Unlike most cryptocurrencies, asset-backed tokens (or ABTs) are blockchain-powered tokens backed by actual, physical collateral. ABTs can be virtually anything, from real estate to artwork, to commodities like precious metals. While digital assets such as bitcoin or ether can have value, they are just a digital representation of a value based or built on top of a cryptographic protocol of a computer network whereas asset-backed tokens are backed by items which can be physically held or stored.
A recent J.P. Morgan report stated that 2022 will be the year of “the blockchain bridge” and that while bitcoin is on track for growth, the asset still falls shy of being a traditional store of value like gold or silver. Despite this, the report also acknowledged that this would be the year of increased financial tokenization. We believe they are right.
What benefits can ABTs provide?
Digitalized assets, like tokenized metals, can be a good way for investors to hedge inflation and volatility, as is currently being seen in today’s markets. The tokenization of real-world assets also affords investors new opportunities which did not previously exist. Tokenization provides broader access to these assets, giving traders more freedom and liquidity.
Including tokens backed by physical metals can also be an excellent portfolio diversifier. ABTs can provide a buffer when other asset classes are under pressure. A range of metals can be traded as ABTs. Precious metals like gold, platinum, palladium, as well as some industrial metals such as copper and nickel can be traded, which are all key metals in helping to drive toward a carbon-free economy.
Metals like cobalt, while being a critical component to power electric vehicles, have become increasingly valuable as they are also a necessary component to smartphone batteries. A recent chart in the Wall Street Journal showed projected demand for EV and energy-storage batteries for nickel, lithium, and cobalt to rise quickly in the next five to ten years. With growing focus on investment in electric vehicle (EV) metals, ABTs provide investors with greater accessibility to these assets.
Additionally, ABTs offer investors the flexibility of fractional ownership. This is the ability to own a fraction of an asset, such as a gold bar, instead of having to buy the entire bar. The asset can be digitally “broken up” into a series of tokens with the investor choosing how many, trading them individually or in groups.
Tokenizing real-world assets is expected to grow significantly. Bitcoin and other cryptocurrencies have already proved that assets can exist on purely digital platforms. With blockchain technology providing the infrastructure necessary to tokenize assets such as metals that retain a physical form, the shift to mass adoption of digital assets is imminent.
Symbridge LLC is not an investment advisor and does not provide investment advice. This piece is solely for informational purposes and is not to be construed as a solicitation or any offer to buy or sell any spot products, financial instruments, or other securities. Investment involves risk. Understand the risks associated with trading in financial products before you invest. Read our full disclaimer: https://www.symbridge.com/disclaimers/