4 Trillion Reasons BlackRock Changed Its Mind On Digital Assets #CashNews.co

Larry Fink has come a long way on digital assets since the crypto bull run of 2017, when he described Bitcoin
Bitcoin
as “an index for money laundering”. Fast forward a few years, and Fink is now one of its most vocal (and most influential) proponents, with BlackRock among the first to embrace Bitcoin spot ETFs that emerged at the beginning of this year.

BlackRock’s recently-discovered passion for digital assets doesn’t end at Bitcoin. Earlier this year, it was reported that its new Ethereum-based tokenized Treasuries fund had secured about a third of the $1.3 billion market within just two months of its launch.

There is more joy in heaven at the man who sees the error of his ways than at the 99 who were right all along. Yet Fink’s conversion is hardly a religious one; as with any hedge fund manager, he’s motivated by Mammon. The financial opportunity for tokenization is out of this world; earlier this year, a report from McKinsey predicted the tokenized real world asset (RWA) sector will reach nearly $4 trillion by the end of the decade.

That’s a lot of good reasons to bet on the future of finance being tokenized, yet it only goes part of the way to explain BlackRock’s (along with many other major institutions, from Deutsche to JP Morgan) fervent adoption of digital and tokenized assets. The truth is, tokenization changes everything.

Tokenization – the new rails of global finance

A Forbes audience won’t need much of a primer on what tokenization is or how it works. But it’s worth recapping what it means. It’s the foundation for new asset classes, new markets, a world of new financial opportunity – not just for trillion-dollar hedge funds, but for everyone.

The ability to convert potentially any real-world asset into a digital token creates a new investment superpower: the ability to fractionalize “monolithic” assets.

Fractionalization enables anyone to take a stake, however small, in things they could never have hoped to buy outright – anything from luxury property to an Old Master painting. Tokenization doesn’t just apply to physical assets either; for example, some of the most exciting developments are in the tokenization of private credit (including SME loans). This market alone has grown 39% to $8.9 billion in 2024.

All this is great news for individuals – especially small-scale, first-time investors – but the macro implications are even bigger. By opening up asset classes to new groups of investors and making them trade-able, tokenization massively boosts liquidity in these markets, while enhancing speed, boosting capital efficiency, and removing friction from all kinds of financial transactions. This in turn helps make the global economy much more robust and better able to weather the kind of shocks we’ve seen in the first two decades of this century.

Tokenization therefore shouldn’t be seen only as individual investments, but as a new paradigm for markets and transactions that will swiftly replace old, inefficient legacy financial systems and practices.

The best historical analogy to today’s ‘tokenization moment’ is the development of railroads in the 19th century. These massive infrastructure projects, carved through mountain ranges and fording mighty rivers, transformed societies in ways barely imaginable by even their most fervent financial backers. They didn’t merely slash journey times for freight and passengers: they brought vast economic, political and social change in their wake. After the railroads, nothing was ever the same again.

It’s the same with digital assets and tokenization. These technologies are the financial rails of the future, and investors like BlackRock are the modern-day equivalents of Cornelius Vanderbilt, Jay Gould and – of course – the original J.P. Morgan. The great financier’s descendants are now seizing the opportunities afforded by the digital asset revolution; for example through Onyx, claimed by J.P. Morgan to be the world’s first bank-led blockchain platform for exchanging of value, information and digital assets.

Building the future

Like the railroad builders of yesteryear, there are many obstacles to overcome before tokenized assets can fulfill their potential and transform the worlds of investment and financial services. There are many knotty problems to solve, ranging from secure custody at institutional scale, to securing regulatory clarity and acceptance.

While there has been superb progress so far, much of this is piecemeal – for example, there are wildly-different approaches to regulation in different jurisdictions. This means some countries are fast becoming hubs for digital assets while others are at risk of becoming backwaters. This delays the full, transformational promises of tokenization, which can only be achieved when the benefits are truly universal.

That said, the direction of travel is becoming ever more clear, especially with the emergence of new frameworks like the European Union’s Markets in Crypto-Assets Regulation (MiCA). These provide both much-needed clarity and guidance for those pioneering the tokenized future, as well as a model for still-skeptical regulators like the SEC.

The financial opportunities arising from the tokenization revolution means that it is surely only a matter of time before all these remaining roadblocks are removed. There are at least four trillion reasons why tokenization will have taken root by the end of the decade, embraced by everyone from the likes of BlackRock and JP Morgan, to ordinary citizens – and transforming the world in ways we can barely begin to imagine.