Institutional Layout, Tokenization of Stocks and Liquidity Transformation: VanEck Investment Manager Outlook on the Crypto Market Prospects

After experiencing multiple rounds of ups and downs in the crypto market, VanEck portfolio manager Pranav Kanade is undoubtedly one of the best perspectives to observe the flow of institutional funds. In a deep conversation, he revealed the strategic shifts that institutional investors are undergoing, the structural opportunities in the liquidity token market, and forward-looking thoughts on the upcoming wave of tokenization of stocks, particularly how institutions are re-evaluating their capital allocation in the crypto space after the market downturn in 2022.

Institutional funds are gradually entering the crypto market.

Institutional funds are entering the crypto space through two main forms: one is direct purchases of relevant assets, and the other is establishing on-chain products through asset tokenization. These two types of institutional groups differ; the former includes investors who purchase assets, while the latter focuses on product development.

Global capital flows are primarily controlled by family offices, high-net-worth individuals, endowment funds, foundations, pension funds, and sovereign wealth funds. These capital holders typically make investment decisions through passive strategies (such as ETFs) or active strategies (such as professional managers).

Family offices may have entered earlier because they saw the return potential in liquidity. Last year, many institutions began purchasing Bitcoin ETFs, which is a simple way to gain exposure. Another method is through venture capital, where they find large blue-chip managers for allocation. However, many institutions still have not ventured into liquidity assets or their proxies.

Opportunities and Challenges in the Liquidity Token Market

Since 2022, approximately $60 billion in capital has flowed into seed and seed-round stage venture capital projects. Many founders prefer to exit through Token form rather than the traditional IPO path. The time from seed round to IPO typically takes 6 to 8 years, while through token issuance it only takes about 18 months.

However, this trend also exposes liquidity issues in the market. Many projects that exited through tokens have generally seen a decline in token prices over the past 12 to 24 months, due to a lack of sufficient market demand to support the value of these tokens. In traditional financial markets, venture-backed companies have a deep public equity market as support during their IPOs, but a liquidity token market has yet to form a similar ecosystem.

Early Investment vs Liquidity Assets: Trends in Capital Allocation Shift

In the crypto market, the phenomenon of supply and demand imbalance is significant, especially in terms of liquidity. Due to insufficient capital supply, while there is huge demand for tokens and projects in the market, investors need to sift through numerous tokens to identify promising projects. 99.9% of tokens on CoinMarketCap are junk, with their value far below market value. Only a very small number of projects with clear product-market fit, capable of generating income and rewarding token holders, are worth paying attention to.

If, in the future, the market capitalization of all cryptocurrencies other than Bitcoin, Ethereum, and stablecoins achieves multiple growths, certain projects will directly benefit from this trend, and their tokens may attract a majority of the value inflow. Such investments are considered to have high return potential on a risk-adjusted basis while retaining liquidity advantages.

The importance of income models and cash flow

The crypto industry faces a binary choice: either become an appendage of the internet or focus on creating real value (such as revenue). All other assets, aside from value storage, will ultimately be seen as "capital return-type" assets.

The crypto industry needs to clearly explain why these assets have value. Only when the answer to this question becomes obvious will there be a large influx of funds, and the scale of the crypto asset category will expand.

Tokenization of stocks: the next trillion-dollar market

The future evolution of the market may take two main directions: one is to promote market capitalization growth through the popularization of tokenization of equity, and the other is the rise in prices of existing assets, similar to the previous "altcoin season".

Tokenization of equity not only possesses the attributes of traditional equity but also allows for more use cases through programmable features, such as rewarding users or creators. This model could further expand the current $700 billion alternative token market, with more companies potentially opting for on-chain IPOs instead of traditional IPOs.

L1 Valuation: Cash Flow vs Future Potential

Most L1 Tokens will not enjoy a "currency premium" similar to Bitcoin. The market will ultimately view these tokens as assets valued based on cash flow multiples. The key question is how much demand for the chain's block space will be generated by developers building applications on these chains if their applications become hugely successful in the future.

The Future Development of Infrastructure and Applications

Currently, there have been no cases of any killer applications migrating from their respective chains and independently building a complete technology stack. L1 infrastructure may form a pattern similar to that in the cloud computing field, where applications may switch between a small number of giants rather than building their own chains.

The question of whether cryptocurrency will go mainstream by being built upon or utilized by existing Web2 giants or by killer applications created by VC-backed startups remains to be answered.

Carefully designed tokens can become incremental capital structure tools for businesses, and in some ways, they may outperform stocks and bonds. The development of tokenized stocks may lead to faster user growth and more flexible reward mechanisms for companies.