The tokenization market is a potential 4,000x opportunity that is "having a moment," according to Bitwise investment chief Matt Hougan.
Hougan said this in a note to investors on Tuesday, citing statements from BlackRock BLK CEO Larry Fink and recent developments in the space.
In Fink’s annual shareholder letter this year, he wrote: "Every stock, every bond, every fund-every asset-can be tokenized."
The move towards this future appears to be underway.
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In the past month, Bybit, Kraken and Robinhood HOOD have all launched tokenized stock trading for non-U.S. clients and Coinbase COIN has applied to launch the product for U.S. customers. Meanwhile, financial institutions have poured $135 million into Canton Network, a new Layer 1 blockchain purpose-built for stock and bond trading. Mercado Bitcoin has also announced plans to tokenize $200 million worth of assets on the XRP Ledger. Additionally, Securities and Exchange Commission Chair Paul Atkins has expressed interest in fostering the sector’s advancement.
Amid these developments, Hougan said the tokenization market could represent a 4,000x opportunity if Fink is correct, pointing out that stocks and bonds alone are a $257 trillion market combined.
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How To Position For The Tokenization Wave
Hougan said "the cleanest way" to position for the potential tokenization wave is to hold "a basket of the top Layer 1 blockchains and infrastructure plays." He specifically named Ethereum, Solana, XRP and Chainlink as promising choices.
"One could argue for concentrating your bets—especially since Ethereum is the current leader in tokenization and is well positioned to win market share—but that seems overly specific to me," he said. "Many different players are getting bites at the apple. It would be unfortunate to call the tokenization trend early only to bet on the wrong horse."
Beyond these cryptocurrency assets, Hougan said investors could also gain from holding a mix of stocks that could benefit from tokenization. Examples cited by Hougan include Robinhood, Coinbase and Circle CRCL.
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Sooner Rather Than Later
The latest note from Hougan comes as he suggests that the tokenization wave may be set to impact the market prices of related assets soon. He said while it may take over a decade for the majority of stock and bonds trading to happen on-chain, there was a possibility of a 1-5% market penetration in a few years.
"It would translate into trillions of dollars … more than any other crypto application or asset, including Bitcoin," he said.
Hougan said this outcome was inevitable due to the 24/7 nature of blockchain technology and the superior settlement speeds.
He said it was just last year that the stock market moved from a two-day settlement system to a one-day settlement system for the first time in a century.
"In what other industry would we celebrate matching the operating speed from 1934?" Hougan quipped.
In contrast, trades can settle in seconds on the blockchain.
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