-term returns are surprisingly consistent. In fact, there has never been a 20-year rolling period in which the S&P 500 stock market index has posted a negative return.

This makes investing in a stock market index much less risky than it may seem for long-term investors. And with a long-term average return of about 10% annually, you could potentially double your portfolio every seven years or so. You’ll just need the mental fortitude to survive the occasional 10% to 20% drop in market values, which have always proven to be long-term buying opportunities for patient investors.

Best for: Investors looking to build long-term wealth with some level of volatility

Worst for: Investors seeking capital preservation or with short-term financial goals

The Bottom Line

The metaverse, cryptocurrency and the stock market all offer the potential for outsized gains, but they each carry moderate-to-high levels of risk, especially over the short term. Of the three, the stock market is the least risky for long-term investors, as it has an incredible track record and is backed by real companies generating real revenues and earnings.

Cryptocurrency and the metaverse can only be described as speculative investments at this point, as they are currently backed only by the hopes and dreams of investors. If the metaverse does become a viable parallel world powered by cryptocurrency, both of those investments may have a real foundation for growth. Investors just need to fully understand the risks involved and avoid sinking their entire nest eggs into these speculative asset classes.