Evolving Money: The Tokenization Tipping Point (Sponsored Content)

SPEAKER_1 (0:00)

Since you're a subscriber to this Bloomberg podcast, we thought you'd be interested in a sponsored podcast called Evolving Money. Produced by Coinbase and Bloomberg Media Studios, it explains how institutional investors are adopting the world's newest asset class, crypto. Here's a recent episode.

Rick Edelman (0:21)

There's been a lot of frustration in the crypto community over the past 15 years because the Wall Street and financial services industries have ignored crypto or outright been opposed to it.

Angie Lau (0:32)

That's Rick Edelman, a long time financial advisor and podcaster in the financial world and the perfect guest to kick off this episode of Evolving Money.

Rick Edelman (0:42)

The reason that there has been such antipathy about crypto in its early years is because it didn't get invented by Wall Street and Wall Street doesn't like what it doesn't control and own. So better to quash it if you can ignore it if you can't. And they did that pretty successfully for 10 years. But eventually they began to realize it's here to stay. And oh, by the way, the technology is in fact pretty cool.

Angie Lau (1:09)

Welcome to Evolving Money. I'm your host, Angie Lau. I spent decades as a journalist covering the financial industry and wealth. This is the biggest story yet. This show is co-produced by Coinbase, one of the largest cryptocurrency platforms in the world and Bloomberg Media Studios. In this series, we are exploring how crypto is being adopted by traditional financial institutions as the next logical evolution of the monetary system. This episode is about tokenization. That's the process of representing a real world asset or financial instrument on blockchain. Now in less than three years, the amount of tokenized assets has grown eightfold to more than 30 billion US dollars across equities, fixed income, private assets, real estate and a whole lot more. And the tokenization revolution is still in its early stages. Now recently, we've seen some of the largest traditional asset management companies embrace it in a big way. This is what I'm talking about.

BlackRock. They've launched what they call the Biddle Fund on Ethereum. It's a tokenized money market fund they've made available to qualified investors. The total value of those tokens? Around $2.8 billion. And then we've got Fidelity. They've rolled out their own tokenized money market fund, currently valued at over $200 million. JP Morgan and Goldman Sachs, they've also made their tokenized assets available to their investors in various ways. But why are they doing it? Well, there are three main drivers. We've got liquidity, broader access, and operational efficiency. We're going to touch on all three of those topics with our next two guests. Rick Edelman, who you've already heard from, he launched the Digital Assets Council of Financial Professionals, the first educational platform helping financial advisors responsibly navigate crypto, blockchain and tokenized assets. He's uber bullish on the opportunities tokenization is bringing to the market. And Scott Lucas, head of markets digital assets with JPMorgan. He's actively integrating tokenization and blockchain technology into JPMorgan's operations. But he isn't in as much of a hurry as Rick is. And I think it's important to give them both a place to explain their approaches for you. We'll start with Rick.

Now, just a few months ago, Rick, you said that by the end of the decade, tokenization will be the dominant investment platform in the industry, far eclipsing ETFs. ETFs, as we know them today, really won't exist in five years. That is quite the prediction, Rick. Why do you see that?

Rick Edelman (4:06)

Yeah, it does sound momentous, but it really isn't. It's iterative. It's just the next logical step in technological generation of money management. Remember that ETFs have come on the marketplace over the last 20, 25 years, replacing mutual funds, which were themselves the dominant investment vehicle for Americans for decades and decades.

Angie Lau (4:27)

Okay. But mutual funds still hold, I think, about $20 trillion here. That's a huge piece of the investment world. So why do you see ETFs and eventually tokenized products actually eating into that?

Rick Edelman (4:40)

They're simply technologically superior. ETFs trade throughout the day. Mutual funds are only priced once when the market closes. ETFs have better disclosure. ETFs are lower in taxation. They're lower in cost. They're higher in liquidity. So naturally, people love ETFs over mutual funds. The same thing is going to happen with tokenization. We're going to take those ETF shares and turn them into tokens, which will trade on blockchains. This will further reduce the costs, further increase the liquidity, further increase the broad array of assets available for you to invest in, improving your diversification. So what's not to love? So just as everybody graduated from mutual funds to ETFs, next we're going to go from ETFs to tokens.