3 reasons why the MANA and SAND metaverse token rally could end soon

The metaverse hype that started in 2021 almost completely disappeared in late 2022 when the top projects in the space, Decentraland and The Sandbox, lost 95% of their market cap. The most prominent reason for the drop was lack of user growth.

Still, the metaverse story is far from dead and will grow in the future. Apple is reportedly set to launch its virtual reality gear sometime in spring 2023. The announcement was a positive catalyst for Decentraland’s MANA and The Sandbox’s SAND, driving a double-digit price increase.

While there is evidence of positive buying volume supporting the pump, the weak fundamentals of metaverse platforms and overheated market indicators suggest that the price pump is threatening to reverse soon.

Apple’s pump-and-dump

Facebook’s (Meta) foray into the metaverse was one of the most prominent catalysts for metaverse tokens. The idea for the growth of Decentraland and The Sandbox is that a decentralized metaverse would flourish more than the centralized version of Meta.

However, the technology has yet to become popular with the masses. In 2022, the percentage of VR users among Steam gamers was less than 2%, and usage should continue to grow over the past two years. This is discouraging for the adoption of the technology, as the gaming sector was the first to embrace it.

The technology suffers from a fundamental problem where VR headsets are not suitable for long hours. Studies have shown that prolonged use of headsets can cause psychological problems.

Apple’s recent VR news sparked a surge in metaverse tokens, but this doesn’t necessarily translate into the success of these projects. Samsung and Meta-owned Oculus already have devices on the market, which raises the question of the potential impact of Apple’s new devices on VR adoption.

Bad usage data hinders the reality of an ongoing metaverse token rally

No doubt metaverse euphoria peaked in the last quarter of the same year when Facebook rebranded as Meta. However, the usage stats of the two most popular metaverse platforms, The Sandbox and Decentraland, remained unimpressive during the price hike. On both platforms, fewer than 5,000 unique active wallets (UAWs) were interacting with the smart contracts at the peak.

Sandbox’s unique wallet addresses the interaction with a decentralized application’s smart contracts. Source: DappRadar
Decentralized and unique wallet addresses that interact with the smart contracts of a decentralized application. Source: DappRadar

Since then, usage has declined even further, with less than 1,000 UAWs per day, reflecting terrible fundamentals.

Furthermore, while token prices have increased, non-fungible token sales for The Sandbox countries have not improved since the last quarter of 2022 with comparable prices and volumes. It confirms once again that activity on the platform is going smoothly.

Token dilution risks remain

Decentraland is also on Genesis’ creditor list, that is declared bankruptcy last week. According to court filings, the defunct lender owed Decentralized $55 million.

However, according to Decentraland’s Discord, Genesis only owes $7.8 million. A spokesperson for the community added: “The treasury remains healthy and the credit amount does not represent a substantial portion of the Foundation’s coffers.”

The Genesis question has long been known; it is therefore possible that the organization has already solved the problem. However, it is likely to affect the rate of growth of the ecosystem, which is small to begin with.

On the other hand, the SAND token suffers from dilution risk due to monthly unlocks until the end of the third quarter of 2024. If market conditions do not improve, some investors may be inclined to sell their share of the tokens.

Despite the shortcomings, as long as there is a possibility that the technology will become part of the future, the market will continue to appreciate the pioneers in the space. The problem is that long-term views may not support short- to medium-term rallies.

MANA/USD daily price chart. Source: TradingView

The sudden spike after days of low volatility has caused the Relative Strength Index (RSI) metric to show overheated readings. The situation has become more challenging, as the price has been trading with resistance from the breakout area of ​​the FTX collapse.

Nansen data shows that exchange inflows for MANA and SAND were $8.4 million and $12.6 million, respectively. It suggests that more investors have been selling than buying in a positive breakout.

Nevertheless, MANA’s recent uptick has been supported by healthy volume, such as reported by data from analytics company Santiment, which is encouraging for buyers. But MANA/USD needs to clear the $0.735 resistance and support area for lasting upside.

SAND/USD daily price chart. Source: TradingView

A similar trade setup for SAND sees resistance for the token around $0.93. If buyers overcome this level for the metaverse tokens, we can expect the rally to continue. However, based on fundamental factors and short-term risks, it remains unlikely that the price will be able to break through the resistance.