What Facebook's Meta plans mean for digital currencies and blockchain

Mark Palmer, BTIG Senior Research Analyst, joins Yahoo Finance's Brian Sozzi and Emily McCormick to discuss how Meta plans to build out augmented reality platforms and the metaverse.

Video Transcript

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EMILY MCCORMICK: It's time now for our call of the day. Last week, Facebook's CEO Mark Zuckerberg announced the social media platform was rebranding as Meta to capture its focus on building out augmented reality platforms and the metaverse. The company already plans to [INAUDIBLE] this year to jumpstart that effort.

Here to discuss this and more is BTIG analyst Mark Palmer. And Mark, you recently published a note about what this rebrand by Facebook and a slew of artificial intelligence, artificial reality related announcements, means for digital currencies and NFTs and other blockchain based worlds already. So what is that connection between what Facebook is doing now and what's happening in these other blockchain based virtual worlds already?

MARK PALMER: Yes, well, in a sense, Facebook, or now Meta, is somewhat late to the game, as it pertains to the metaverse because the metaverse has been under construction now for the last number of years. And that is within the construct of blockchain and NFTs and cryptocurrencies. You know, we already see virtual worlds that have been well established, the likes of Decentraland and the Sandbox and Axie Infinity.

So, Facebook coming along was really viewed by those within the space as something of a double-edged sword. On the one hand, the announcement definitely drew attention to the metaverse. We have individuals who had never heard the term metaverse who are now hearing about it in the news. They're talking about it. They're beginning to understand what it means. On the other side, the perception is that Facebook is an imperfect messenger as it pertains to building what they describe as the metaverse.

You know, frankly, most of those who are in the blockchain world with whom we've spoken, you know, just see Facebook's effort as described as being kind of a warmed over virtual reality levering off of what they already have with Oculus, as opposed to something that's truly innovative. And there are big differences here between what you see in the blockchain world and what you see with Facebook.

BRIAN SOZZI: Mark, maybe you can break this down for the newbies out there that don't follow the space as closely as you. You highlighted there has been movement off of this news in tokens of other immersive metaverse games. What does that mean, and where are you seeing these moves?

MARK PALMER: Yes, you know, we're seeing the tokens of, as I mentioned, Decentraland and others that have moved on this. Frankly, even within the equity world, one of the names that has really benefited is Galaxy Digital. It's a company that we cover. We have a buy recommendation. Galaxy Digital runs a number of funds. They're called the Galaxy Interactive Funds, where they are investing in the metaverse in the NFTs, which are really the means through which ownership is expressed in the metaverse. And Galaxy Digital shares have really taken off and as we've seen reverberation from what's going on here.

But what I think is important to note is that if you look at the sorts of virtual worlds in which Galaxy is investing, these are-- they are decentralized. They are permissionless. They are open, they're transparent, and they're owned by communities.

So they have tokens which investors can trade in, but they're usually run by what's known as a Decentralized Autonomous Organization, a DAO, which means there's no board of directors, there's no centralized company. In contrast to that, what we're hearing about vis a vis Meta, it's centralized, it's closed, it's opaque, it's permissioned, and it's owned by one of the largest companies in the world. That's a very stark contrast.

EMILY MCCORMICK: Mark, one of the things that Facebook and now Meta CEO Mark Zuckerberg had said during last week's conference was that he projected the metaverse would eventually reach 1 billion users and support hundreds of billions of dollars in commerce in the next decade. I'm wondering as an investor, is Facebook, now Meta, the best way to play this sort of investment if you believe those sorts of projections? Or are there other areas that investors should be focused on?

MARK PALMER: Well, again, we fully agree that the metaverse is going to be and is already, frankly, and in a tremendous way through which investors can gain access to the next generation of the internet. You know, again, we think that there are going to be many different decentralized versions of the metaverse that are going to be extremely attractive to users once they understand exactly what they are.

Again, you know, in the public equity markets, Galaxy Digital through its Galaxy Interactive Funds is investing in this. You know, we believe there are going to be other expressions of that. Coinbase has its Coinbase ventures arm, which is investing in metaverse plays as well. You know, all of these are bubbling up. And again, NFTs, nonfungible tokens, are the means through which ownership is expressed in this world.

And we're beginning to see more and more firms in the public equity realm that are getting into this space. Coinbase announced recently that it will be launching an NFT marketplace by the end of the year. A couple of days after they announced that, they had 2 and 1/2 million users on a waiting list for that marketplace.

You know, so this is coming to investors. It's going to be accessible through the equity markets through Galaxy, through Coinbase. We think we're going to see others. But the upshot is that the metaverse is out there in a decentralized form. And frankly, we think that that is the most likely winner when all is said and done.

BRIAN SOZZI: Mark, how difficult is it to put a fair value estimate on this stuff like tokens? And these are not like investing in a Caterpillar, where I can go touch and see a dump truck. I mean, talk to us about the analytical process.

MARK PALMER: Well, if you put Bitcoin aside, because Bitcoin is really more like digital gold-- it's its own animal-- tokens are, as we view it, kind of like the tickets that you need to buy at a carnival to go on a ride. And if the rides in that particular carnival are particularly really exciting, then you're going to want to buy those tickets to get access to them. You know, so we look at any of these tokens as being effectively tickets to a carnival. And, you know, from a valuation standpoint, what you're looking at is the revenues that are generated by the projects that are built on the blockchains in question.

You know, so if you look at Ethereum, you look at Avalanche, you look at Solana, all of them have attracted developers who are building projects on their blockchains. Those projects are run on the native tokens of those projects. So that could be Ethereum. It could be AVAX in the case of Avalanche. It could be SOL in the case of Solana. You know, so the revenues that are generated by those projects are expressed through those tokens. Frankly, that means you've got a revenue stream that you can assess, which can translate easily into a stream of cash flows, which can be discounted and valued just like equities.

EMILY MCCORMICK: All right, BTIG analyst Mark Palmer, thank you so much for breaking that down for us.