Tokenization is here. How soon will it impact crypto prices?

Tokenization is here. How soon will it impact crypto prices?

Tokenization—the idea of moving stocks, bonds, and other real-world assets over blockchains instead of traditional networks—is having a moment.

Here’s what’s happened in just the past month:

1. Robinhood and Kraken debuted tokenized stock trading. Robinhood’s system is built on Arbitrum, a Layer 2 network on Ethereum, while Kraken’s xStocks system is built on Solana. While both systems are currently limited to non-U.S. investors, Coinbase filed paperwork with the SEC to allow tokenized stock trading in the U.S., calling it a “huge priority.”
2. Financial institutions invested $135 million into the “Canton Network,” a new Layer 1 blockchain for stock and bond trading. The round was led by the market-making giant DRW Capital and the bond-trading hub Tradeweb Markets, with participation from firms like Citadel, DTCC, and Goldman Sachs.
3. SEC Chairman Paul Atkins called tokenization a significant “innovation,” adding that the SEC “should be focused on how we advance tokenization in the marketplace” and that the days of regulation through enforcement “are over.”

And that’s not all.

One of the largest crypto exchanges in Latin America announced plans to tokenize $200 million of real-world assets on the XRP Ledger; Galaxy Digital said tokenization could threaten NYSE revenues; and the total amount of real-world assets tokenized on-chain hit a new all-time high.

Clearly, something is happening here. But when will it impact the prices of Ethereum, Solana, XRP, Chainlink, and related assets?

The Promise of Tokenization

I’ve always been of two minds about tokenization.

On the one hand, it feels inevitable. The fact that stocks only trade from 9:30 a.m. to 4:00 p.m. on weekdays is absurd. Imagine if your email shut down at 4:00 each Friday and didn’t turn back on until Monday at 9:30.

And don’t even get me started on how painfully slow settlement is. Remember this headline from last year, when stocks moved from T+2 to T+1 settlement?

In what other industry would we celebrate matching the operating speed from 1934?

But despite the sense of inevitability, I’ve often thought that we’re too early. Market structure is slow to change. Just ask anyone who witnessed how long it took to shift from floor-based stock trading to electronic stock trading.

But with the recent flurry of developments, I’m starting to think the tokenization narrative could begin impacting the price of related investments sooner rather than later.

Why the Impact on Price May Start Now

The primary reason is that the market for tokenization is enormous.

Larry Fink—the CEO of BlackRock, and arguably the most important person in asset management—wrote in his annual shareholder letter this year: “Every stock, every bond, every fund—every asset—can be tokenized.”

Let’s break that down.

Stocks are a $117 trillion market. Bonds are a $140 trillion market. That’s $257 trillion up for grabs in the tokenization wars—and that’s before we even get to more esoteric assets.

For context, there’s been a flurry of excitement recently about the stablecoin market, which many (including U.S. Treasury Secretary Scott Bessent) think could grow from ~$250 billion to $2 trillion by 2030.

$2 trillion is a lot of money, and investing in the growth of stablecoins offers real opportunities. But $2 trillion would be chump change compared to tokenization—less than 1% of Larry Fink’s tokenization dream.

I still think it will take more than a decade before the majority of stock and bond trading happens on-chain. But with major financial firms like Robinhood and Tradeweb positioning themselves for the transition today, I’ve started to wonder: Could tokenization achieve 1-5% penetration in a few years? Could a dozen major pilot projects lift us to that level of market penetration? It seems possible, and it would translate into trillions of dollars … more than any other crypto application or asset, including Bitcoin.

The narrative around tokenization is only going to accelerate from here—if Robinhood is rolling out tokenized trading, you can bet that Charles Schwab and others are studying it aggressively. I’d expect a wave of additional announcements this Fall.

How To Invest in the Rise of Tokenization

The cleanest way to invest in the rise of tokenization is to buy a basket of the top Layer 1 blockchains and infrastructure plays: Ethereum, Solana, XRP, Chainlink, etc.

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. Just look at the announcements above: 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.

One could also supplement this core blockchain exposure with a portfolio of stocks poised to benefit from tokenization, including Robinhood, Coinbase, Circle, and so on.

If Larry Fink is right, the tokenization market could grow over 4,000x in the coming years. There aren’t many markets that can say that.

Risks and Important Information

No Advice on Investment; Risk of Loss: Prior to making any investment decision, each investor must undertake its own independent examination and investigation, including the merits and risks involved in an investment, and must base its investment decision—including a determination whether the investment would be a suitable investment for the investor—on such examination and investigation.

Crypto assets are digital representations of value that function as a medium of exchange, a unit of account, or a store of value, but they do not have legal tender status. Crypto assets are sometimes exchanged for U.S. dollars or other currencies around the world, but they are not currently backed nor supported by any government or central bank. Their value is completely derived by market forces of supply and demand, and they are more volatile than traditional currencies, stocks, or bonds.

Trading in crypto assets comes with significant risks, including volatile market price swings or flash crashes, market manipulation, and cybersecurity risks and risk of losing principal or all of your investment. In addition, crypto asset markets and exchanges are not regulated with the same controls or customer protections available in equity, option, futures, or foreign exchange investing.

Crypto asset trading requires knowledge of crypto asset markets. In attempting to profit through crypto asset trading, you must compete with traders worldwide. You should have appropriate knowledge and experience before engaging in substantial crypto asset trading. Crypto asset trading can lead to large and immediate financial losses. Under certain market conditions, you may find it difficult or impossible to liquidate a position quickly at a reasonable price.

The opinions expressed represent an assessment of the market environment at a specific time and are not intended to be a forecast of future events, or a guarantee of future results, and are subject to further discussion, completion and amendment. The information herein is not intended to provide, and should not be relied upon for, accounting, legal or tax advice, or investment recommendations. You should consult your accounting, legal, tax or other advisors about the matters discussed herein.

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