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Are Tokenized Stocks a Good Idea?

Tokenized stocks are here. In fact, the PayPal tokenized stock FTX (PYPL) was CoinMarketCap’s most trending cryptocurrency on 30 March 2021.

The interest did not translate into trading volume, however. CoinMarketCap estimates the PayPal tokenized stock had a $1,017.43 24-Hour Market Volume. The PayPal tokenized stock was CoinMarketCap’s 3,848th ranked cryptocurrency on 30 March 2021.

Mr. Market paid a $248.32 Coin Price for the PayPal tokenized FTX stock on 1 April 2021. In contrast, Mr. Market paid $247.54 for PayPal Holdings (NASDAQ: PYPL) shares on the same day. Additionally, PayPal (PYPL) had a market capitalization of $289.91 billion on 1 April 2021.

What is a tokenized stock?

A tokenized stock is a cryptocurrency that represents a share of stock held in a brokerage account. To buy the token you need to open a brokerage account.

A tokenized stock is the equity equivalent of a stablecoin. A stablecoin is a crytpocurrency they build a digital robot into. The digital robot releases payment in a fiat currency with funds held in a trust account.

In the tokenized stock, the digital robot trades the stock on an exchange when you sell the token. For example, the PayPal tokenized stock (PYPL) trades on the FTX Exchange in Germany.

CM-Equity a full licensed and regulated financial institution operates the FTX Crypto Derivatives Exchange. CM-Equity is a licensed brokerage which offers investment advice and accounts.

Drawbacks to Tokenized Stocks

There are some drawbacks to tokenized stocks. For instance, you need to comply with Know Your Customer (KYC) requirements to open an FTX account.

That means you will surrender your privacy and reveal your identity and location to the exchange and the German and European Union (EU) bureaucrats that regulate it. Hence, I think tokenized stocks defeat one purpose of cryptocurrency.

To explain, many people cryptocurrency for security and privacy. However, tokenized stocks come with holes that could allow bureaucrats and hackers to penetrate your security.

For example, thieves could steal your account information by hacking FTX’s platform. Thieves could also acquire your information by hacking the European Securities and Markets Authority (ESMA).

Besides thieves tax collectors could use the KYC information to track down and seize assets. In countries, such as the United States, debt collectors could use such information to locate accounts and garnish them.

STING and Tokenized Stocks

Another way to invest in tokenized stocks is through STING (STN). Sting Coin (STN) is an Ethereum-based ERC20 cryptocurrency associated with a scheme to create a blockchain-based overseas stock trading system.

The plans at STING Trading include a Mobile Trading System (MTS) intended to make overseas trading of stocks, futures, and options easy. There’s also a STING Pool, which is supposedly an economic system that will enable stock trading. There will also be a STING Staking service that will peg various cryptocurrencies to STING.

The hope at STING is to create a blockchain-based stock trading system that will allow anyone anywhere on Earth access to stock exchanges such as the New York Stock Exchange (NYSE), AMEX, NASDAQ, Tokyo Stock Exchange, London Stock Exchange (LSE), and the Frankfurter Wertpapierbörse (The Frankfurt Stock Exchange).

Mr. Market gave STING (STN) a $14.88 Coin Price on 31 March 2021. That price fell to $7.82 on 1 April 2021. CoinMarketCap estimates STING had a Fully Diluted Market Cap of $391.095 million and a 24-Hour Market Volume of $60.706 million on 1 April 2021.

I think there is no connection between Sting Coin and the famous musician. Similarly, there is no connection between Sting Coin and professional legend Sting.

I advise speculators to avoid STING (STN) because there is no evidence any of the claims its promoters make are true. In particular, I see no evidence STING has tokenized stocks for sale. However, I consider STING a cryptocurrency to watch.

Are Tokenized stocks a Good Idea?

I think tokenized stocks offer few advantages to investors in developed region such as North America and the EU.

For example, I think brokerage accounts and apps such as Robinhood and the Cash App offer cheaper and more flexible means of buying stock than tokenized stock. Thus, I can see no reason for Americans or Canadians to buy tokenized stocks.

However, I think tokenized stocks could be a useful tool for people who lack access to traditional stock markets or brokerages. Residents of developing countries, for example.

Some Advantages of Tokenized Stocks

Investors whose governments restrict access to foreign investment markets could also benefit from tokenized stocks. For instance, residents of China or Venezuela.

A person who fears her government will seize her accounts could use tokenized stocks to invest in foreign stocks. A Venezuelan could use tokenized stocks to invest all of her money in PayPal.

Another use of tokenized stocks could be to protect funds from inflation. For instance, a citizen of a high-inflation country such as Argentina could invest his retirement stocks in tokenized shares of American or European stocks.

Tokenized stocks could beat inflation because of the massive gains in the US stock market. Stablecoins provide some protection from inflation because they invest in low-inflation currencies such as the US dollar. However, the US Dollar is a stable asset that offers little growth.

Conversely, stocks can offer a high-rate of growth. For example, the S&P 500 paid an 18.4% annual return on 31 December 2020, YCharts estimates.

Investors need to avoid Tokenized Stocks

Thus, tokenized stocks could provide a high-growth alternative to stablecoins. Yet I do not think tokenized stocks offer any real advantage to traditional stocks for American investors.

 

Tokenized stocks are an interesting new asset class. My advice is for investors and speculators to watch tokenized stocks but avoid investing in them. I think tokenized stocks are too new of an asset to be a reliable investment.

 

My advice is to put your money in traditional stocks or ETFs or Bitcoin (BTC) and watch tokenized stocks. I predict tokenized stocks will explode, but the explosion is a while off.

Originally published at https://marketmadhouse.com on April 1, 2021.