It took nearly nine years for Bitcoin to hit $10,000 for the first time, and a bit over 12 years to reach $50,000. According to McKinsey, patience will also be needed with tokenization.

The excitement surrounding the tokenization of real-world assets is palpable. A report by 21.co from last October predicted that this market could be worth $10 trillion by 2030, with a potential low of $3.5 trillion.

However, McKinsey offers a reality check. While the consulting firm agrees that tokenization will revolutionize financial institutions, transform the investing experience, and lower trading costs, it warns that the sector may be advancing too quickly. “There have been many false starts and challenges thus far,” McKinsey noted.

“Based on our analysis, we expect that total tokenized market capitalization could reach around $2 trillion by 2030. In a bullish scenario, this value could double to around $4 trillion, but we are less optimistic than previously published estimates.”

In the most pessimistic scenario, McKinsey suggests the tokenization sector could be worth as little as $1 trillion — less than Bitcoin’s current market cap. This isn’t an attempt to dismiss the technology but an acknowledgment that adoption takes time. Bitcoin itself took nearly nine years to hit $10,000 and over 12 years to crack $50,000.

McKinsey outlines several challenges that tokenization faces in gaining wider momentum:

  • Limited liquidity, with low transaction volumes hindering market robustness
  • Parallel issuance on traditional platforms leading to higher costs
  • Disruption of long-established processes

Tokenization also needs to prove it’s superior to current methods. For instance, in the bond market, overcoming the “cold start problem” requires demonstrating that digital collateral offers substantial benefits, such as greater mobility, faster settlement, and increased liquidity.

Three additional hurdles are noteworthy:

  • Upgrading financial systems, some of which are decades old, will take time and require uniformity.
  • Regulatory bodies will need to weigh in, and their actions can be slow.
  • The scalability of blockchains remains a concern, although Layer 2 solutions are helping. Blockchains also tend to fragment, creating silos. While bridges could solve this, they come with security risks and have suffered significant hacks.

McKinsey’s overall argument is that while tokenization is inevitable and its benefits will be significant, the process will take time. The firm envisions a future where businesses can make payments around the clock, investors enjoy fairer terms, and financial products undergo much-needed modernization.

“Consumer technologies (such as the internet, smartphones, and social media) and financial innovations (such as credit cards and ETFs) typically exhibit their fastest growth (over 100 percent annually) in the first five years after inception,” McKinsey states.

Early movers could reap significant rewards, particularly if they develop a leading tokenization platform. However, there’s also the risk that newer, more advanced start-ups could overtake them, rendering their investments obsolete.

For more insights into the evolving world of cryptocurrencies and finance, continue exploring the latest news on Global Crypto News.

Post Views: 5