Institutions To Tokenize $25B in Off-chain Assets in 2023, VanEck Execs Predict

Executives at fund manager VanEck are bullish on security tokenization accelerating in 2023 and believe sovereign institutions could be a main driver of a projected bitcoin price increase in the second half of next year.

The projected momentum around the use of blockchain technology is set to guide the firm to focus on crypto-native products going forward, they added.

The New York-based investment group expects financial institutions to tokenize more than $25 billion in off-chain assets onto blockchains next year, Matthew Sigel, VanEck’s head of digital assets research, said in a webinar Wednesday.

Such companies are likely to employ blockchains to simplify custody and settlement while reducing costs for customers, he added.

VanEck’s prediction comes as a number of institutions have expressed interest in the tokenization space over the past year, often distinguishing the use case of blockchain technology from the broader, volatile crypto space.

The central bank of Singapore revealed in May it had teamed up with JPMorgan Chase for a blockchain pilot exploring the potential of DeFi. Called Project Guardian, the initiative sought to tokenize bonds and deposits, with smart contracts powering trade executions.

Nicole Olson, a senior vice president of digital product development at State Street, told Blockworks in an August interview that using distributed ledger technology to tokenize funds and private assets to improve efficiency and accessibility is something the company is working on for 2023.

Executives at Fund group WisdomTree, which manages $76 billion in assets, has repeated its focus in recent months to bring fixed income, equities and commodities into the digital world through blockchain-enabled funds and tokenized exposures.

More recently, Larry Fink, CEO of BlackRock — the world’s largest asset manager — said at the New York Times DealBook Summit last week that “the next generation for markets and next generation for securities will be tokenization of securities.”

Crypto products focus

Considering its bullish case for tokenization, VanEck CEO Jan van Eck said during the webinar that the firm would focus on crypto-native products and solutions, which he referred to as “actual blockchain projects.”

The company’s NFT collection, which it unveiled in May, is a signal of what is to come in 2023, he added, but did not share specifics.

Otherwise, van Eck said, the company is “pretty full up” on crypto-related products.

The firm has a suite of crypto indexes and offers various ETPs in Europe investing in single tokens or a basket of cryptoassets.

VanEck has 68 ETFs trading in the US with combined assets of roughly $52 billion, according to ETF.com. Three of those funds offer exposure to the crypto space.

The company launched its Digital Transformation ETF (DAPP), which has top holdings including Block, MicroStrategy, Coinbase and Riot Blockchain, in April 2021. VanEck later launched its Bitcoin Strategy ETF (XBTF) in November 2021, following the launch of similar bitcoin futures funds by ProShares and Valkyrie.

DAPP and XBTF are down 83% and 63% this year, respectively. Each fund has about $20 million in assets.

The VanEck Gold and Digital Assets Mining ETF (DAM), which came to market in March, has had an even tougher time gathering assets — currently holding less than $1 million. The fund is down about 81% in 2022.

Industry watchers have said they expect ETF issuers to shut down various crypto-related ETFs amid the persistent drawdown.

“We are relatively slow to close ETFs just because of low assets,” van Eck told Blockworks in a message. “But the underlying constituents of DAM have really shrunk in market cap, so we are reviewing.”

Price prediction and sovereign institution adoption

VanEck executives said they expect bitcoin could sink to a range between $10,000 and $12,000 in the coming months as a wave of miner bankruptcies could highlight the low point of this crypto winter.

Bitcoin’s price was roughly $16,800 at 5:00 pm ET Wednesday.

Sigel said that he projects bitcoin’s price to rise to $30,000 in the second half of 2023 as inflation eases and the next bitcoin halving — set to occur in early 2024 — approaches.

The executive added that institutional adoption will be critical if bitcoin is to 10x again. But, he added, many Wall Street players won’t be as willing to sign off on direct crypto investments following events such as the collapse of Terra’s algorithmic stablecoin, FTX and Three Arrows Capital.

“So what types of institutions?” he said. “For me it comes back to sovereigns who have different geopolitical motivations and realities during this Russia-Ukraine war and period of increased financial censorship than they ever did before. And so that’s the wild card.”

VanEck expects at least one nation to add bitcoin or other digital assets to its sovereign wealth fund. Sigel added that a country like Brazil could be a leader in the tokenization of sovereign debt, noting that Itaú Unibanco, the country’s largest private bank, revealed plans to launch a tokenization platform in July.

El Salvador became the first country to adopt bitcoin as legal tender last year. The Central African Republic became the second country to do so in April.

The population of the two countries combined is roughly 10 million, but more nations following in those footsteps could drive further confidence in the space, according to Sigel.

“Let’s see if that [population of countries with bitcoin as legal tender] hits 80 million and what happens to the price of bitcoin and how the rest of the world reacts,” he said.

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