By Medha Singh and Lisa Pauline Mattackal
(RockedBuzz via Reuters) -Bitcoin? It’s an old concept, says a group of cryptocurrency investors who are betting on blockchain technology breathing new life into traditional assets.
As cryptocurrency prices fluctuate ahead of their next pivot, the market for “tokenization” — the issuance of blockchain-based digital tokens representing assets from bonds to stocks to real estate — may finally reach critical mass.
Large financial firms such as London Stock Exchange Group, WisdomTree and Mirae Asset Securities have invested in token trading and investment platforms in the past year, or are in talks to develop them. Others such as Franklin Templeton, UBS Asset Management and ABN Amro have launched tokenized versions of assets such as money market funds and green bonds.
According to two surveys of a total of more than 300 traders conducted by EY-Parthenon, more than one-third of institutional investors in the United States and nearly two-thirds of high-net-worth investors plan to invest in tokenized assets this year or next. May.
According to Colin Butler, global head of institutional capital at blockchain firm Polygon Labs, this is a potential for transaction cost savings surrounding large investors.
“It’s a knife fight right now for market share and profits, so these cost-cutting ideas are very powerful,” he said, adding that institutions have spent years researching tokenization and now feel more at home comfortable launching projects.
Proponents say tokenization offers traditional finance more transparent trading, greater liquidity, as well as reduced settlement costs and times, by automating processes via smart contracts, blockchain-based agreements that settle automatically.
On the other hand, critics point to large gaps in trading infrastructure, lack of cohesive global regulation and still limited traction with investors. Indeed, the actual issuance and value of traditional tokenized assets remains limited.
NETWORK EFFECT
According to data from Dune Analytics, the market capitalization of tokenized public securities is $345 million, a fraction of the broader $1 trillion cryptocurrency market. These tokens have seen growth of 2.3% over the past 30 days, lagging bitcoin’s rise of around 10% over the same period.
But some see a bigger future; a joint report by Northern Trust and HSBC earlier this year estimated that 5% to 10% of all assets would be digital by 2030.
Although the idea of tokenization has been around almost as long as Bitcoin, the nascent market has not lived up to expectations. Some market players are now seeing significant progress.
“I think this time is different, especially because we are now seeing senior-level buy-in from large firms,” said Morgan Krupetsky, head of institutions and capital markets at Ava Labs.
Obstacles remain, and market participants highlight, among other things, the need for larger trading pools. Yet some are optimistic.
“In the future people are hoping for a better network effect where more companies adopt the same platforms so that assets become more tradable,” said Doug Schwenk, CEO of Digital Asset Research.
(Reporting by Lisa Mattackal and Medha Singh in Bengaluru; Editing by Tom Wilson and Pravin Char)
