Old charm of physical assets is back on the rise: Tokenization is the way!
Imagine a time when you can own a fractional part of vineyards in Boudreaux, Burgundy or Provence in France or owning a part of a coffee farm or estate in Brazil, having fractional ownership in a diamond and gold mines in Russia and Africa, owning magical flower gardens/parks in the picturesque European cities, imagine owning a fraction of Amazon’s data center or Microsoft’s data center, owning a part of fascinating bridges over the USA or China or owning a fraction of a luxury apartment in the Beverly hills or an exotic villa or hotel in Hawaii.
These ideas are relishing for any investor and there is a possibility that these may come into reality thanks to tokenization of physical assets. The old charm of physical assets may be gaining traction once again due to multiple reasons. Let’s discuss them below!
In today’s age and time economic uncertainty is reaching alarming levels as countries try to conquer their own debt crisis and the global debt crisis. The global sovereign debt is hitting $324 trillion in 2025. The US federal debt is touching a staggering $36.2 trillion, and we are not new to this struggle the US is encountering to nurse. Currently the US is dealing with a
fiscal deficit of $1.4 trillion and is paying $300 billion in interest per day surpassing its defense spending.
The US has had the supreme power and upper hand in printing money (quantitative easing) to nurse its piling debt in the hope of fostering economic activity to overcome the debt built up over decades. However things have gone south as the excess liquidity post COVID- 19 has not ended up being invested in productive assets causing inflation, in turn aggravating asset bubbles in the equity market.
Unchecked money supply, major allocation of resources to unproductive assets, uncertain global geopolitical environment and wars is causing unrestrained inflationary pressure, crippling the lower- and middle-class consumers the hardest globally.
Considering an uncertain future and tumultuous economic and geopolitical environment investors can direct their resources and diversify their portfolio to include physical hard assets (real estate via REITS or tokenization, precious metals, agricultural land, agri plantations, mines, infrastructure assets (like airports, ports, data centers) via INvits, collectibles via tokenization) to get better inflation adjusted returns than merely relying on bonds, stock and cash.
Hence considering the present environment, the shrinking middle class incomes and asset bubble, investors must do some out of box thinking to manage their personal finance especially the middle class need to pivot investing instead of traditional ways of saving whatever is left out of their income.
Investing through tokenization in physical assets or equity investing is a panacea for middle class retail investor in these tough times especially because of limited resources/ capital availability in their hand and more so they are constrained by inflation, limited wage/income growth, lopsided savings and their jobs are facing serious threat from AI. Tokenization will become a starting point of investing journey for the new and future generations who possess limited resources but can reap the benefits of compounding by investing in fractional parts of assets. Tokenization presents a new wave of investing opportunity in large growth orientated asset classes for the middle-class retail investor, making illiquid assets liquid.
Tokenization presents an opportunity for new retails investors to invest across a variety of asset classes by owning factional amounts of that asset eg: real estate, arts and collectibles, sports teams, commodities, luxury goods and much more listed in the table below:
For example, retail investors can get the fractional ownership of a property by purchasing tokens lowering the barrier to entry for smaller investors who cannot afford to purchase the entire property. They can also get profit sharing for capital appreciation for the property and rental income from it too. It is usually challenging to sell a property due to its illiquid nature, however by owning tokens individuals can sell the tokens on the secondary market to generate liquidity at any time.
Tokenization of commodities is making it easier for small inventors to invest in physical assets like gold, oil and much more. Gold is considered a safe haven during volatility or crisis like situations. However, owning physical gold can come with its challenges such as buying, storing and selling. Hence tokenization of gold or even purchasing ETFs provide a convenient solution to investors who seek to invest in gold. The same can be applicable to other physical commodities.
Investing in private equity (also venture capital, hedge funds and ETFs) will become easier as tokenization provides an entry point for small investors, since it’s been an asset class that has been mainly dominated by large institutions or HNIs. Institutional investors will also get the opportunity of liquidity due to tokenization investment by retail investors in illiquid private equity investments. Investors can get access to ownership of art and collectibles via NFTs. Artists can sell their digital art directly to the collector eradicating the need of traditional intermediaries like galleries and auction houses. Investors can own parts of intellectual property like copyrights or patents of music, books, art and much more.
Investors can invest in assets across the globe providing them with a diversified portfolio to accrue benefits. There will be a possibility of improved market efficiency due to the adoption of blockchain eradicating middlemen, reducing costs, errors and enabling quicker transactions. The utilization of blockchain in tokenization will improve security and transparency ensuring correct payouts.
However the tokenization brings its own set of challenges due to underlying and backend blockchain technology since it is still a novel and evolving technology and has issues to gain scalable traction until it evolves to high volume transactions at sustainable speed. There is quite a lot of uncertainty with regards to regulations across different countries on tokenization of assets. New investors may take time to adopt to the technology due to mistrust for this new technology due to certain security risks (cybersecurity related risks) thus limiting liquidity on the secondary market. It will take time for all the involved stakeholders (blockchain technology experts, finance leaders and regulators) to work collaboratively to make the process of tokenization easy to understand and utilize for the end users.
To conclude tokenization though in its nascent stage can provide small investors with an opportunity to explore different asset classes majorly physical assets to gain financial independence and survive in an uncertain and turbulent financial world. Maybe every investor’s dream of owning of luxury apartment in Beverly Hills or owning vineyards or wine estates in France and Italy can come true as they can become proud fractional owners of the physical assets in the decades to come thanks to tokenization.
Comments
Post a Comment