Tokenised stocks? Or stock tokens?

In today’s Exponential Investor…

  • Locked out of big stocks
  • A letter from granny
  • The Crypto Revolution

If you want to buy stock in Amazon today, it’s going to cost you $3,224 for just one share.

If you want to buy stock in Alphabet (Google) today, it’s going to cost you $1,757 for just one share.

If you want to buy Berkshire Hathaway A stock, it’s going to cost you $333,654 for just one share (at the time of writing).

For most people the thought of buying one of these stocks, just one, is a stretch too far. It’s a lot of money for just one single stock. It prices most people out of the market and it means most people will never get near stocks like these.

Now, conversely a lot of people say to me that bitcoin is much like these stocks. It’s too expensive to buy. That’s only true if you’re looking to buy one whole bitcoin which recently pushed through $20,000 per BTC.

However, what bitcoin does that giant stocks like the ones above don’t do, is allow you to buy fractions of it.

In other words, if you want to buy just $10 of bitcoin, you can. It works out to be 0.0005 BTC or in its true denomination, 50,000 sats. You see bitcoin is divisible, and if one whole bitcoin (around $20,000) is equal to 100,000,000 sats, then you just buy as many sats as you can afford if you want to buy bitcoin.

If you want to buy Amazon’s stock you can’t just buy $10 of Amazon, or 0.0031 Amazon stock.

But what if you could? What if, thanks to the technologies and developments in crypto, you could buy fractions of stocks?

Even bigger than that, what if all stocks in the world were able to be divisible like bitcoin? Also, that you could trade fractions of stocks anytime, anywhere in the world, with almost zero fees and instantaneously?

Would that be a better, truer, freer market? Access for all, to the investments they often are simply shut out from.

Well thanks to the developments in crypto. You can.

I saw the future coming

On 8 June 2018, over two and a half years ago, I wrote about how the future of markets was based in crypto.

Here’s some of what I wrote,

When you’re trading stocks in the same way you trade crypto, you might really get [crypto]. Or when you’re trading your “tokens” instead of stocks, then you’ll really understand.

You see we’ve been highlighting the ease and speed, which you can buy, sell and trade crypto. It’s fast, immediate and low cost. There are no borders, time restrictions or “business hours”.

It’s why last week after writing about how markets should be easy for “granny”, I got this wonderful reply in my mailbox:

Sam,

I loved your Granny story. I am a 72-year-old Granny. I started trading shares in 2004 for the first time. It was quite easy to register, the hardest part was learning how to use the computer!

I used your advice…from around 2016 -7. And did quite well. Thank you.

I registered for cryptocurrency trading in July 2017 and found it quite difficult. Perseverance was the key and enough free time to spend on it, was a bonus.

I have learned to pay my bills using Living Room of Satoshi. Bit of a challenge. I joined Coinbase first. Quite hard to use. Then Coinspot, very easy to use. Only difficulty for me is Mobi. But still working on that one.

I don’t have a lot tied up in Crypto, just use to keep my brain active.

Thanks for all your help…

I love this letter.

Perseverance is the key. Spot on!

And it’s a reminder that once you get over any initial frustrations crypto can be a rewarding endeavour.

Paying bills with crypto – now tell me a few years ago if you ever thought that would be possible?

While this reader does make note it was easy to register for share trading in 2004, we know that today it’s a slightly different story. At least it is if you want to trade on international markets.

Coincidentally I got the following message today from a mate who’s trying to buy some overseas stocks (edited to remove expletives).

[Stupid] overseas shares. I placed orders for Alibaba, Microsoft and Berkshire-B yesterday morning. By the time the order is placed by Etrade custodians (which is well into their days trading) prices move.

You are limited on the price you can set. Then it takes 48 hours to deal so it a bloody lottery if your order gets filled. You then got to wait for it to get rejected before you go through the whole process again.

It took me a week to buy Ping An. Berkshire had a 2% rally overnight so my order will get killed again. It’s [very] annoying.

Meantime you miss your price and currency. Short of having an offshore account with a US broker here has to be a blockchain alternative.

It’s a similar problem in the UK. Just trying to find a broker to even trade on the ASX is a nightmare. Meanwhile, I can set up a Binance account and trade crypto anywhere in the world in minutes.

My analysis tells me the future of trading stocks will be via crypto. There’s no reason why we can’t trade stocks 24/7, 365 days a year. There’s no reason why you must only trade [during domestic business hours].

The problem is existing systems can’t handle that. They’re not built for it. They’ll never be able to do it.

Which is why security tokens are coming in crypto. This is where your share or equity (stock) in a company is attached to (or represented by) a crypto token. You will then be able to trade it on any major crypto exchange, anywhere in the world.

That’s stock trading for any company, in any country, from anywhere in the world. It will be fast, easy, instant. It will turn stock markets on their heads.

Think about the potential of that.

Imagine you’re a medium-sized business. You’re maybe looking to ramp up growth. You’re thinking about doing an IPO.

But the costs and burdens are a nightmare. Instead you still issue equity (stock) to investors that carries all the rights of a normal stock.

Now you can tap investor capital from anywhere in the world almost instantly.

That would be complete shift in how people think about stocks and trading.

That’s the future we’re heading to.

We’re not quite there, but we will be soon

That’s the future that is starting to emerge now. There are exchanges like Bittrex that are offering “tokenised stocks”.

These are actually derivatives of publicly traded stocks. Hence you’ve got to ensure that you’re well aware of the risks and legality around accessing and trading derivatives in your country. You’ve also got to understand the risks that are involved and the rights you do or importantly don’t have when using these instruments.

But what it shows is that innovation in markets can move quickly, and now the idea of tokenised stocks, fractions of stocks, is something that’s a lot closer to reality.

It’s not completely how I envisage it… yet. However, I do believe that future is coming at us very quickly. A future where companies will issue their common stock as crypto tokens that can be traded anywhere, anytime, and convey all the normal rights and ownership that normal common stock does. Furthermore, they will also enable fractional trading of their stocks, opening up investment markets to a whole new world of people that have for so long been locked out.

Of course, to get to that future is no easy feat. For all the potential of crypto markets and the ability to democratise share investing, traditional finance still has a stranglehold on their powerbase and they’re not about to just let it go.

As you’ll find out in Exponential Investor tomorrow, sometimes in the traditional financial world, the best opportunities are still sometimes kept for the rich and financial elite. That will change, and it will change because of the crypto revolution.

Regards,


Sam Volkering
Editor, Exponential Investor

Category: Technology

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