.png)
Tokenisation, a concept born in the realm of blockchain technology, involves representing ownership or access rights to a real-world asset digitally on a blockchain. In our case, we applied this revolutionary idea to a piece of art, creating digital tokens that represent ownership of the value of the asset. The decision to begin with an internal test among our employees was strategic. It allowed us to thoroughly assess the mechanics of tokenisation before introducing this innova-tive approach to our clients.
The primary motivation behind this initiative was to explore the myriad benefits that tokenisation can bring to the wealth management industry. The first examples that comes to mind, are the new possibilities for legacy planning by allowing the fractional inheritance of real assets.
Heirs can inherit specific fractions of tokens, making it easier to divide valuable assets among multiple beneficiaries. This can simplify the estate distribution process and reduce potential conflicts.
Another notable advantage is the democratisation of access to traditionally exclusive assets. Historically, high-net-worth individuals were the primary beneficiaries of investments in unique and valuable assets such as art, real estate, or infra-structure. However, through tokenisation, we are breaking down these barriers, enabling a wider audience to participate in the ownership and appreciation of such real assets.
Moreover, the fractional ownership made possible by tokenisation aligns with the evolving preferences of modern investors. The ability to own a fraction of a high-value asset allows for a more diversified, decorrelated and personalised investment portfolio. This flexibility is particularly appealing to a new generation of investors who value accessibility and customisation in their wealth management strategies.
By distributing tokens among our employees, we not only engage our team in a tangible way but also provide them with an opportunity to explore the potential of this transformative technology. This internal experiment serves as a learning platform, allowing us to better understand the dynamics of tokenisation, its challenges, and its impact on wealth man-agement strategies.
Furthermore, tokenisation enhances liquidity and tradability of illiquid assets. Real-world assets, like art, are traditionally characterised by their lack of liquidity. Tokenisation intro-duces a new level of flexibility, allowing investors to buy and sell fractional ownership of these assets seamlessly. This increased liquidity benefits not only the investors but also the overall stability of the market, reducing the risk associated with illiquid holdings.
Our foray into tokenisation is not merely an experiment within the confines of our organisation; it is a strategic move towards offering our clients a new dimension of financial ser-vices. The insights gained from this internal pilot programme will inform the development of Syz Group’s further offering in the digital world, following the announcement of the launch of a custody and trading solution for cryptocurrencies about a year ago.
To answer the headline of this article, we might not be ready to tokenise our family art collection quite yet, but we’re defi-nitely exploring what this possibility could entail and the par-adigm shift it represents for the wealth management industry. By leveraging blockchain technology, we are not only adapt-ing to the changing needs and expectations of our clients but also pioneering a more inclusive and dynamic investment landscape. As we embark on this exciting journey, we remain committed to pushing the boundaries of what is possible in private banking and delivering unparalleled value to our clients. The future of wealth management is here, and we are proud to be at the forefront of this transformative wave.
Firstly, it allows for the industry to move forward as institu-tional adoption accelerates and new exchange and custody alternatives emerge. The settlement also diminishes the systemic risk of the largest liquidity crypto exchange being taken out. The replacement CEO is a former regulator and marks a potential for a fresh start for the platform to do things the right way.
The saga also underlines the demand for Bitcoin. Many com-mentators had previously forecasted that Bitcoin could crash if Binance began to wobble. But in the face of the settlement, Bitcoin has demonstrated impressive resilience – after a brief dip off the years highs, just 48hours later it was back knock-ing at the $38,000 level.
There are two strong catalysts for the unique asset looking forward just a few months:
Firstly, we believe the much antic-ipated BlackRock spot Bitcoin ETF will drive mainstream retail and institutional adoption, but more importantly it unlocks trillions of dollars of 401k money. Even a few basis points implies tens of billions in inflows for an already scarce asset that keeps getting scarcer. To that point, the second seismic demand driver is the next bitcoin ‘halving’ in April 2024. The total supply of bitcoin is capped at 21 million, and as of now, over 19.5million bitcoins have already been mined, leaving less than 1.5million yet to be issued. Bitcoin’s protocol implements a mechanism known as halving, which progres-sively reduces the number of new coins introduced with each new block, meaning that that 1.5million will take another 117 years to be issued.
This is the first time in bitcoin’s history that we approach a halving with less bitcoin available on exchanges than the pre-vious halving. Exchange balances are approximately 600,000 bitcoin less than four years ago. On top of that a further 1.3mln bitcoin have been issued over that period. A quick back of the envelope calculation shows that 1.9mln bitcoin have been removed from liquid circulation in four years, we are at 3-4% adoption, less than 1% adoption by corporate balance sheets, and less than 1% adoption by nation states. And only 1.5mln bitcoin left to be mined forever.
All this against a backdrop of traditional financial market players creating a bridge into the industry. Banks the world over have been creating trusted third-party custody alter-natives, and trading services. Swiss private and cantonal banks have been active here with names such as Syz, Maerki Bauman, Zug Kantonale bank and St Gallen Kantonale bank all providing services to their clients.
Meanwhile, in the hedge fund space, the recent volatility is providing an abundance of alpha for those employing vola-tility arbitrage, futures arbitrage, mean reversion and market making strategies. This is opening a door for traditional market investors to dip their toe into an asset class bearing the same opportunities that were harvested in the golden age of hedge funds in the eighties and nineties presented through diversified, highly diligenced vehicles like SyzCrest.
We are currently living through the scaling and adoption of a new asset class, Bitcoin, alongside an emerging but volatile digital asset industry. Institutional adoption will mean plenty more short-term pain for those participants who break the rules, but this period of industry maturation will benefit the digital asset space over the long term.
Disclaimer
This marketing document has been issued by Bank Syz Ltd. It is not intended for distribution to, publication, provision or use by individuals or legal entities that are citizens of or reside in a state, country or jurisdiction in which applicable laws and regulations prohibit its distribution, publication, provision or use. It is not directed to any person or entity to whom it would be illegal to send such marketing material. This document is intended for informational purposes only and should not be construed as an offer, solicitation or recommendation for the subscription, purchase, sale or safekeeping of any security or financial instrument or for the engagement in any other transaction, as the provision of any investment advice or service, or as a contractual document. Nothing in this document constitutes an investment, legal, tax or accounting advice or a representation that any investment or strategy is suitable or appropriate for an investor's particular and individual circumstances, nor does it constitute a personalized investment advice for any investor. This document reflects the information, opinions and comments of Bank Syz Ltd. as of the date of its publication, which are subject to change without notice. The opinions and comments of the authors in this document reflect their current views and may not coincide with those of other Syz Group entities or third parties, which may have reached different conclusions. The market valuations, terms and calculations contained herein are estimates only. The information provided comes from sources deemed reliable, but Bank Syz Ltd. does not guarantee its completeness, accuracy, reliability and actuality. Past performance gives no indication of nor guarantees current or future results. Bank Syz Ltd. accepts no liability for any loss arising from the use of this document.
Related Articles
At its core, Avalanche is an open-source platform engineered to support decentralized applications (dApps) and enterprise blockchain solutions within a singular, interoperable, and scalable ecosystem. Its inception was motivated by the desire to overcome certain challenges inherent in Ethereum, particularly the slower transaction times and the one-size-fits-all nature of its blockchain structure. Avalanche’s founder envisioned a platform that could cater to diverse needs through modular design, leading to the development of subnets. These innovations have attracted a range of diverse companies such as Visa, Amazon, JPMorgan and CitiGroup to consider and explore implementing Avalanche’s technology.
The innovation of smart contracts is one of the most significant advances in the blockchain space, particularly with the development of Ethereum, which marked a pivotal moment in broadening the applications of blockchain technology beyond Bitcoin's initial scope. Ethereum's creation was driven by the limitations of Bitcoin's scripting capabilities, which restricted the execution of complex agreements. Vitalik Buterin's vision, outlined in the Ethereum white paper in 2013, proposed a platform that could facilitate more sophisticated applications through smart contracts and secondary tokens. This concept was revolutionary, as it extended blockchain utility beyond simple transactions to a broader range of decentralized applications (dApps), funded and developed through an innovative approach that leveraged the potential of blockchain technology for more than just cryptocurrencies.
Cryptocurrency custody is currently under the spotlight, a development that is both timely and deserved. Following the SEC's green light for spot bitcoin ETFs, a wide range of investors, financial advisors, and institutions are delving into the realm for their initial exploration, aiming to grasp the intricacies of how digital assets are securely stored and safeguarded. With a variety of custody solutions available, understanding the nuances between them is crucial. This article delves into the distinctions between hot wallets, cold wallets, and third-party custody solutions, shedding light on the different techniques used in banking and how entities like Taurus in Europe and Coinbase in the United States are pioneering in the custody space.