NFTs and the Metaverse are a huge opportunity, but today these platforms have been enabling a variety of illegal activity. The problems range from a lack of proper KYC to an inability to validate the provenance of items registered on NFT platforms, all of which enables criminal activity. These criminal activities have been reported on PaymentsJournal here, here, and here. To promote a safe environment and to increase its brand awareness, JP Morgan could establish rules that define the metaverse environments it will participate in.
At a minimum these rules should mandate no NFT purchasing or trading is allowed unless bank grade KYC is implemented. Also, no NFT platform should be allowed in the environment unless it has the ability to validate provenance of registered items and can protect those digital assets. Selected NFT platforms should also be screening transactions for kiting and AML and file SARs via banking partners.
Cameron Hejazi, CEO of NFT platform Cent, shut down his own platform because of all the criminal activity he was incapable of preventing. He also points out that these problems are rampant on other NFT platforms as well. This is not an environment banks should engage in unless it limits its participation to sites that operate responsibly:
“Virtual real estate ownership is one area JP Morgan is eyeing, citing the fact that in just six months in 2021 the average price of a parcel of virtual land doubled, jumping from US$6,000 in June to US$12,000.
The bank forecasts a virtual real estate market that could eventually start seeing services much like in the physical world, including credit, mortgages and rental agreements, and from this emerge decentralised autonomous organisations as financial arms for those purposes.
Another is virtual gaming, a landscape with its own population – GDP, in-game currency and digital assets – that parallels the existing global economy. JP Morgan believes this presents an opportunity for the bank to play a major role – given its long-standing core competencies in cross-border payments, foreign exchange, financial assets creation, and trading and safekeeping.
Investment banks predicting metaverse market values
While JP Morgan is the first major bank to claim a stake in the metaverse with the launch of its new lounge, it is not first to acknowledge the trillion-dollar potential of virtual space.
In November last year, crypto investment giant Grayscale said in a report titled ‘The Metaverse, Web 3.0 Virtual Cloud Economies’ that the metaverse represented a more than US$1trillion annual revenue market, with blockchain’s potential to provide infrastructure for digital worlds. While, in December, Ark Invest’s CEO Cathie Wood told CNBC that the metaverse is a multi-trillion-dollar opportunity, saying that she believed it will go way beyond the gaming and consumer goods industry and infiltrate every sector of the economy.
It’s a belief held by rival investment companies. Goldman Sachs recently predicted the metaverse as a US$8 trillion market opportunity globally, while rival investment giant Morgan Stanley sees it as an opportunity in the future, but for China alone.
In a note to investors, analysts at the bank predict the metaverse’s initial total addressable market in China will be around US$4 trillion, as it replaces the mobile internet with a more ‘immersive experience’, but that once the metaverse starts disrupting offline activity like test-drives, real-estate showings and education, the opportunity would reach US$8 trillion.
With such an opportunity, it’s likely more banks and investment firms will make their entrances into the metaverse this year. Watch this space.”
Overview by Tim Sloane, VP, Payments Innovation at Mercator Advisory Group
