Crypto Will Devour the Stock Market
Stock-Markets / cryptocurrency Feb 18, 2022 - 03:29 PM GMTBy: Stephen_McBride
Longtime RiskHedge readers know crypto is one of the best moneymaking opportunities in the world. Cryptos like Ethereum (ETH) have outperformed even the hottest stocks by 10X in the past few years.
And we’re still only in the first inning of this opportunity. For example, did you know Apple (AAPL) is larger than the entire crypto market?
This fact alone makes my big call sound totally absurd…
Crypto will devour the stock market.
How, when, and where we invest is about to be transformed.
The stock market is about to be “tokenized.”
Let me explain…
Today, crypto and stocks are two separate worlds. Crypto tokens like Ethereum and bitcoin (BTC) live on a blockchain, which is the game-changing tech behind crypto.
Stocks trade on traditional rails like the New York Stock Exchange and NASDAQ.
ALL stocks will move onto a blockchain in the next few years. You won’t be buying Apple “stock” on the NYSE anymore. You’ll be trading Apple “tokens” on a blockchain.
You might ask: What’s wrong with stocks the way they are?
- The experience of buying and selling stocks sucks.
Excuse my language.
But have you ever traded stocks on the weekends?
Nope, because you can’t.
Want to buy a stock at 8 pm? Sorry, that’s not possible either. The US stock market is only open from 9:30 am–4 pm, Monday through Friday. And it’s closed on holidays too.
Truthfully, you’re lucky if you can buy stocks at all. Americans can open a brokerage account and trade thousands of US stocks. But it isn’t that easy for most of the world.
There are lots of hurdles for foreigners investing in US markets. Even if you can get access, it’ll cost you. For example, Ireland’s largest stockbroker charges $30 to buy or sell a US stock.
The stock market’s “plumbing” is also like something from the 19th Century.
By the time you finish reading this sentence, high-frequency traders will have bought and sold thousands of shares. So why does it take two days to receive the cash when you sell a stock?
As you may know, stock transactions take several business days to “clear.” This is 2022. Why can’t the greatest financial system in the world settle trades in real time?
The New York Stock Exchange and NASDAQ together are one of the world’s most dominant duopolies. They run the stock market.
Until now, it didn’t matter that they suck—they had no competitors. But crypto is changing that…
- Ever bought or sold crypto?
If you have, you know crypto markets trade around the clock.
Want to buy bitcoin on a Sunday afternoon? Go ahead. Trade crypto on Christmas? No problem. How about trading at 6 am on Thanksgiving morning? Sure thing. The crypto market never sleeps. It’s open 24/7/365.
It’s also the first truly global market. As I mentioned, it’s often difficult for foreigners to buy US stocks. Ditto for Americans looking to invest in European companies.
Crypto markets know no boundaries. Anyone with an internet connection can trade almost every token on crypto exchanges like Uniswap. That’s just one of the reasons why people will eventually own more crypto than stocks.
Imagine if stocks were tokenized and tradable on these exchanges? Anyone could buy them at any time.
In fact, tokenized stocks could fuel a stock market boom.
Assets that are easily tradable are typically worth more than those that aren’t. Research from NYU shows the “liquidity premium” can boost an asset’s value by 20–30%. For the US stock market, that would add $13 trillion in value.
Makes sense, right? When you make a market global, you can attract tens of millions of new buyers.
And unlike “old finance,” there’s no waiting two days to get your cash in crypto. When you sell, money arrives in your account almost instantly.
- See how crypto is far superior to the stock market?
This is a no brainer. Tokenized stocks are coming. Ten years from now ALL stocks will be digital tokens.
It’s already starting.
Ever hear of FTX? It’s the world’s third-largest crypto exchange. Over $10 billion worth of trades flow through its platform daily.
You can buy tokenized versions of Tesla, Apple, Facebook, and many other well-known stocks on FTX today.
These crypto tokens are tied directly to individual stocks. They can be redeemed for actual “real” shares. And they carry most of the same underlying rights, like voting and dividend distributions. Best of all, they can be accessed by investors worldwide… 24 hours a day, seven days a week.
Paxos, another crypto firm, is using blockchain to disrupt stock markets too. It’s settling stock trades on Ethereum in near real-time on behalf of investment bank Credit Suisse.
And 24/7 tokenized stocks aren’t just some fringe crypto idea.
Ever hear of Steve Cohen? The hedge-fund billionaire and NY Mets owner recently invested $14 million in a company launching a 24-hour stock market. Bermuda-based 24 Exchange is building a global, always open stock market modeled on crypto.
- So… who loses in this new tokenized stock market?
Tokenized stocks don’t mean great companies are going away.
But it will transform how, when, and where we buy world-changing disruptors. You’ll be able to trade Apple’s “token” on the golf course on a Sunday afternoon.
If you own great companies, crypto’s coming takeover of the stock market is nothing to worry about.
But stock exchanges have a lot to worry about.
The New York Stock Exchange and the NASDAQ have ruled stock trading for decades. They are a hidden duopoly almost nobody thinks about. Now, they’re about to enter the fight of their lives.
Tokenized stocks are just getting started on places like FTX today. Barely anyone has heard of them. A decade from now, hundreds of billions of dollars of tokenized stocks will trade hands each day.
That spells trouble for companies that run the stock market, like Nasdaq (NDAQ) and Intercontinental Exchange (ICE). It isn’t something they have to worry about yet. But the disruption is coming.
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By Stephen McBride
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