Investment Thesis: Blockchain Gaming & Entertainment

The digital assets industry encompasses diverse sectors, each presenting unique strengths and investment potential. The strategic allocation of capital across these sectors can define the difference between a well-diversified portfolio generating positive returns and a concentrated one overly reliant on specific sectors.

In this series, we aim to highlight interesting sectors and explain why the Hodl Funds chose to invest in them. One such sector is blockchain gaming and entertainment.

Many people see the blockchain as a big database although understandable, it’s quite inefficient. The best way to see a blockchain is that it’s a system that is incredibly efficient in transferring ownership of assets and recording this, for example transferring a Bitcoin or Ether. This technology of recording and transferring ownership has now spread to various sectors including the gaming sector. 

In conventional games, gamers can acquire a game and create an account but they don’t “own” this game or account or even their in-game assets. The gaming studio remains in full control of the account as they can ban you and although these in-game assets can be sold on digital marketplaces, these can’t be converted into money through conventional means. 

With the introduction of blockchain technology and non-fungible tokens (NFTs) in games, users gain full control over assets and accounts as most blockchains operate permissionless, meaning there is no central authority, and your account can’t be confiscated. These NFTs represent in-game assets such as a sword or clothing and are continuously tracked on the blockchain. Furthermore, as gamers own their in-game assets, they can sell these against a particular digital asset, usually the native currency of the game, which in turn can be converted into money. Simply put, blockchain-based games have integrated blockchain, digital assets, and NFTs, allowing users to own their assets and potentially monetize them. 

Why is Blockchain-gaming & Entertainment important?

Since 2017, the gaming industry’s revenue has increased from $113.64 billion to $249.58 billion in 2023, with further expansion to $363.18 billion by 2027. Additionally, the number of users will have expanded to over 1.4 billion (Statista, z.d.). However, of all this revenue, a negligible amount goes to the gamers, who are the most crucial component of the gaming market. 

The gamers who do earn money are professional gamers and streamers, however, not everybody has the skills or time to achieve these professions while 21% of US adults between 18-29 play 6 -10 hours per week (Statista, z.d.). 

Blockchain-based games aim to give power to gamers by allowing them to own their in-game assets, as to be fair, they have spent considerable time gathering these assets. Most importantly, gamers can earn some money with their invested time, allowing more gamers to benefit from the growing popularity and revenue of the sector. 

Why should Blockchain-gaming & Entertainment be part of a portfolio?

We believe blockchain gaming & entertainment should be part of the digital assets portfolio for various reasons. Firstly, the gaming industry shows no signs of slowing down, and with an increasingly digitalizing world, video games will be a popular leisure activity, especially for younger generations. Secondly, the younger generations such as Generation Z, people born between 1997 and 2012, and millennials, born between 1980 and 1996, dominate the digital assets market in investment and interest (Bitpanda, 2024), according to a Bitpanda and YouGov survey. This is not surprising, both generations have grown or were born into an increasingly digital world, so why not digital currencies?

Since younger generations show a strong interest in digital assets and video games, it seems to us only a matter of time before we see a broader integration of digital assets within gaming. Additionally, the blockchain gaming market is still relatively small, with the total Gaming Finance (GameFi) market having a market capitalization of $16.8 billion (Top Gaming (GameFi) Coins By Market Cap, z.d.). If mainstream adoption of blockchain gaming and greater integration with conventional games occur, we expect the market to experience significant growth.

Off the Grid

Off the Grid is a cyberpunk-themed battle royale game. This online multiplayer game blends last-man-standing gameplay with survival, exploration, and scavenging elements, which is integrated with the Gunz network. This network is an innovative and sustainable blockchain-based digital economy platform fully built on an Avalanche Subnet. The unique element of “Off the Grid” is that players aren’t forced to play the NFTs. The game allows gamers to play without NFTs and any gameplay limitations. If players change their minds and do want to experiment with this technology, they can always opt-in.

If you want to read more about “Off the Grid”, we recently published an article that dives deeper into the subject. You can access the article through the link below.

Read “Off the Grid” Article

Beam

Merit Circle is dedicated to revolutionizing gaming by empowering individuals to shape its future. Its Decentralized Autonomous Organization aims to achieve this through four distinct branches - Investments, Infrastructure, Gaming, and Studios - each contributing value to the gaming industry. Additionally, it has launched a gaming-focused network called Beam, heralding a new era of blockchain-based gaming, which also launched on a subnet on Avalanche.

If you want to read more about Beam we have published an extensive report on its network and token. You can access the article through the link below.

Read the Beam Report

Hodl’s takeaways

The conventional gaming industry has experienced tremendous growth and it doesn’t show any signs of slowing, with revenue projections reaching $363.18 billion by 2027. Additionally, the number of users in the industry will have expanded to over 1.4 billion. However, most of this revenue will go to gaming studios and developers with a few lucky gamers such as professionals and streamers. As a result, the majority of gamers are sidelined in monetary terms while they are the most important aspect of the gaming industry.

Blockchain-based gaming provides gamers with the possibility to earn a slice of the pie through the implementation of NFTs and blockchain technology. As most younger generations tend to play video games and invest in digital assets, we expect that we are at a critical juncture in the gaming industry. With a relatively slow market capitalization of $16.8 billion, we expect the market to experience significant growth as more gamers experiment with these games. 

However, it is important to note that it isn't financial advice and don't concentrate all your capital on the blockchain gaming sector, as this would create an unbalanced portfolio. Additionally, investors need to decide whether to invest in one or multiple projects within the sector, each option has advantages and disadvantages.

Further reading

• Investment Thesis: Scaling Solutions
• Investment Thesis: RWA & DePIN
• Investment Thesis: Lending & Borrowing
• Investment Thesis: Interoperability
• Layer 2 Solutions: A Path Towards Scaling

Bibliography

• Bitpanda. (2024, 8 August). Bitpanda Research: Who are Europe’s crypto investors? Bitpanda. https://blog.bitpanda.com/en/bitpanda-research-who-are-europes-crypto-investors
• Rouse, M. (2023, 21 December). What is GameFi? Techopedia. https://www.techopedia.com/definition/what-is-gamefi
• Statista. (z.d.). Video Games - Worldwide | Statista market forecast. https://www.statista.com/outlook/dmo/digital-media/video-games/worldwide#revenue
• Statista. (2024, 15 August). Weekly gaming hours of adults in the U.S. 2024, by age group. https://www.statista.com/statistics/202839/time-spent-playing-games-by-social-gamers-in-the-us/
• Top Gaming (GameFi) Coins by Market Cap. (z.d.). Coingecko.com. Accessed October 18, 2024, from https://www.coingecko.com/en/categories/gaming