A map of land in The Sandbox metaverse.
- The metaverse will cause the biggest disruption to human life ever seen, and investors need to be ready, Jefferies said.
- Wall Street banks are increasingly excited about the metaverse — a catch-all term for various virtual worlds.
- Yet institutions need to guess what it will look like, which makes investing wisely difficult.
Jefferies has said the metaverse will be the biggest disruption to how we live ever seen, as Wall Street bankers warm to the idea of virtual worlds and economies.
Investors need to be thinking about the metaverse as akin to the internet in its early days, according to the firm's analysts.
"A single metaverse could be more than a decade away, but as it evolves, it has the potential to disrupt almost everything in human life," the analysts, led by equity strategist Simon Powell, wrote in a Monday note.
"The pandemic accelerated the adoption of various technologies ... This shift to an online world will continue."
The term "metaverse" refers to various virtual worlds, where users in the form of avatars can play games, work, build things, and watch live events.
Powell said investors should concentrate initially on the hardware needed to help create the metaverse from the internet; then look at the software that will host it; and then focus on the businesses that will be intimately involved in it.
Jefferies' enthusiastic note is the latest sign of big institutions scrambling to position themselves to make money from the technology, which could become a major feature of peoples' lives.
In some metaverses, people can earn cryptocurrency and trade crypto collectibles known as non-fungible tokens, or NFTs. Virtual land has been selling fast in Decentraland, while a plot in The Sandbox went for $4.3 million.
The decision by social-media giant Facebook to change its corporate name to Meta and direct its firepower toward building a metaverse made many investors realize virtual worlds could be the next big thing.
"Facebook came in and changed the name [to] Meta ... and then we saw investor sentiment changing fast," Haim Israel, equity strategist at Bank of America, told Insider.
"Investors' interest, market interest is really high right now," he added.
Morgan Stanley is one of many big banks excited about the prospects. Its analysts published a note in November calling the metaverse "the next big theme" in investing.
"It can fundamentally change the medium through which we socialise with others, watch music performances, engage with fashion brands, learn and/or speculate on digital assets such as NFTs or in-game skins," they said.
Read more: 4 star stock pickers from Baillie Gifford have collectively returned 356% to investors in the last 5 years with major bets. Here's their outlook on the metaverse, play-to-earn games — and their thesis on 8 high conviction stock ideas
However, it's far from clear what shape the metaverse is going to take — and that could pose a problem for investors.
Skeptics argue that virtual worlds have been around for years. They say previous metaverse-like technologies, such as virtual-reality headsets, have proved to be disappointing flops.
Raj Gokal, a co-founder of the solana crypto network, has called the metaverse "overhyped," given that few products have been released yet.
But the Jefferies analysts said gaming is likely to be the biggest sectoral winner in the coming years, as millions of Gen Zs and Millennials are already getting into metaverse-like games such as Roblox.
The investment bank reckons blockchain technology will play a big part in the metaverse, and so it recommends looking at crypto companies like Coinbase.
BofA's Israel told Insider that he thinks the metaverse will be a "massive, massive opportunity" for the crypto ecosystem. He predicted that these virtual worlds will be where "we're going to start using cryptocurrencies as currencies."
Read more: More than $100 million of metaverse land was sold in the last week alone. The co-founder of a virtual real estate company breaks down why the opportunity in digital properties could rise 200x in 16 months.
