Tokenization, Regulation And Crypto Investing: Digital Assets Thoughts Of The Week

Tokenization

“The latest developments in tokenization point to a more demanding phase for financial infrastructure. Regulators are examining whether tokenized assets can function as collateral, settle reliably and retain their legal protections when markets come under pressure.

“ESMA has opened a consultation on tokenized collateral in European clearing markets. EU finance ministers have advanced proposals to strengthen supervision and expand the DLT Pilot Regime. In Singapore, the central bank has outlined its approach to settling tokenized securities using digital money.

“The IMF has also examined the financial stability implications of tokenization, including the risks associated with increasingly connected financial infrastructure.

“I think these developments show where institutional attention is moving. As tokenized assets become more widely used, institutions will need greater certainty over ownership, settlement and liquidity. The next stage of adoption will depend on how reliably these processes work in practice.

“The IMF has published an October analysis examining how tokenization could affect financial stability as more institutions rely on shared digital infrastructure.

“I think one area worth watching is how automated transactions affect liquidity during market stress. If several institutions use similar systems to adjust collateral positions, sudden changes in asset valuations could trigger large volumes of transactions simultaneously.

“This also raises questions about the responsibilities of custodians, settlement providers and infrastructure operators when transactions fail, or systems become unavailable. For institutions, operational resilience will become an important consideration when evaluating tokenized assets. The ability to manage transaction failures, maintain ownership records and continue servicing assets during disruptions will influence adoption.

“The next phase of tokenization will depend on whether institutions can reliably use digital assets for collateral, settlement and other financial activities. As adoption grows, issuers will need to ensure that ownership rights, transfer restrictions and regulatory requirements are addressed throughout the asset’s lifecycle.

“The developments this week show that regulators are paying closer attention to these requirements. Over the next 12 months, institutional adoption will increasingly depend on how effectively tokenized assets can be held, transferred and settled across different financial systems.

“Tokenization has reached a point where institutions need to see how these assets perform in practice. Accurate ownership records, reliable settlement and access to collateral are essential for wider adoption. The industry’s progress will depend on how consistently these processes work across platforms and markets.”

– Edwin Mata, co-founder and CEO, Brickken

Europe and tokenization

“ESMA launched a consultation on the potential use of tokenized collateral by European central counterparties (CCPs). The paper includes 30 questions covering settlement finality, ownership rights, client protection and liquidity risks. 

“I think this is an important development because collateral management could become one of the clearest measures of institutional confidence in tokenized assets. Clearing institutions need to know that collateral can be accessed, transferred and liquidated when a counterparty defaults, regardless of the technology used to represent it.

“One issue raised in the paper concerns the distinction between technical control and legal ownership. A token may be held in a segregated wallet, but institutions still need enforceable rights over the underlying asset. This becomes particularly important when tokenized records and traditional ownership registers do not match, or when assets need to be recovered during insolvency proceedings.

“ESMA is also examining whether automated collateral transfers could increase liquidity pressure during periods of market stress. If several institutions respond to the same market conditions simultaneously, collateral movements could become concentrated within a short period, creating additional demands on liquidity.

“I expect these considerations to become more important as institutions begin using tokenized securities in clearing and collateral arrangements. For issuers, this means establishing clear ownership records, transfer restrictions and settlement procedures from the outset. Institutions will increasingly assess whether those mechanisms remain reliable when assets are transferred between platforms or need to be liquidated quickly.

“The Council of the European Union has agreed on proposals giving ESMA greater supervisory authority over significant trading venues, central securities depositories and clearing institutions. The package also proposes expanding the DLT Pilot Regime and allowing eligible operators to serve multiple EU markets under one licence.

“According to the Council, approximately €10 trillion in European household savings is held in low-yield bank deposits, highlighting the capital policymakers want to encourage into investment markets.

“I think these reforms could help address regulatory fragmentation in tokenized asset distribution. An asset issued in one country may reach investors through platforms in several others, requiring consistent processes for investor eligibility, ownership transfers and compliance.

“Expanding the DLT Pilot Regime could also create more opportunities to test tokenized trading and settlement within regulated markets. The impact will depend on whether the final rules make cross-border issuance, distribution and asset servicing easier for institutions. The proposals still require legislative agreement.”

– Mata

Singapore and tokenization

“The Monetary Authority of Singapore outlined its approach to digital settlement, including tokenized deposits, stablecoins and central bank digital currencies. MAS also plans to settle tokenized MAS Bills using wholesale CBDC, following a 2025 trial involving three banks.

“The practical question is how the payment and asset transfers can be completed together. Institutions need certainty that settlement is final and that the money received retains its value.

MAS has raised concerns about stablecoins maintaining their value during market stress, particularly in large wholesale transactions. This could influence which settlement assets institutions are willing to accept.

“I think financial institutions will increasingly choose settlement arrangements based on the asset, transaction size and liquidity requirements. For issuers, supporting different payment mechanisms while maintaining accurate ownership records will become important as tokenized securities enter more markets.

“Settlement infrastructure could become a greater focus of institutional investment over the next few years. Financial institutions will want to know how payment and asset transfers are coordinated, when settlement becomes legally final and what happens if either side of the transaction cannot be completed.”

– Mata

Cryptocurrency investing

“A market that more than halved from last October’s record to this summer’s low has already shaken out most of its forced sellers. Earlier this month, close to $730 million left US spot ETFs in two sessions, including the biggest daily outflow since June, and Bitcoin still held the low $80,000s. There are buyers underneath this market. They just aren’t paying up.

“Breaking out is a different problem, because it needs a new buyer. Since August, the ETFs have been the main source of fresh demand, and that engine has stalled. Stablecoin supply, the dollars investors hold on-chain to buy crypto with, has grown just 1.4% in three months, so there’s no second engine. With the Fed having raised rates in September and tech under pressure, macro money has little reason to step in.

“It’s consolidation, with two kinds of conviction pulling in opposite directions: strong conviction to hold, very little conviction to chase. Holders aren’t capitulating, but every push toward $87,000 has been sold. Ranges like this usually resolve on a catalyst. A clean break above $87,000 with ETF inflows behind it would confirm real strength. A sustained break below the range on continued outflows would tell you the floor was thinner than it looked.

“I’d read (the ETF slowdown) as a pause, not an exit. The outflows so far this month, around $400 million, are a fraction of what came in during September and well under 1% of the more than $100 billion these funds hold. Part of September’s demand was fast money riding a short squeeze, and fast money leaves fast. 

“The bigger institutional story is plumbing. With the CLARITY Act stalled in the Senate, the rules are now arriving agency by agency, like the SEC’s custody proposal for advisers and funds. That won’t move flows this week, but it’s what brings in slower, stickier capital over time.

“A roughly flat October so far challenges the narrative more than the market. Uptober was always a pattern, not a law. Ten green Octobers in 13 years is a strong record, but it’s a small sample, mostly from a market driven by retail momentum and leverage. And last year already broke a six-year streak. 

“Today Bitcoin trades more on ETF flows, rates and the dollar, and none of those follow the calendar. This month’s real catalyst is the Fed meeting on Oct. 27 and 28. If October ends green, that’s where it will come from.”

– Bernardo Brites, CEO, Trace Finance

“September’s CPI report comes as another strong reminder that inflation remains a problem for markets, even when much of the pressure comes from energy prices.

“Headline inflation rose to 3.7% year over year, driven largely by a 9.1% jump in gasoline prices. Monthly core CPI came in at 0.3%, above expectations, while annual core inflation climbed to 2.6%. That makes it harder to dismiss the report as an energy-driven spike alone.

“For crypto, the key question is what this means for monetary policy. If inflation remains sticky, the Federal Reserve has less room to ease and may need to keep financial conditions restrictive for longer. Higher yields and a stronger dollar can make it harder for Bitcoin and other risk assets to sustain a rally, particularly when investors are already cautious about risk.

“That does not automatically make this a bearish signal for Bitcoin. Much of the headline increase came from gasoline, and core inflation held at August’s monthly pace. So I say crypto’s next move will largely depend on how investors reassess the Fed’s path, Treasury yields, and broader appetite for risk.”

– Markus Levin, co-founder, XYO

US regulation

“The next bull run will be carried by securities and regulated assets, so firms that want to be positioned in two years have to start the licensing work now. We have always been pro-regulation, but for years that meant transparency with clients rather than licences in every jurisdiction. We now think regulation determines who is left in the market, and we treat that as a commercial opportunity.

“The MiCA effect is already visible: the addressable market is smaller, and the number of firms competing for it is smaller still. We expect that pattern in every jurisdiction we operate in. The market will keep growing over the long term, and the cost of entering it will keep rising. No crypto firm, ours included, has historically run at this level of control and process, and not every firm will complete that lift.”

– Guilhem Chaumont, co-founder and CEO, Flowdesk