Apart from digital assets exclusively linked to the blockchain, a novel investment approach is emerging that enables investors to access AI, fine art, and other real-world assets through blockchain tokenization.
Bitcoin and the Rise of Digital Assets
As of November 2023, the total market capitalization of the digital asset space stands at approximately $1.5 trillion USD. Predominantly, this is made up of blockchain-based assets that exist solely on-chain, excluding any tangible or real-world assets. Beyond fiat-backed stablecoins, tokenized gold projects from Tether and Paxos are the main off-blockchain assets among the top 100, ranking at #93 and #100 respectively.
While purely on-chain digital assets, such as Bitcoin (BTC) and Ethereum (ETH), are fascinating, there's growing interest in investment opportunities that merge blockchain's authenticity and security with real-world assets (RWAs), including real estate, intellectual property, commodities, bonds, and more.
The Emergence of Blockchain-Verified Off-Chain Assets
The continuous rise in blockchain adoption, irrespective of market conditions, forecasts over 100 million daily users in the blockchain sphere by the decade's end. This significant shift in the online world suggests that missing out on blockchain exposure could prove expensive.
Tokenization, beyond easing asset transfer and ownership, offers distinct advantages. It allows for the fractionalization of investments in a manner that's simpler, more cost-effective, and more detailed than traditional methods. Consider, for instance, the need for investors in a $100 million luxury high-rise condo project in Miami, aimed at a substantial ROI.
By opting for tokenization, it becomes straightforward to issue a million tokens, each priced at $100, representing ownership stakes in the property. You could even break down the property into 10 million tokens. Upon selling the property, blockchain and smart contracts would enable the automatic distribution of profits proportional to token holdings.
Crowdsourcing investments traditionally might not attract thousands or millions of investors due to various hurdles like high costs and complexity. Tokenization, on the other hand, boosts liquidity and reduces entry barriers for diverse assets. Recent surveys indicate that over 90% of institutional investors show interest in tokenized assets, with predictions suggesting that tokenized RWAs could create a $16 trillion industry by 2030.
Blockchain and AI Market Insights
Currently, the AI market cap on NASDAQ is valued at around $3.1 trillion, peaking at about $5.5 trillion in July 2023. Despite recent adjustments due to global political shifts, there's still a strong underlying demand for AI, suggesting a potential rebound in market cap. Recognized as both an emerging and rapidly expanding market, AI is widely projected to experience significant growth.
Recognized as both an emerging and rapidly expanding market, AI is widely projected to experience significant growth.
In stark contrast, the blockchain-based AI market is valued at approximately $8 billion, which is less than 0.003% of its NASDAQ counterpart. This substantial difference, coupled with the advantages of tokenization, indicates a vast growth potential for initiatives that blend AI with blockchain technology.
Nonetheless, caution is advised by many industry experts. Analogies have been drawn between the current AI surge and the historic dot-com bubble, warning of possible market overheating. It's important to note, however, that companies which endured past market bubbles have become some of the world's leading corporations. Conversely, some failures were little more than ambitious ideas without substance. Despite these cautionary tales, AI tools continue to be integrated into everyday products used by millions, showcasing their growing significance.
Beyond NFTs: Blockchain and Art Investments
Over the last five years (2018 – 2022), the fine art market has consistently maintained an impressive average annual sales value exceeding $63 billion. Despite its size, the art market, similar to real estate, faces challenges with liquidity and entry barriers, issues that are effectively addressed through tokenization. Art investment initiatives are increasingly adopting a model where they acquire and tokenize artworks from renowned artists, aiming to resell them after a set period. Following a sale, profits are distributed to token holders, who also have the option to trade their shares on a market before the artwork is sold. Additionally, the market has seen the emergence of tokenized art funds, which hold a diverse collection of fine art, offering investors the chance to invest in a broad range of tokenized artworks.
NFTs are also playing a significant role in bridging digital and physical art worlds. A notable example is the release of Norman Rockwell’s limited edition prints and collectibles, paired with NFTs that provide digital versions and validate the physical artworks. While digital-only art in the form of NFTs will continue to experience market volatility, both fungible and non-fungible tokens representing real-world assets are gaining traction. These tokens are appealing to investors looking to broaden their portfolio beyond purely digital assets and to traditional investors exploring the potentials of blockchain-based investments.
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