The Role of Cryptocurrency in Traditional Finance and Securitization

Blockchain ≠ cryptocurrency ≠ token

The world’s assets are worth over $1,540 trillion, while global equities are worth just around one-twelfth of that, or $120 trillion. This imbalance exists because the overwhelming majority of assets are not securitized, meaning they lack the tradability, fungibility and liquidity of a financial instrument.

Cryptocurrency is starting to play a role in filling this gap. Bitcoin, the first and best-known cryptocurrency, was created in 2009 as a way to reinvent  the legacy financial system for a new era. Cryptocurrency is a digital asset that acts as a unit of account, store of value and medium of exchange, much like fiat currency.. But cryptocurrency can also be used to securitize assets, similar to stocks and bonds, through tokenization

In an early example, Overstock.com issued $5 million in CryptoBonds. This was just the beginning; as cryptocurrencies became more popular, more and more assets were securitized in this way. Recently, NOYACK Logistics Income (NLI), a REIT investing in supply chain real estate, NOYACK Capital, is now accepting cryptocurrency payments for shares via a partnership with BitPay. This partnership makes NLI the first ever REIT to accept cryptocurrency, enabling investors to fund their commitment with Bitcoin (BTC), Ethereum (ETH), and five USD-pegged stablecoins. 

Understanding security tokens

While much of the hype and speculation in the blockchain world revolves around utility tokens and their potential use cases, security tokens are quietly gaining traction and may represent a more significant long-term opportunity. Security tokens are digital representations of traditional securities such as stocks, bonds, and real estate.

Unlike utility tokens, which are not backed by any underlying assets, security tokens are backed by real-world assets. These benefits have already fueled a billion-dollar security token market cap and many believe that the market will only continue to grow. In fact, while currently in its nascent stages, the strategic market analysis firm Quinlan and Associates predicts that security token issuance will be worth more than $4 trillion by 2030.

One example of a company taking advantage of this burgeoning market is NOYACK. Through their BitPay partnership, investors can convert digital cryptocurrency into ownership of a hard asset.

One of the benefits of cryptocurrency-backed securities is that they are easier to trade than traditional assets. This is because they are digital and peer-to-peer, and thus can be transferred instantly between parties, without centralized intermediaries. This could help to reduce the liquidity premium that currently exists in many markets. 

Cryptocurrencies may also help to improve the efficiency of the securities market. One of the problems with the securities market is that it is often difficult to find buyers and sellers for specific assets. This is because there is a lack of standardization in the market. Cryptocurrencies could help to solve this problem by serving as a global standard for securities. 

How security tokens are managed

The securities trade life cycle is no simple task. As a result, a wide range of players are involved in its management, including:

• Issuers 
• Transfer agents 
• Registrars 
• Underwriters 
• Custodians 

Each of these players has a specific role to play in the management of securities. For example, transfer agents are responsible for the safe and efficient transfer of securities between investors. Registrars maintain a record of all security holders and their corresponding shareholdings. And custodians are responsible for safeguarding the assets.

The usage of security tokens does not necessarily disintermediate these players entirely, but rather improves visibility, efficiency, and auditability of the process. With that said, new toolsets and protocols are needed to manage security tokens and the various stakeholders involved. Instead of trading on the NASDAQ or NYSE, security tokens trade on a new era of crypto exchanges like Securitize, INX, and tZERO.

We’re only just seeing the beginning of the security token Renaissance. As the market matures, we can expect to see a wide range of security tokens being issued that represent everything from traditional securities to diamonds, sportcars, art, yachts, and more. While NOYACK, for instance, began life offering real estate investments, we expect to see more types of assets being issued in the future as the market matures.

While regulators haven’t yet fully embraced the idea, and investors are slow on the uptake, as reported by CoinDesk, the market is nonetheless heating up, and growing awareness could see security tokens take off dramatically in the coming years.

A Growing Alternative Asset Class

Cryptocurrencies have been around for less than a decade, but they have quickly become one of the most popular alternative asset classes. At the end of 2018, the total market cap for all cryptocurrencies was just over $100 billion. However, by the end of 2021, that number had surged to over $3 trillion.

That said, it’s still a small group compared to other major asset classes. For one, the global real estate market is worth an estimated $10.5 trillion. If you’re interested in alternative investments, whether to diversify your portfolio, increase returns, or hedge against volatility, alternatives should be on your radar.

NOYACK Capital makes it easy for you to invest in top-tier alternative investments. We combine best-in-class investment management expertise with superior deals sourced from private family office networks available, all while accepting cryptocurrency as investment equity. As savvy investors know, alternative investments offer unique opportunities to generate outsized returns and hedge against volatility in traditional markets. All investors can now gain exposure to these opportunities.