The crypto housing crash costing digital landlords a fortune

Investors imagined the rules of real estate in the physical world would apply to the virtual realm. Digital worlds were expected to become the new high streets, shopping centres and tourist attractions, making high-trafficked areas lucrative investments.

Today, these virtual worlds look more like a wasteland. User numbers have slumped and online searches for “metaverse” have dropped to less than a fifth of their peak just over a year ago. The most popular worlds have not proven to be the corporate-sponsored spaces developed by crypto bros, but video games such as Roblox and Minecraft.

Investment in metaverse property crashed to just $43m in the final three months of last year – a 95pc decline in six months.

The market slump in recent months is partly explained by a drop in the value of the cryptocurrencies used to buy and sell virtual properties – their value has roughly halved in the last year. However, the drop in virtual land values has been even more painful than the wider crypto market.

Dan Reitzik, the chief executive of TerraZero, a metaverse developer, says that the majority of purchases during the roaring months of the virtual property boom were from investors hoping that digital land would become the next Bitcoin.

“There was a lot of speculation at the beginning, but it was speculation based only on the appreciation in value, not on what you could do with the technology,” he says.

TerraZero itself spent millions, both in cash and equity, to acquire hundreds of parcels of metaverse land.

His Vancouver-based company hit headlines when it sold what became known as the world’s first “metaverse mortgage” to a client that needed financing to purchase a plot in Decentraland. After that, Reitzik says the company received thousands of requests for loans to buy virtual property.

“They weren’t wanting to build something, but wanting leverage to acquire land, believing that it would increase tremendously in value.”

As a result few property owners spent any time developing their plots, leaving the metaverses they had invested in barren and desolate. They simply assumed they would rise in value. In the physical world, housing developers have been accused of similar “land banking” tactics.

“People were buying [land], but not developing it, so there were no people that were coming to hang out in it,” says Reitzik.