I love Web3 gaming and a large portion of my money is invested in gaming NFTs and tokens. However, I am very negative on pure gaming tokens.
Markets need to normalize. Currently, I don't have any fondness for game projects that have completely lost their momentum since TGE.
If I were a trader, I would consider those who trade meme coins or bet on the booming artificial intelligence industry to be smart. There is currently no reason to bet huge amounts on gaming tokens, and that’s exactly what the market is actually doing. There are many reasons for this, but the main reason is that gaming tokens lack the critical ingredients to support overvalued market valuations.
Gaming tokens are overvalued
Few Web3 games can match its market valuation. Web3 games are overvalued even by float market cap rather than FDV. For example, Catizen, one of the biggest recent performers, currently has a market cap of about $200 million, assuming annual revenue of $20 million.
Source: Foresight News
To understand simply, you can compare tokens to stocks to assess their valuation. South Korean gaming company Shift Up, which recently went public, has a market capitalization of about $2.4 billion and 2023 revenue of $140 million. The market thinks it is overvalued because it has huge future potential.
Nexon has a market capitalization of $16.3 billion and annual revenue of $3 billion. Krafton has a market capitalization of $12.3 billion and annual revenue of $1.5 billion. Take-Two Interactive has a market capitalization of $26.3 billion and annual revenue of $5.3 billion. For most large gaming companies, annual profits typically represent 10-20% of their market capitalization.
Image source: Foresight News Token economics is based on the premise that the game will grow unconditionally
Let’s take Catizen as an example. Judging from the market value, this seems to be a very healthy project, but the problem lies in the unlocking mechanism. Mainstream game companies need financing to expand, but the tokens of Web3 game projects are automatically unlocked.
In fact, it is impossible for a pure game project to grow without infrastructure. Unless there are exceptional circumstances, it's common for most games to have their highest number of users at launch and then slowly decline. In other words, the idea of self-increasing value of Web3 games goes against the laws of the market.
Meme coins are more attractive than game tokens
The ability to spot low market cap gems in trading is a valuable talent, and the simplest and most reliable signal is volume. Low trading volume means the market is less interested, which naturally results in weak upward momentum. Who wants to trade an industry that has been declining since its listing?
Source: Foresight News
Image Source: Foresight News If you were a gambler, which token would you bet on when liquidity returns to cryptocurrencies?
Comparing the charts of $NEIRO, $CATI, and $HMSTR on Binance, we can see obvious differences. Although $CATI is significantly better than traditional Web3 games in terms of game revenue, and is also significantly better than $HMSTR in terms of external social media revenue, the market performance is not ideal. On Binance, the trading volumes of $NEIRO and $CATI differ by about 10x.
Given the current market sentiment and willingness of exchanges to list, this is one of the worst times for a typical gaming token to do a TGE. Gaming is inevitably driven by venture capital, and projects that cannot compete in the current market will quickly pass through NFT sales, node sales, and TGE, and then exit. Therefore, it is better to trade and hold meme coins than gaming tokens.
I believe the three principles that determine stock prices are: expectations of the company's future value, the company's performance record, and market supply and demand fluctuations. Currently, game tokens have no track record, supply exceeds demand, and unless they have special marketing tools, their future competitiveness as pure games is unreliable.
While it may not be entirely appropriate to compare gaming tokens to stocks, it is useful. The key is which projects hold the key to driving the market narrative. If a company's future value depends solely on its games, it won't survive. It needs infrastructure, it needs technological enablers.
Alternatively, unlock all tokens from the start and let the market determine the price.
final thoughts
Source: Foresight News
I believe the first quarter of 2025 will see a significant rally for cryptocurrencies. I like Web3 games as many people do, however, I feel that the FDV of pure Web3 game tokens needs to be lowered. Of course, if you have infrastructure or a technical moat (such as a game chain), you can get a higher valuation. But now, there are many games that have high valuations but only serve the game itself.
This can be the worst time for a game project, or it can be considered a normal process. This year I participated in several rounds of KOL financing for game projects, and most of them resulted in losses. The addition of VC makes FDV higher and higher, and the token locking structure violates the law of averages.
However, some gaming projects will survive this process, and we want to bet on those that can expand functionality to the platform and infrastructure based on revenue. Remember, it is one or two giants that move the market, and we are in front of the traders and can pick the protagonists first. However, our weakness may be being too obsessed with the future of gaming. Even though we love games, we need to try to commercialize them.
[Disclaimer] There are risks in the market, so investment needs to be cautious. This article does not constitute investment advice, and users should consider whether any opinions, views or conclusions contained in this article are appropriate for their particular circumstances. Invest accordingly and do so at your own risk.
This article is reprinted with permission from: (Foresight News)
Original author: 1mpal
