Which Coins Will Benefit From Wall Street’s $5 Trillion Crypto Prediction?

If you thought Web3 or the metaverse was going to spark the next big crypto rally, think again. In accordance Citigroup (C -1.33%)the next major wave of crypto market adoption will be led by asset tokenization, which is the process of transforming real-world assets into digital assets that can be stored, accessed, and traded via the blockchain.

Citigroup predicts that asset tokenization could become a $5 trillion market opportunity by 2030. As Wall Street gets behind this trend, Citigroup says, the popularity of asset tokenization will explode in areas from real estate to private equity and venture capital. Because asset tokenization relies on blockchain-based technology to function, it’s only natural to ask: What coins or tokens can take advantage of what Citigroup calls a “killer use case” for crypto?

It won’t be Bitcoin

Although Bitcoin is the one cryptocurrency most commonly associated with Wall Street and the financial markets, it is likely to play little or no role in asset tokenization. There are several reasons for this, with the most obvious being that Bitcoin was not designed to support smart contracts. These smart contracts are small pieces of executable computer code, and they are the reason why some refer to cryptos with these properties as “programmable money”.

To tokenize an asset and put it on a blockchain, you need smart contracts. These contracts can be written in such a way that they define ownership rights, as well as the rules for how assets are transferred between different owners. Given this complexity, you probably won’t even be able to include all the terms of a financial instrument in a block on the Bitcoin blockchain, which is optimized to hold only basic transaction data. Thus, the real beneficiaries of any asset tokenization trend will be blockchains that support smart contracts.

It won’t be Ethereum

This brings us to Ethereum, the blockchain credited with launching the concept of the smart contract back in 2015. And indeed, a number of Wall Street giants have been experimenting with the Ethereum blockchain for pilot projects. In November 2022, JPMorgan Chase (JPM -1.34%) made headlines trading tokenized cash deposits using Polygona layer 2 scaling solution for Ethereum.

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But Ethereum is simply too slow and expensive to use for the scope and scale of asset tokenization that Citigroup has in mind. Even after The Merge, Ethereum can only process 15 to 30 transactions per second, and transaction fees are still too high to be practical for asset tokenization. What Wall Street needs and wants is a super-fast, near-zero-fee blockchain capable of instant settlement of transactions.

Solana and Avalanche

And it makes me think, too Solana or Avalanche may emerge as beneficiaries of the asset tokenization trend. Both are high capacity, extremely fast blockchains with almost zero fees. And both have extensive experience in decentralized finance (DeFi), including the creation of decentralized exchanges capable of trading tokenized assets.

Citigroup specifically cites real estate and private equity as two of the most promising areas for asset tokenization, and these are two areas where Solana and Avalanche have real-world use cases. For example, in 2022, Avalanche helped underwrite a $4 billion healthcare fund from the private equity giant KKR (KKR -1.77%). Tokenized shares have existed on Solana since 2021. And last month, Solana announced that one of the projects in the ecosystem had successfully tokenized a single-family home in Texas.

How big is this market opportunity?

Of course, there are a number of issues that need to be addressed first if asset tokenization is to take off. As Citigroup mentions in its report, there are legal and regulatory issues to consider. There is also the issue of interoperability. It could get very messy, very fast, if every Wall Street bank uses its own proprietary blockchain infrastructure. That’s why I think it makes the most sense to use a “public” blockchain like Solana or Avalanche.

It’s impossible not to hear about a potential $5 trillion market opportunity and not be impressed. There are even some who believe the market opportunity could be much larger. For example, the Boston Consulting Group has suggested that the size of the asset tokenization market could be $16 trillion by 2030.

Right now, the size of the total crypto market is $1.2 trillion, so Citigroup’s “killer use case” could lead to a huge increase in the valuation of any crypto that gets ahead of the asset tokenization trend. While the rest of the crypto world is focused on NFTs and the metaverse, I’m going to take a much closer look at which cryptos could skyrocket in value as a result of asset tokenization. Currently my top picks are Solana and Avalanche.