Although 2018 saw a continuation of the “crypto fever” from the prior year, experienced alternative asset market participants understood that the one-way ride couldn’t last forever. As regulators worldwide began to clamp down on crypto markets, many lamented that the crypto party was over. However, through this exhilarating period emerged a new application of the underlying technology in the alternative asset market: the security token. This new instrument shows the true potential of blockchain technology and provides a glimpse into the future of global markets.
The alternative asset market is one of the largest, fast-growing sectors. In fact, the market could grow 11.2% per year until 2020, which, if true, would make it a $15.3 trillion industry over the next four years. With innovations brought forth by blockchain technology to secure and automate data tracking and management, anyone interested in money should be paying attention to this powerful combination of growing interest in alternative assets mixed with increased market liquidity.
What does the future of finance hold? No one has a crystal ball, but as leading experts in digitized alternative asset trading, we’ve made three bold predictions of what to expect in this evolving market.
More regulatory certainty
Regulators are catching up and have started to provide guidance regarding the digital security space.
From Airfox to EtherDelta, the SEC has started handing out penalties to non-compliant operators in the space. This will continue as the regulatory environment catches up with the explosive growth in the space. In this instance of financial Darwinism, only the transparent, compliant and regulated will survive.
While some firms have been pushing back (i.e. Kin vs. SEC), it is very clear that tokenized trading is on the regulator’s radar and we should expect to get significantly more clarity in 2019 regarding the future of regulatory environment moving forward.
Our bold prediction: the SEC will push out a major update to the securities law framework, akin to the 2012 JOBS Act refresh.
Major institutions will get involved
Innovation and entrepreneurship have not diminished in the U.S. In fact, they’ve likely increased with the most recent economic upswing. Yet, even with the combination of bullish growth and innovation, the time, effort and risk of publicly listing a company continues to be prohibitive. This dynamic, along with much more robust private capital infrastructure, including the emergence of secondary market liquidity venues like OpenFinance Network, helps explain these alternative asset growth expectations.
In combination with these current market forces, a more stable regulatory landscape for this new asset category and legitimate platforms in place, security tokens will attract significant interest from Wall Street. Institutional financial players are paying attention and their investment dollars are sure to follow.
Our bold prediction: A large public equities player, such as Nasdaq or Pershing will step into the security token space as an on-ramp mechanism for the next crop of publicly listed companies to tap the demand for pre-IPO (or in lieu of IPO) liquidity.
Major REIT fund issuer lists a security token
The momentum is undeniable. In just the past few months, we’ve seen KBS and Hines offer direct-to-retail investor offerings outside of the broker-dealer network, Blackstone going downstream into non-listed REITS (just opened a $15B fund in 2017) and Harbor launching a tokenized private REIT that will serve as a blueprint for future issuances in the market.
REITs aren’t just becoming early adopters of tokenized securities because they’re FinTech innovators. These major players are seeing the value in unlocking liquidity in a market where there was previously very little. Additionally, blockchain-based trading platforms, like the OpenFinance Network ATS, are removing barriers in the transfer process – providing a secure, frictionless investing experience that didn’t exist before.
Our bold prediction: A major REIT fund issuer will launch their next fund in a tokenized format, potentially as a publicly registered non-listed instrument.
2018 may have seen the emergence of security tokens (with a few growing pains along the way), but 2019 will be the year liquidity in this alternative asset format starts to truly change the paradigm in these markets. We believe the biggest alternative asset space evolution in generations is already underway. All the essential mechanisms are now in place for mainstream adoption and explosive investor growth for the long term.