Cryptos, like bitcoin, are a precursor to something much bigger: turning poorly tradeable alternative investments into digital currency for all.But first, what are alternative investments? what do windmills, paintings, office towers, hedge funds, start-ups and building land have in common? They are all forms of so-called alternative investments. Unlike stocks, these "alternatives" are difficult to trade, and yet their popularity is growing rapidly.According to the industry association Chartered Alternative Investment Analyst Association (CAIA), BNP Paribas and Liquefy, the alternatives investment market tripled between 2003 and 2018 to $13.4 trillion. That was about 12% of all investments worldwide. And CAIA expects this trend to continue. A key role in this is tokenization. It is explained in the extensive (60 pages) report Tokenisation of alternative investments.
The most well-known form of tokenization are the digital coins such as bitcoin, litecoin and ethereum. Cryptocurrencies are one possible application of blockchain technology. The other two are tokenized Real World Assets (RWA) and utility tokens.There is one major difference: cryptocurrencies are a digital medium of exchange. Each bitcoin is equal to the other bitcoin and there is no tangible property (assets) behind it. This is different with tokenized RWAs and utility tokens.
Through tokenized RWA's, an office building or a painting for example, would be split into a thousand digital puzzle pieces. Each piece has the same value and represents one thousandth of the property, hence entitling the holder to one thousandth of the rental payments. Should the building or painting be sold, everyone gets their share.With utility tokens, the owners get access to a certain service or get certain privileges. Again, this can be anything from a seat in a soccer stadium to a visitor's right to Disneyworld or a vacation park in the south of France or museums.
One of the major disadvantages of alternative investments is that it is only suitable for a limited group of investors. Think of insurers, family offices or pension funds. Again, lets take the example of an office tower. The only way an ordinary private investor can invest directly in that building is by joining forces, such as through a limited partnership (LP). But the disadvantage of an LP is that its shares are difficult to trade. Besides, it often involves very large sums of hundreds of thousands of euros. Tokenization of real assets changes this. An office tower of 5 million euros, which is divided into a thousand pieces, gives 1.000 tokens, each with an intrinsic value of 5.000 euros. (see a video where we explain it all here).Think about investing in a skyscraper in the capital of your country or a newly developed solar farm in the South of Italy. These investments would typically require millions of euros and would only be accessible to institutional investors. But thanks to tokenisation and through Brickken, these will be available to everyone.
The second major advantage of tokenization is the tradability. This is potentially even greater for tokens than for shares. If good digital marketplaces are available, tokens can in principle be traded day and night. Every investor knows: the more liquidity and the more supply and demand, the better the price formation. Especially for very illiquid assets, this would be a huge advan. Think about luxury homes, fine art or private debt securities.
Asset managers and banks may see tokenisation as a danger. After all, it could be at the expense of their investment funds and exchange traded funds (ETFs). But according to CAIA, it offers opportunities. Tokens may look interesting and profitable. It is a very complex and large market. That gives asset managers every opportunity to raise their profile. After all, there will have to be specialists who help individuals make the right choices in a forest of tokens.The success of tokenization depends on a well-functioning market. In order to make tokens as successful as shares or bonds, the government will have to ensure strict supervision. Asset managers will have to come up with sound analyses, technologically reliable exchange platforms will have to be created, and legally the rights and obligations will have to be well defined.This is why Brickken was founded: to become the bridge between investments and investors. A platform operating 24/7 where investors can access investments that would otherwise only be available to institutional investors.
According to the CAIA, tokens could in principle be used for all types of alternatives. The sector organization currently distinguishes seven categories. In order of size, they are:
But there could well be a few more: art, for example, sports, or subcategories such as luxury homes and hotels. The possibilities with tokenisation are enormous. This form of investing could become revolutionary. Welcome to finance 3.0!