Investing.com – If incumbents want to participate in the modernization of financial markets, they must embrace blockchains, according to Bernstein.
Cryptocurrencies are rallying this week on renewed interest in institutional efforts to secure their place in the future of finance. Beyond tradable assets such as , however, there is an opportunity over the next five years for financial firms in tokenizing real-world assets on blockchains, the firm said in a note this week.
“We believe tokenization will transform financial markets over the next decade,” analyst Gautam Chhugani said in a note dated Tuesday. “We predict that $5 trillion in real financial assets will be tokenized on blockchains over the next five years.
Specifically, tokenization using blockchains refers to the process of converting an object of value, such as or real estate, into a digital token that can be digitally represented and traded on a blockchain. The benefits are “simple”, he said, citing lower costs, instant settlement, liquidity, digital programmability, reduced counterparty risk and global accessibility.
“We expect 1-5% tokenization adoption for assets that benefit the most, including corporate bonds, commercial real estate and private market funds, with lower penetration in more other asset classes (0.1-0.3%) such as government bonds, equities and residential real estate,” Chhugani said.
“We expect a penetration of around 2% for foreign exchange and bank deposits (i.e. broad money),” he added. “This translates to approximately $2 billion in opportunity over the next five years, excluding currencies (~0.4% of ~$560 billion in total assets) and approximately 3 billion in stablecoins/CBDC tokens – bringing the total to ~$5 billion in assets to be tokenized over the next five years.”
According to Chhugani, there is also great opportunity for new business verticals in conservation, trading, trade finance and business advisory.