Over the past couple of years, there’s been a noticeable increase of asset-backed tokens entering the market, coinciding with an increase in the number of institutional investors as well.
Cryptocurrencies have been a controversial topic for a while now and knowing how to best maximise an investment is tricky for people entering the market – particularly given the overwhelming trend of crypto investments being largely based on hype and speculation, with no real concrete methodology for how to attribute a dollar value to one versus another. The recent crypto market crash has also resulted in huge losses and an understandable reluctance for investors to enter the market. However, recent structural changes in the crypto market and the potential injection of billions of new institutional investment dollars into asset-backed tokens, suggests that investing into cryptos linked to tangible assets can provide greater confidence in the value and long-term growth for investors.
With a background as a lawyer, I’ve never been one for hype or speculation investments, remaining reticent even as cryptocurrency investing started to become more popular. The crypto market didn’t make sense to me, particularly given the extraordinary performance of some cryptos where no discernible value could be attributed to their high yield. A classic example of this is Dogecoin, a cryptocurrency based on a dog meme. Initially created by software engineers to make fun of the speculative “Wild Wild West” of cryptocurrencies, it reached a mind-blowing market capitalisation of over $85 billion in May, 2021.
Consequently, when I started my company and built a technology platform to drive revenue and data exchange between sporting enterprises and their fans, my focus was never on integrating a cryptocurrency.
However, there’s been changes in the crypto market recently which has been hard to ignore, particularly as it relates to asset-backed tokens entering the market and what that could mean for investors in companies like mine where there is an asset for purpose linked to the value of that token.
Simply put, asset-backed tokens are tokens where its value is directly tied to a tangible real-world asset, making them less speculatory or volatile than your typical cryptocurrencies. Gold, real estate, art, technology or just about any other real, physical asset, can be tokenized as an asset-backed token.
Over the past couple of years, there’s been a noticeable increase of asset-backed tokens entering the market, coinciding with an increase in the number of institutional investors as well. This has led to an overall value of the cryptocurrency market of almost $2 trillion dollars, despite recent market crashes.
While the 2022 crypto crash could be seen as a permanent deterrent for investors, what I think we’re seeing instead is a structural shift in the investment landscape towards asset-backed tokens. With inflation at global levels not experienced in over a decade, resulting in increasing interest rates as central banks globally try to control inflation, risk deleveraging has started to play a part of the asset investment preference. The demand for yield versus growth is seeing lower risk assets look more attractive, encouraging people to take profit on good performing and possibly overvalued assets, to buy those with better value on a relative basis.
In addition, the EU recently announced plans to bring in a set of ground-breaking provisional rules to govern crypto assets, which could potentially translate into billions of new dollars entering the crypto market. This is timed well given the return of investor interest into crypto and the structural change towards preferring asset-backed tokens gaining momentum.
There are also several advantages to investing in asset-backed tokens to be considered. Tokenization of tangible assets increases liquidity of traditionally illiquid, non-fractionable assets like real estate. Similar advantages also extend to investors in start-up companies with an asset-backed token versus traditional equity investment. Buying equity in a start-up means the investor cannot easily sell their shares in exchange for cash without a substantial loss – often having to wait a long time for a buy-out, IPO or dividends before they can reap any cash benefits, if at all. Asset-backed tokens, however, represent an asset class that gives investors the ability to easily buy, sell or trade those tokens across multiple traders once the token is publicly listed, which typically happens early in the start-up journey.
Asset-backed tokens also have the ability to increase in value based on measurable and tangible milestones e.g. a company with a technology product will grow in value the more customers and revenue it generates, therefore delivering a higher return to token investors as the asset grows.
While there will always be an element of speculation and risk in cryptocurrency investing, the asset-based token presents both tangible value and options for early liquidity which I think is worth investors looking into, particularly as we see the new wave of institutional investors enter the market.
My company’s token, the Nicol Token, is targeted to launch later this year – it’s an asset backed token with its value directly linked to the Nicco Global product.
Richelle Nicols is the CEO and founder of Nicco Global and Nicol Token. Find out more at Nicco (niccoglobal.com)
This article is intended to provide general information only and does not take into account your individual objectives, financial situation or needs. Past performance is not necessarily indicative of future performance. You should seek independent financial and tax advice before making any decision based on this information.