Institutional investors are organizations that have a large amount of money to invest, typically in the stock market. Banks, brokerages, mutual funds, and investment companies are a few examples. Like all investors, some are more risk averse than others, but they all look for investments worth their time and money. Typically, institutional investors have avoided cryptocurrencies, believing that they are too risky or offer poor value.
Today, however, institutional investors are starting to see that asset-backed Tokens, combined with the security of blockchain technology, can be a valuable addition to an investment portfolio.
What are Asset-Backed Tokens?
Broadly speaking, there are two types of cryptocurrency: Coins and Tokens.
Coins, such as Bitcoin, function as a type of money. They hold value and can be used to purchase goods and services.
Asset-backed Tokens also have value, but unlike coins, their value comes from the fact that they represent tangible financial assets such as art, gold, stocks or real estate, for example. Almost any asset can be “tokenized.”
Asset-Backed Tokens are More Stable
The value of digital Coins is largely based on speculation and mood. A cryptocurrency Coin is going to be worth what people believe it is worth. Therefore, when the market believes that the Coin is going to do well, and people are buying it, the value tends to rise. When the market is not feeling as optimistic, the value is going to drop.
Because they are backed by actual assets, Tokens have a real and measurable value. They are not prone to the wild, speculative swings of cryptocurrency Coins. There are more and more asset-backed Token options available, which is attracting the attention of many large institutional investors.
Asset-Backed Tokens and Real Estate
One of the emerging markets for asset-backed Tokens is real estate investment, long seen as a good investment vehicle. Tokens can represent just a fraction of a home’s equity, allowing investors to diversify their holdings by owning parts of many properties. Additionally, all transactions involving the Token (and therefore the property) are stored securely on the blockchain. This includes information like the history of ownership, the location, the deed, etc.
This makes it easier and faster to acquire, transfer or sell a property when compared to traditional real estate transactions. And because Tokens can be sold at any time, this form of real estate investing provides greater liquidity than conventional real estate investments.
The Future of Asset-Based Tokens
Investors are more and more excited about asset-based tokens because of the advantages that they can offer. In addition to the stability compared to cryptocurrency Coins, Tokens offer liquidity and can open up investment opportunities in a wide array of assets.
While asset-based tokens are relatively new and some investors maintain a wait-and-see approach, they offer substantial upside for those who are willing to make an investment. As more people become aware of their benefitsm it’s likely that more investors, large and small alike, will invest in them in the near future.