The Sino-U.S. Differences in Metaverse Investment

Investors should pay close attention to the trend of Internet supervision, continue to hold large-scale technology companies with diversified investments in the early stage of the construction of Metaverse, and do not neglect to deploy in advance in areas such as network security and privacy computing.

The future has not yet arrived, but investment has no intention of waiting. Although there is still controversy in the industry whether Metaverse represents the next generation of the Internet, it has become a hot spot in the financial market nowadays.

It is worth noting that games and consumer electronics account for half of China’s A-share Metaverse Index constituent stocks, while the United States’ Roundhill Ball Metaverse ETF (Roundhill Ball Metaverse ETF) takes computing power, cloud computing and gaming platforms as its investment core. We believe that the above-mentioned differentiated composition is not entirely based on the limitation of large Chinese Internet companies not being listed on A-shares, but more reflects the significant differences in the understanding of Metaverse between Chinese and American investors.

Chinese investors have fallen into the “immersion” of Metaverse, hoping to promote Metaverse’s direct-to-consumer business as soon as possible; while American investors are betting on long-term “systematicness” and believe that the construction of open infrastructure is natural Will bring about an explosion of applications. The basic investment logic of the two is different. The high probability of investment performance will be reflected in the sequence of the outbreak time, the length of the investment return period, and the frequency of position adjustment.

In addition, we found that current investors tend to focus on the phased development of technology, and relatively underestimate the importance of the legal system that runs through the entire cycle of the meta-universe construction. The meta universe is a virtual parallel time and space that intersects with the real world. How to achieve it technically is important, but moral and ethical constraints are another key variable that influences the development process. Therefore, we recommend that investors pay close attention to the trend of Internet supervision. In the early stage of construction, continue to hold diversified investment in large-scale technology enterprises, and at the same time, do not ignore the advance deployment in the fields of network security, privacy computing, and blockchain.

There are significant differences in the understanding of the composition of the metaverse between Chinese and American investors. China emphasizes “immersive applications”, while the United States emphasizes “functional platforms.”

We sorted out and analyzed Wind’s latest A-share Metaverse Index and the constituent stocks of the US Roundhill Ball Metaverse ETF, and found that computing power and application software are the areas where Chinese and American investors have reached a higher consensus. But in addition, China and the United States The focus of investors in the layout of the meta universe is significantly different (as shown in Figure 1). In the A-share Metaverse Index, games and consumer electronics (including but not limited to AR/VR) accounted for 24% and 19% respectively, which are well-deserved investment focuses. In the Roundhill Ball Metaverse ETF, the two accounted for only It is 5% and 9%. Compared with specific meta-universe concept games, the US Meta-universe ETF is more keen to invest in game platforms that support game development, accounting for 19%, while China A shares currently lack mature such targets. In addition, the cloud computing companies in the A-share Meta Universe Index account for only 4%, while the US ETF’s cloud computing layout is about 23%.

Although China’s large technology companies are not listed on A-shares may be part of the reason for the above discrepancies, in theory, the Hong Kong stock market, which has more investment targets, has not seen the explosion of the concept of meta universe. Therefore, we believe that the above-mentioned structural differences reflect more of the differences in understanding of the meta universe between Chinese and American investors. According to Roblox ‘s official statement, Meta universe products should have eight elements: identity, friends, immersion, low latency, diversification, anywhere, economic system, and civilization. Chinese investors fall into the “immersion” of Metaverse, betting on the increase of consumers’ actual investment in pursuit of immersive experience. Both games and consumer electronics are directly facing consumers. Games are super numbers that enhance their sense of identity and stickiness. Scenes, and consumer electronics is a hardware carrier that enhances immersion. American investors tend to believe that Metaverse is a fully functional and open economy. As long as the underlying facilities are built, the endogenous economic cycle will start spontaneously. Chinese investors are more concerned about the possibility of a short-term meta-universe landing, while American investors are more focused on the long-term basic layout. Based on this, we can also judge that the application scenarios of China Metauniverse will be implemented faster and the outbreak period will be earlier, but with the changes in technology and mode, frequent exchange of positions may be required; while US investors focus on the deployment of Metauniverse infrastructure and functions Sex platform, the investment return period is relatively long.

Figure 1: Differences in understanding between Chinese and American investors on the composition of the meta universe

The Sino-U.S. Differences in Metaverse Investment

Source: ICBC International, Wind, Roundhill Investment

The construction of the meta universe is not only a technical issue, but also a social issue.

We believe that the current layout of Chinese and American investors in Metaverse is still incomplete. (As shown in Figure 2) Metaverse is not just a more immersive mobile Internet re-enactment, but a parallel virtual space-time that intersects with the real world. How to achieve it technically is one aspect, while moral and ethical constraints are another aspect. Key variables in the development process.

From a technical point of view, Meta Universe investment mainly follows two directions, “from virtual to real” and “from real to virtual”. From virtual to real, it corresponds to the extension from the digital world to the physical world. Through immersive sensory impact, including but not limited to games, videos and live broadcasts, it attracts a large number of consumers with a sense of identity to stimulate virtual experience and reality. The interactive potential of the world. The augmented reality game Pokemon go released by Nintendo has demonstrated a variety of ways to combine virtual and real, such as using mission mode to guide players to specific locations, or cooperating with the brand to issue limited-edition merchandise admission tickets. Following this direction, the areas worth investing in are mainly ways to enhance the digital experience, that is, A-share chasing hot games and AR/VR.

From the real to the virtual, it points to the process of replicating from the physical world to the digital world. In the mobile Internet era, text, pictures and videos are all presented in 2D. In order to simulate the real world as much as possible, Metaverse needs to create more realistic virtual scenes through lidar, 3D modeling, etc., and highly restore the physical rules of the real world. The process also includes the virtualization of people (digital people). . The investment areas in this direction are mainly basic engines and digital avatars (Avatar), etc., and this part is precisely the focus of the US Metaverse ETF.

From an ethical point of view, Meta universe investment needs to be carried out in two dimensions. The first is to promote good connections. The goal of rational people in economic activities is to maximize their own interests. Therefore, at the beginning of the establishment of the metaverse, the sustainable operation of the economy and the continuous enrichment of the ecology are inseparable from an effective economic incentive mechanism. In the era of mobile Internet, information asymmetry and continuous reduction of transaction costs have made value creation on an individual basis feasible, opening up a new economic model for creators. However, because Internet intermediaries use their market position to capture excess value, the enthusiasm of individuals to release value in all directions has decreased. For example, the game development company Epic Games recently accused Apple of charging 30% of the “Apple tax” by monopolizing the game app store, which inhibited the motivation of game developers to innovate. In addition to relying on government’s mandatory intervention, we can also use technology to change this status quo, use the incentive mechanism of digital currency and blockchain to achieve complete value capture and transfer, so that the platform can truly return revenue control to developers.

The second is to curb evil interactions. The virtual space of traditional games is created by centralized game companies. The “one-click restart” blurs the boundaries of the right to life, and virtual property has not yet truly belonged to individuals, and game companies have the absolute right to dispose of personal virtual property. Therefore, under the premise of complete independence from reality, the violation of the basic rights of others is usually unrestricted. But as the meta-universe connects the physical world and the virtual world, and NFT marks digital goods as privately owned, we need to re-examine the boundaries of virtual crime. Obviously, we cannot tolerate the snatching of NFT artworks collected in the virtual world (hacking), nor can we accept that what we do is constantly monitored (infringement of privacy). Therefore, network security and privacy computing are an indispensable part of the meta-universe, and should even precede the expression of technology. We found that A-share investors have paid attention to the topic of cybersecurity, which has not been included in the US Roundhill Ball Metaverse ETF.

Figure 2: Both China and the United States lack the meta-universe layout in the secondary market

The Sino-U.S. Differences in Metaverse Investment

Source: ICBC International

The three stages of the possible evolution of the meta-universe.

According to the descriptions of the experts we interviewed, based on the current level of human technology, it will take at least 10 years to achieve breakthroughs in underlying technologies such as computing power to achieve an oasis similar to the one in “Top Player”. But this does not mean that the substantial promotion of the meta universe will face a decade of stagnation. The reason why Metaverse is exciting is that it allows us to see the usefulness of these cutting-edge hardware and software technologies and explores the many possibilities of technology to change the world. Therefore, it is necessary to look at the evolution trend of the metaverse geographically in stages, and the return on investment and investment return cycle of different technologies will also show phase differences. Based on our current understanding, the evolution of the meta universe may go through the following three stages. But it needs to be emphasized that the evolution of the meta-universe stage and the concept of meta-universe itself

There are still huge uncertainties in existence. We recommend that investors pay close attention to the evolution of basic science and underlying technology, as well as the development trend of Internet supervision, and adjust investment decisions in a timely manner.

The first stage (1-5 years): Combination of virtuality and reality. In the initial stage of the meta universe, the existing production process and demand structure of the physical world have not changed, and the online and offline business model will continue to accelerate its evolution through immersive experience. Take the purchase of clothes as an example. In the early days, we obtained graphic information by browsing graphic reviews on e-commerce platforms. Buyer shows and seller shows became the topic of ridicule. Nowadays, short videos and live broadcasts have become a trend, and clothes are presented in a three-dimensional interactive manner. The effect on different models can reduce information bias to a certain extent; in the future, with the support of AR/VR technology, we are expected to directly see the visual effects of clothes on ourselves, so as to make more reasonable purchase decisions. The so-called hearing is fictitious, seeing is believing. On the surface, immersion is a form of rich sensory experience, but from the core analysis, immersive experience actually inherits the attributes similar to the blockchain, that is, full acquisition. There may be more real and useful information to promote the interaction between the virtual experience and the real world. It can be seen that the key areas of investment at this stage are tools for immersive experience and O2O leaders with brand cooperation capabilities. Currently, leading Internet companies with diversified businesses are still the main beneficiaries. As AR/VR enters the commercial stage, the popularization of consumer-grade products will also bring extensive investment opportunities across the entire industry chain.

The second stage (5-20 years): the birth of the real and the virtual. Digital technology will not only make the virtual world more real, but will also transform the production process of the physical world. According to data from the Mob Research Institute, as of December 2020, affected by the epidemic, the average daily use of mobile phones per person throughout the year reached 5.72 hours, excluding sleep time (assuming 8 hours), accounting for about 36% of the entire day. We predict that in the second stage, the proportion of people’s time in virtual space is expected to rise to 60%. On the one hand, advanced technologies such as artificial intelligence, big data, and industrial intelligence have greatly improved production efficiency, and the demand for labor in the real world has dropped sharply; On the other hand, the connotation of the virtual world is constantly enriched, not only for entertainment, but also for our work and life to gradually migrate to the meta-universe. Related businesses such as artificial intelligence, bionics, and basic engines will officially enter the commercial realization stage.

The third stage (over 20 years): Virtual is real. The ultimate form of the meta-universe is human immortality, that is, humans use the interactive technology of brain-computer interface to upload the entire brain to the virtual space, and completely get rid of the shackles of the physical body. By then, the proportion of human time in the virtual space may be close to 100%, and the physiological needs of human beings will continue to decrease, replaced by complete spiritual consciousness. In this state, the current production of food, clothing, shelter and transportation in the physical world may completely lose its meaning. The meta-universe does not even need to simulate reality in the virtual world, but directly provides human neurons with corresponding sensory stimulation, but it will also Facing a re-examination of morals and ethics. In the process of “decarbonizing into silicon”, human beings may eventually be able to overcome the fear of their own existence through technological breakthroughs and evolve into higher-dimensional life forms.



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