Despite ongoing market volatility, adoption of blockchain and digital assets by financial institutions continues to accelerate. A recent survey by Citi Securities Services reveals that nearly three out of four financial institutions are now actively exploring digital asset initiatives, a significant increase from just 47% in 2022.
A clear consensus is emerging among major financial players: all assets will eventually become tokenized, and blockchain technology will form the foundation of future financial infrastructure.
Larry Fink, CEO of BlackRock, has described tokenization as the "next generation for markets," highlighting potential benefits such as enhanced liquidity, improved operational efficiency, and broader accessibility.
A growing number of firms are focusing on the multi-trillion dollar opportunity presented by asset tokenization. These include prominent names like AllianceBernstein, Bank of America, BlackRock, BNY Mellon, Boston Consulting Group (BCG), Citi, Goldman Sachs, HSBC, J.P. Morgan, Northern Trust, and PwC. For context, BCG projects that approximately $16 trillion in assets—primarily illiquid ones—could be tokenized by 2030. Similarly, Northern Trust and HSBC estimate that up to 10% of all financial assets may be tokenized within the same timeframe.
The Financial System's New Track
The widespread tokenization of real-world assets could have a profound impact on the digital asset market. The total market capitalization of all cryptocurrencies currently hovers around $1 trillion. In comparison, global equity markets are valued at approximately $230 trillion, and the global real estate market exceeds $300 trillion in total value.
This disparity suggests significant potential upside for specific digital assets. Securities-based lending presents one attractive avenue for participating in this evolving landscape.
A key question remains: will the unstoppable wave of tokenization boost existing cryptocurrencies or eventually replace them? The answer likely lies somewhere in between. Established, secure, stable, and efficient cryptocurrencies are poised to benefit from growing confidence and broader adoption of digital assets. Less favored cryptocurrencies may face obsolescence, similar to the fate of many internet companies after the dot-com bubble.
It is also evident that decentralized finance (DeFi), while proving the viability of new financial service models, continues to be plagued by scams and hacks. For digital assets to achieve mainstream adoption, they must operate within a safe, trusted, and compliant environment, much like traditional finance and capital markets.
In other words, without the security and infrastructure provided by regulators and established financial institutions, digital assets cannot achieve true scale. While DeFi has been crucial in demonstrating new possibilities, the future will likely not be fully decentralized. Traditional financial institutions are expected to play a key role in bringing blockchain-based paradigms to the masses.
To capitalize on the opportunities presented by the transition to blockchain-based financial infrastructure, investors might look toward established institutions leading this charge or maintain a focused watch on the evolution of cryptocurrencies and digital assets. 👉 Explore advanced investment strategies
Navigating the U.S. Regulatory Stall
According to the Citi survey, one of the biggest hurdles to widespread digital asset adoption over the next three years is regulatory uncertainty concerning governance, legal frameworks, and risk.
Perhaps the most significant obstacle originates in the United States, where regulators have yet to provide clear policy guidance for digital assets. This stands in contrast to jurisdictions in Europe and Asia, where regulators have offered more definitive frameworks.
The U.S. Securities and Exchange Commission (SEC) has repeatedly delayed decisions on allowing spot Bitcoin Exchange-Traded Funds (ETFs) proposed by firms like BlackRock and Fidelity. Meanwhile, Europe's first spot Bitcoin ETF began trading in August of this year.
It is noteworthy, however, that several U.S.-listed ETFs focused on cryptocurrency and blockchain equities are among this year's top 15 best-performing ETFs. This indicates that strong demand would likely emerge should the U.S. finally approve a spot Bitcoin ETF.
The disparity between the U.S. and other developed markets is unlikely to persist indefinitely. The longer U.S. regulation remains unclear, the more it risks pushing domestic crypto companies and innovators toward overseas markets. Once the fallout from the recent FTX collapse and crypto market downturn subsides, and as U.S. regulators observe other nations advancing, American policy may shift.
Of course, several other factors are crucial for achieving widespread crypto adoption, including improved education, enhanced interoperability, optimized infrastructure, and stronger security. These elements are also expected to fall into place, further paving the way for cryptocurrency's entry into the mainstream.
Acting on Conviction Through Securities-Based Lending
Some perspectives suggest that despite existing for over 14 years, cryptocurrency is still in its "early stages" as an investment. Cryptocurrency requires mainstream adoption to reach a scale that can support its exciting potential applications, from simplifying international payments to powering virtual world economies.
For investors looking to position themselves based on their outlook for the U.S. regulatory landscape and the overall evolution of the crypto market, securities-based lending can be a useful tool. This approach allows investors to use their existing stock or cryptocurrency holdings as collateral to secure liquidity. This liquidity can then be used to establish new positions or diversify a portfolio, all while allowing the investor to retain the potential upside of their original holdings.
In this way, securities-based lending offers a convenient, powerful, and flexible method for investors to act on their conviction regarding whether cryptocurrency investment is indeed still in its early innings.
Frequently Asked Questions
What is asset tokenization?
Asset tokenization is the process of converting rights to a real-world asset into a digital token on a blockchain. These tokens represent ownership and can facilitate easier, faster, and more fractionalized trading of assets that were previously illiquid, like real estate or fine art.
Why is regulatory clarity important for cryptocurrency?
Clear regulations provide a stable legal framework for businesses to operate within, encourage institutional investment by reducing uncertainty, and help protect consumers from fraud and malpractice. A well-defined regulatory environment is considered essential for the long-term growth and mainstream adoption of digital assets.
How does securities-based lending work?
Securities-based lending allows an investor to borrow funds using their existing investment portfolio (e.g., stocks, ETFs, or sometimes cryptocurrencies) as collateral. The investor receives liquidity without having to sell their assets, enabling them to pursue other investment opportunities while maintaining their original market position.
What is the difference between a spot Bitcoin ETF and a Bitcoin futures ETF?
A spot Bitcoin ETF holds actual Bitcoin, so its price directly tracks the market price of Bitcoin. A Bitcoin futures ETF holds contracts that bet on the future price of Bitcoin. Spot ETFs are generally considered a more direct way for investors to gain exposure to Bitcoin's price movements.
Will tokenization replace existing cryptocurrencies?
It is unlikely that tokenization will replace all existing cryptocurrencies. Instead, the trend is expected to coexist with and potentially benefit established, secure, and utility-driven cryptocurrencies by bringing more capital and legitimacy to the entire digital asset ecosystem.
What are the main risks of decentralized finance (DeFi)?
The primary risks in DeFi include smart contract vulnerabilities that can be exploited by hackers, protocol design flaws, significant price volatility of underlying assets, and a general lack of consumer protections and insurance that are standard in traditional, regulated finance.