Five asset classes each the size of the current $2.27 trillion (CoinGecko) cryptocurrency market are making their way towards Wall Street institutional investors, with venture and private equity investment into third party firms facilitating these investments growing by factors of magnitude quarter to quarter, say market participants.
According to a summer note from Rosenblatt Securities, a New York-based institutional brokerage firm, $9.5 billion was invested into Wall Street infrastructure enabling institutional handling of digital assets in 1H of 2021, almost as much as in all 2020. Should this trend continue, and traditional investment pattern — where Q4 investments are roughly comparable to money attracted throughout the year — hold, 2021 will see $370 billion go into industrial grade institutional investor-focused tokenization infrastructure, The Tokenizer estimates.
“We have entered a new cycle in crypto. Institutional adoption is the key and is happening at a pretty impressive rate,” said Vikas Shah, Managing Director, Investor Banking at Rosenblatt Securities. “Right now, you have dozens of buckets of investors that form a very broad spectrum. On one hand you have very opportunistic and very specialized funds that focus exclusively on crypto, there are other hedge funds that opportunistically use crypto as a way to generate alpha, then there are family offices that come over RIA (registered investment advisor) channel and slowly but surely there are the biggest institutional investors – the banks, the insurance companies, some of the asset managers, some of the endowments and pension funds.”
This optimism is fueled by a wholesale adoption of tokenization in a variety of asset classes that now get the same level of liquidity as traditional stocks, bonds and cryptocurrencies, and with that, new avenues to attract and place capital.
Rosenblatt defines these five categories as real estate, NFTs, art, sports and loyalty. Out of these five, real estate is the one at has all the potential to become the next bitcoin, Shah believes.
“All of the major asset classes will get tokenized. Different asset classes have different adoption rate and will go through cycles. So the cycle right now, in the asset classes we are seeing, is fastest on the real estate side, but as that matures, other asset classes will come online,” Shah said. “NFTs are already coming online but are still a very retail play. They are in an extremely early stage – like cryptowallets five years ago.”
The Tokenizer did a deep dive into two projects out of these five categories to find out what actually drives some of the firms and entrepreneurs to enable their digital asset strategies.
First, we turned our attention to real estate in the red-hot New York market, where combination of pandemic, social upheaval and controversial city politics enabled a great migration of residents between urban and suburban communities, enabling high levels of new construction, appreciation of secondary market and conversions.