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Cryptocurrencies remain one the most volatile, yet attractive investments today. Still, a single move from the regulators can make the crypto markets look like a bloodbath, so many investors would think of them as risky investments. But there’s already a way of investing in crypto with exposure to real assets. Asset-backed tokens give you the benefits of crypto, such as low transaction costs and transparency, as well as the security of having a physical asset.
The first asset-backed tokens have already appeared. They are linked to fiat currencies, like Tether (linked to USD), precious metals, like Digix, and shares of blue chips, like tokenized Apple, Facebook and other shares currently traded on the LAT platform. The market capitalization of the asset-backed cryptocurrencies may exceed $4 trillion by 2025, and they will account for at least 80% of the total cryptocurrency capitalization as market develops.
Investing in cryptocurrencies is not for the faint of heart, as these are one of the most volatile assets on the market today. Bitcoin (BTC) price again reached an all-time high in 2021, as values exceeded over 65,000 USD in February 2021, April 2021 and November 2021. The first two were due to events involving Tesla and Coinbase, respectively, whilst the latter.
While Bitcoin is the least volatile cryptocurrency, its weekly volatility reaches up to 60% per annum, and the other coin pairs show even bigger swings. That, for sure, repels lots of conservative investors from the market. Along with a tightening regulation of the blockchain industry.
Chinese regulation comes as one of the strongest regulatory challenges so far to the burgeoning market for digital token sales, but not the first one to crash the market. In the beginning of August, SEC had officially confirmed it was looking into regulation of cryptocurrency ICOs and warned that ICOs may be considered securities. Singapore quickly followed suit.
It’s obvious that regulators are trying to prevent investors from losing their money to scam projects. But can they stop the development of the newborn crypto economy?
The historic performance, is not a representative of future earnings, but our estimation is that by 2025 the total capitalization of cryptocurrencies will exceed $5 trillion, as crypto wallets penetration will reach 5% of the world’s population. It’s a pretty conservative estimate, compared to some of the market forecasts. Peter Smith, the CEO of Blockchain, and Jeremy Liew, the first investor in Snapchat, said that the market capitalization of Bitcoin alone may explode to $10 trillion by 2025.
With such perspectives not many people would like to go back to fiat. And there’s already a way for them to hedge their crypto investments with real assets without converting. The rise of asset-backed cryptocurrencies let you have both — the security of having a physical asset and the convenience of a crypto.
Asset-backed cryptocurrencies have their value linked to real-world assets, such as equities, commodities or fiat money. There’re historic analogs of the way they work. Centuries ago, you could park some gold with a goldsmith, and receive an “I Owe You” note from them. These notes could be transferred from person to person, and anyone holding it could go back to the goldsmith and claim the actual gold.
Asset-backed tokens are the digital equivalent of those notes. They are claims on the underlying assets, that get passed between people, while all the transactions are recorded on the blockchains. They have benefits of crypto, such as low transaction costs, security, trustless exchange and smart contracts functionality. At the same time, they are a good store of value by design since their volatility is lower, and they are more predictable and less risky. These assets are more likely to be favored by the regulators as they have a valuable collateral behind them.
“Never before has such exciting technology existed where assets, for example gold, could be combined with cryptocurrencies. By combining those, you get the best of both — the security of having a physical asset and the convenience of a crypto,” — says Richard Elliott, CEO of MyGold, a gold manufacturing company in New Zealand. In the beginning of August MyGold partnered with LAToken to tokenize gold.
The first asset-backed tokens, linked to fiat currencies, precious metals, shares of blue chips, and commodities have already appeared. Our estimation is that the market capitalization of the asset-backed cryptocurrencies may exceed $4 trillion by 2025, and they will account for at least 80% of the total cryptocurrency capitalization as market develops.
That will make the tokenized assets platforms, that significantly reduce costs of creating such tokens, help their spread and offer significant diversification and portfolio optimization opportunities to crypto holders, the leaders of the blockchain industry.
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