How Cryptocurrency Is Impacting the Financial Markets
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There have been a lot of discussions about digital tokens and cryptocurrency. Considering that crytocurrency is impacting financial and investment sectors we have asked cryptocurrency expert Valentin Preobrazhenskiy from LAToken how cryptocurrency is impacting the financial markets.
As you are the cryptocurrency expert, could you briefly explain, for beginners, what is a digital token and tokenization?
Preobrazhenskiy: Imagine, you can buy a piece of Mona Lisa and sell it with profit in a few years. Or get cash by selling your house by fractions to thousands of investors. It’s not possible within the traditional markets, but the blockchain technology makes it real. Global corporations and blockchain companies race to build platforms where rights to real-world assets, ranging from equity and commodities to real estate and works of art, are converted into blockchain-based tokens, which are, in simple words, claims on the underlying assets. There are already some operational and successful examples, like Tether (linked to USD), Digix (linked to precious metals) or tokens backed by shares of blue chip companies, like Apple, Google, Tesla etc, as well as gold and oil traded at the LAToken Platform.
Can you elaborate, what’s the point of buying those tokens instead of buying real assets?
Preobrazhenskiy: First of all, asset tokens are a great diversification option for crypto holders. Their value is driven by the price of the underlying real asset and doesn’t depend on fluctuations of the crypto market. Secondly, you get the chance to gain the advantages of crypto, such as transparency, low transaction costs, security etc, while enjoying the stability of real assets. Finally, tokenization makes assets more accessible for investors of any size. Traditional investments in real world assets like real estate or works of art, for example, require substantial start capital, international connections, and extensive fees with closing costs, broker commissions etc. Tokenization removes barriers, lower costs by thousands of times, and get rid of the bureaucracy.
Do you think tokenization will impact the current investment market, and what changes can we expect in the next 5 to 10 years?
Preobrazhenskiy: I believe that crypto will dominate the global economy, and in the near future most trades will be made in cryptocurrencies. LAToken Research Team - McKinsey and Deutsche Bank alumni, estimate that total cryptocurrencies capitalization can exceed $5 trillion by 2025. LAT platform can completely change the way people invest. Let’s just compare the listing terms and costs at the New York Stock Exchange (NYSE) with the ones LAToken offers. The differences are striking.
First, we have no limit forthe minimum issue volume, while listing at NYSE requires a minimum of $100 million for equity and $5 million for debt. LAT Platform has no annual listing fees, while companies pay $100,000 to list equities and $20,000 to list debt at NYSE. Underwriters fees for LAToken's clients are negligible, much lower than the 2 percent to 5 percent at NYSE. And listing preparation at LAToken takes less than a week, compared to approximately six months at NYSE. Additionally, the retail transaction fees are 1,000 times lower.
What about the other markets?
Preobrazhenskiy: They suffer from even higher commissions. The artwork market is highly with transaction costs around 20 percent. Buyers overpay a significant amount over the hammer price, while sellers receive far less than the auction price. The same goes for real estate market. High transaction costs make both commercial and residential real estate markets illiquid locking their asset value. Sellers pay their listing agent a commission of about 6 percent of the price, and other transaction costs, like escrow, insurance amount to around 5 percent. And the sale process takes months or even years. LAToken enables asset owners to gain instant liquidity by creating and selling tokens linked to their property with minimum transaction costs of up to 0.01 percent in a timely manner – less than one week. You can see yourself, why the blockchain revolution is inevitable, and why tokenization has a great potential.
Can cryptocurrency and tokenization trading of Fortune 500 companies affect Nasdaq's profitability? Could it be a threat to Nasdaq?
Preobrazhenskiy: My dream is actually to build a NASDAQ on Blockchain with a wider range of tradable assets, bridging crypto- and real economies, and offering our clients a dramatic reduction of settlement time and transaction costs. If we succeed, most of trades will be made on blockchain, including the trades of shares and debt of Fortune 500 companies. Of course, it might affect trading volumes of traditional exchanges all over the world. Though I think, that exchanges can become important players in tokenization market once it becomes obvious that the future of trades belongs to blockchain.
According to LAT Crypto Research, total capitalization of cryptocurrencies may exceed $5 trillion by 2025. Would you say that the majority of consumers will own a cryptocurrency by 2025?
Preobrazhenskiy: It’s likely, that 5 percent of world population will own crypto wallets by 2025. Adoption rates of new technologies significantly accelerated at the beginning of the century. Penetration of smartphones and social media in the U.S. increased from 5 percent to 90 percent in less than five years.
We believe that cryptocurrencies adoption rate will also accelerate fast, and we already see signs of that: the number of cryptocurrency wallets has doubled every year since 2013. We also estimate that the average wallet size will rise from $9,835 to $12,000 by 2025, driving the total cryptocurrencies capitalization to $5 trillion. And we believe that the growth will be driven by asset cryptocurrencies as they are safer and less volatile.