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This crypto stock is enjoying a $10 trillion opportunity. Is this an immediate purchase?
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Supported by the crypto market’s continued uptrend, cryptocurrency exchange stock Global Coinbase (NASDAQ:COIN) is up 375% this year. This is largely due to improving sentiment towards crypto in general and what that means for trading volume on the Coinbase trading platform. It’s not complicated: the more people trade cryptocurrencies, the more money Coinbase makes.
But many investors may not realize how important Coinbase has diversified its core business, in order to become less dependent on the ebb and flow of cryptos like Bitcoin (CRYPTO:BTC). In fact, there is a new $10 trillion opportunity that Coinbase appears to be pursuing quite aggressively. If it works as expected, it could make Coinbase shares an even better buy than it already is. Let’s take a closer look.
The trend towards asset tokenization
The new opportunity for Coinbase is known as real-world asset tokenization, sometimes abbreviated simply to RWA tokenization. This simply means converting real-world assets (such as stocks or bonds) into digital assets that can be traded on a blockchain. Once these “tokens” are on the blockchain, it is easier for Wall Street to trade them.
Image source: Getty Images.
Earlier this year, crypto investment firm 21.co – the same company that is working with Ark Invest on launching a Bitcoin spot exchange-traded fund. (ETF) product – predicts that RWA tokenization could be a $10 trillion market opportunity by 2030.
Sure, it might seem a bit redundant to have blockchain versions of real-world assets, but it actually makes incredible business sense for Wall Street firms. In addition to faster settlement times, they also benefit from cheaper transactions, as well as greater transparency over ownership. Since everything is stored on the blockchain, this means that any tokenized asset can be traded 24/7, just like crypto.
At the beginning of 2023, BlackRock Inc. (NYSE: BLK), the world’s largest asset manager, noted in its annual letter to shareholders that Asset tokenization was one of the most exciting trends in the financial world. Other prominent companies on Wall Street echoed the sentiment. For Coinbase, this could be a great opportunity, if it can somehow get involved in trading these digital assets.
Diamond Project
This is where things get really interesting, as Coinbase appears to be taking the proactive steps needed to become a key player in asset tokenization. In late August, Coinbase introduced its own proprietary blockchain known as Base. The product launch actually generated a lot of buzz, as Coinbase became the first publicly traded company to own its own blockchain.
The story continues
At the time, I thought Base could become the basis for new Coinbase initiatives related to decentralized finance (Challenge). And that’s what seems to be happening now. In mid-December, Coinbase Asset Management officially launched Project Diamond, which will allow institutions to create and trade digital tokens using the Base blockchain.
The project is still in beta mode and is taking place in Abu Dhabi, not a Western financial capital like New York or London. Long story short, Project Diamond is a little too hot for some regulatory jurisdictions to handle. The first test case will be a short-term debt instrument denominated in USD Coin (CRYPTO: USDC), not in US dollars.
From my point of view, the Diamond project could become a win-win opportunity for Coinbase and major Wall Street institutions. Currently, only 0.25% of the world’s total assets have been tokenized and moved to the blockchain. If more assets are tokenized and Base becomes the blockchain of choice for trading them, then this could turn into a huge opportunity for Coinbase.
How long is the long term?
The only problem, of course, is that this is a very long-term opportunity for Coinbase. There are many stages at which this opportunity could come to fruition – and, of course, the regulatory issues are almost too complex to consider. If the Securities and Exchange Commission has a hard time with people trading regular cryptos like Bitcoin, what will they think of people trading tokenized assets?
But, from a global perspective, I think the tokenization of real-world assets is a trend with tremendous staying power. Many big names on Wall Street want this to happen. And as they say on Wall Street: “The trend is your friend.” Of course, the asset tokenization opportunity won’t happen overnight, but it appears to be gaining momentum as we approach 2024.
So, if you are generally bullish on Coinbase stock, but are concerned about the long-term growth prospects, then I have just two words for you: “asset tokenization.” If Coinbase can become a key player in this emerging $10 trillion industry, its prospects for future growth could soar.
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Dominique Basulto has positions in Bitcoin and USD Coin. The Motley Fool holds positions and recommends Bitcoin and Coinbase Global. The Motley Fool has a disclosure policy.
This crypto stock is enjoying a $10 trillion opportunity. Is this an immediate purchase? was originally published by The Motley Fool