The world of digital assets has seen many ups and downs. From peaks where the value of different tokens hit all-time highs to valleys known as "crypto winters," where people predicted the asset class would vanish. Nevertheless, it has persisted, and the market for digital assets is still growing. For instance, in the UK in 2023, three of the largest FinTech transactions involved businesses that dealt with digital assets. Comparably, in 2023, four of the largest FinTech acquisitions in Switzerland featured businesses that dealt in digital assets.

Although the initial excitement surrounding the technology has subsided, there is still a sizable market for digital assets. The CEO and co-founder of WealthArc, an accessible and reasonably priced wealth management platform, Radomir Mastalerz, predicted that digital assets will increase. However, before the popularity of digital assets soars, some barriers still need to be overcome. particularly in regard to ownership laws.

Caladan's head of ecosystem Stephany Zoo anticipates that 2024 will be a big year for digital assets because the SEC approved 11 Bitcoin ETFs, making them available to more investors. "There will be a great influx of institutional capital given the approval of the Bitcoin ETF, which will change the dynamics of the market in general," stated Zoo. DePIN, or decentralized physical infrastructure, will gain popularity in the tokenization of real-world assets and aid in the onboarding of machines onto Web3, including automobile fleets. Enhanced tokenization contributes to improved price discovery, increased market liquidity, and overall efficiency.

The Chief Technical Officer of Spectrum Search, Peter Wood, is likewise upbeat about the expansion of digital assets in 2024. A broader understanding of and confidence in these kinds of assets, though, is essential to all of this. He added that although digital assets are no longer the main topic of news, they are nevertheless growing and changing, albeit in a somewhat specialized field.

He continued, saying, "We're likely to witness a more mature, regulated, and accessible landscape as mainstream financial entities increasingly explore and integrate blockchain and crypto-based offerings." The interest in digital assets will likely continue to grow as a result of this transformation, particularly from investors who are looking to diversify and innovate their holdings.

Coins with stablecoins

The realm of stablecoins is one aspect of the digital asset ecosystem that has recently experienced growth. These are a class of digital asset designed to reduce the volatility of digital tokens relative to other digital asset classes. Their value is linked to a currency, commodity, or financial instrument. The Financial Conduct Authority (FCA) of the United Kingdom has released a discussion paper and is looking for input to help shape how it will regulate stablecoins.

"Regulators are examining the best way to de-risk a historically volatile space in line with crypto's increasing adoption," stated Chor Teh, director of financial crime compliance at Moody's Analytics. The FCA intends to write laws for stablecoins before moving on to a wider variety of crypto assets, and the consultation appears to be one of the first steps toward that goal. The amount of participants that the FCA has indicated the consultation is appropriate for is what makes it intriguing. The FCA is seeking input from consumer organizations and merchants who might think about using stablecoins as an alternative payment method, in addition to cryptocurrency companies.

With the HM Treasury having previously stated its intention to define fiat-backed stablecoins within legislation and make changes to the payments legislation to enable payment for goods and services to be made through fiat-backed stablecoins, the consultation is intended to aid in the development of the nation's stablecoin regulations. Around the world, more stablecoin-related regulations are being implemented. According to reports, Jerome Powell, the chair of the Federal Reserve, informed House Democrats earlier this week that stablecoin legislation is necessary in the US. Adrian Orr, the governor of the Reserve Bank of New Zealand, recently expressed worries over stablecoins' lack of stability.

Teh went on, "2024 will be a year when crypto becomes more professionalized and used in everyday financial transactions." "In order to best prepare for adherence to any new regulation and meet the growing demands to assess crypto risks, those within organizations responsible for due diligence and de-risking, regardless of the outcome of the consultation, will need to automate real-time and comprehensive data checks into their KYC workflows."

Tokenization

Tokenization is an additional aspect of the digital asset environment that may get more attention. This technique helps to enhance the distribution of illiquid assets by issuing a digital version of the asset. A building, for instance, might be split up into different tokens, each of which could be purchased and exchanged on a secondary market.

Tokenization, according to Michael Walsh, CEO of Ireland and Head of Distribution at Zodia Markets, is a means of opening doors for regular investors by giving them access to opportunities that are usually only available to individuals with substantial financial resources. "The same could be said of other private assets, like private equity funds and litigation finance pools, which are typically financed by very large investors or liability partners," he continued. Because there is more money available, there will probably be benefits for small investors as well as an increase in the original owners' asset prices.

Mastalerz expressed optimism about tokenization's potential to increase investment kinds' liquidity as well. "Tokenization will increase retail investors' access to a wider variety of investments," he stated. It is possible to make real estate investments without actually purchasing the property. Tokens of hitherto illiquid assets will consequently become more liquid. He thinks tokenization in wealth management will advance this year, but he doesn't think it will become a major asset class until a few more years from now. "Traditional wealth managers prefer less volatile assets, but I can assure you, all of them are observing the growing space of alternative assets," he stated in response to a question about whether wealth managers are keeping an eye on tokenization.

Not everyone, though, has the same level of optimism over tokenization's future in asset management. According to Kidbrooke's CEO and co-founder Fredrik Davéus, "there is more efficient tech to keep track of real-world assets, and in the real world." Reversing transactions is really common and helpful, even if that is the entire purpose of DLTs.

NFTs

Non-fungible tokens are the most well-known type of tokenization (NFTs). These were frequently digital works of art for which ownership was exchanged. Prices for these skyrocketed, with one title, The Merge, reportedly selling for over $90 million, becoming the highest value deal. Since then, though, the market has collapsed, and according to a dappGambl study, over 95% of NFTs are worthless. Many people became disenchanted with tokenization after the NFT market. "NFTs gave this use case negative PR in a way," stated Davéus of Kidbrooke.

Regulators have also lately taken enforcement action against a few NFTs due to issues they have encountered. The US Securities and Exchange Commission (SEC) has filed charges against Impact Theory for a comparable event and against Stoner Cats 2 for undertaking an unregistered offering of securities backed by cryptocurrency in the form of NFTs.

"It's critical to distinguish between the hype surrounding NFTs and the more general concept of asset tokenization," Wood stated. It's true that NFTs have spread awareness of digital ownership and the special advantages of blockchain technology. In a sense, this exposure has established a foundation of knowledge and acceptance that will help asset tokenization become more widely used. Tokenization in industries like real estate and other traditionally illiquid assets will require more stability and structure than the frequently speculative nature of NFTs.