Cryptocurrency innovation is transforming the way traditional investment products function and the way they are offered. Since the ICO wave that occurred in 2017 cryptocurrency markets have faced a backlash from regulatory authorities and have become muted, but the community is gearing up in a quiet manner and there are different kinds of financial products and services being offered such as tokenized securities in this evolving segment.
Trades in Cryptocurrency and Security Tokens
As ERC20 is being supported as a technical smart token system by many platforms, there is talk about SEC supporting the trade of smart tokens of this standard and there would probably be a licensed brokerage set up as well as a trading venue at Coinbase. This platform would then be able to offer investment products in the form of tokenized securities to its user base of ten million and more besides Amazon gift card. This is not the only platform, hoping to encash on tokenized securities and the potential of such products for investment. Overstock.com which is a subsidiary of tZero has showcased a prototype they are working on that will support trading in security tokens. Other trading platforms such as Gibraltar Stock Exchange, Sharepost, Templum and OpenFinance Network are also working on issuing such trades on security tokens. Even NASDAQ is also considering the possibility of adding on a crypto exchange.
The SEC had initially issued a statement on March 2018 stating that many of the online platforms that offer trade in digital assets are potentially unlawful entities. The organization outlined certain precautionary measures that investors should consider before they opt to sell or buy tokens online. The SEC has been increasing its presence in the crypto world which can help to weed out unlawful entities and will also help bring in institutional money in this segment.
Bringing in the Large Investors
Institutional money is one of the lacking in this growing segment of cryptocurrency investments. The lack of regulations is probably a major roadblock for investors to enter this segment. There are certain big entities like Rockefeller and Soros, who are introducing the blockchain or cryptocurrencies based funds as well as ventures like Mark Cuban who are accepting payments in cryptocurrency but the segment needs to see more money coming in through institutional investors.
If we look at the definition of what securities are, these are fundable and negotiable financial instruments that hold monetary value while cryptocurrencies are digital virtual currencies that are encrypted for security. Many companies are trying to take advantage of these emerging forms of securitization such as Muirfield Investment Partners who are a private equity based real estate investment firm that has tokenized private equity funds which would be launched this year.
Benefits of Tokenized Securities
The tokenized approach towards private equity has certain benefits to offer. Even though this new technology format will see a handful of investors being interested in them, over time there are certain benefits that everyone will find evident in it. For instance, liquidity opportunities are much more and this makes tokenized securities a more sound investment choice. Capital usually gets locked up when you invest in a fund which can be for a predefined time period; however, investors will be able to trade in and out by exchanging tokens in the secondary markets that make such investments more liquid. Portfolio managers can optimize performance of funds without having to stick to timelines that are strict and rigid. Tokenization grants offer greater liberties to managers as well as investors in the private equity segment.
Emerging Scenarios
Tokens that are regulated and offered as securities have an impact on the crypto space. Though this initial segment has been plagued by speculation, misinformation, and scams in 2017, this year there are seasoned professionals who are committed to getting the things right. Crypto investors can diversify their investment holdings into different assets that have tangible values underlying them and their wealth will remain secure even as they trade in digital tokens on blockchain domains.
Blockchain-based investment avenues are set to grow and with authorities like SEC taking serious interest in such domain, it will surely become a more stable and lucrative avenue. It has potential to be much more than an alternative investment channel and with stability and recognition coming to such investment funds and assets, institutional money will flow into such funds in a large way. Hence, for investors there would be more lucrative funds to invest in and see their money grow. At the same time, there would be more liquidity to benefit from.
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