Regulations Limit Individual Investors to ETFs and Money Markets, But Change is Near

When original Picasso paintings are sold at auction, they typically bring prices of $40 million to more than $150 million, and the sales are usually made through well-known auction houses. It’s natural to wonder who the buyers are and what it feels like to own such a work of art.

In the not-too-distant future, you may be able to experience ownership of such a rarified piece of art — a painting, or perhaps a guitar once played by Jimi Hendrix, or even a poem jotted on a scrap of paper by a young John Lennon.

Through the process of tokenization of assets, investors will be able to buy a piece of an asset and receive a return on the investment — assuming the asset increases in value over time — without having to buy the actual asset.

What is Tokenization of Assets?

Tokenization of assets is the process of converting the rights to an asset into a piece (or “token”) that can be traded on a blockchain platform such as Ethereum or Solana. Such assets might include stocks, bonds, real estate, diamonds, gold or fine art — anything that is tangible and has value. Tokenization enables investors to gain the rights of ownership through blockchain trades on the internet.

It is similar in nature to the way equities are traded on stock exchanges. Investors buy a piece of a company by purchasing a share of its stock. They don’t actually own the whole company, but they own a piece that entitles them to share in the company’s gains or losses in value. So, sorry to say, Jimi Hendrix’s guitar won’t be on display in your home. But if his guitar appreciates from $1 million to $5 million, you will share in the gain.

Much like an exchange-traded fund (ETF) or some mutual funds that track market benchmarks like the S&P 500, a token will track the price of a real-world asset, like that Hendrix guitar or Picasso painting.

According to current market projections, the tokenized capital markets, excluding cryptocurrencies and stablecoins, are expected to reach $2 trillion by 2030.

This is a “frontier” moment for tokenization and blockchain investing, and investors who are ready to participate will likely do so as hybrid investors. That is, they will keep their traditional portfolios intact, with stocks, bonds and mutual funds, adding tokenized investments gradually as their comfort with the crypto market increases.

What Investors Should Understand

There are key differences between trading tokenized assets on a blockchain platform and trading stocks through a stock exchange. Trading on blockchain is extremely fast, with trades closing in a matter of minutes or even seconds, and the blockchain never closes. Trades can be made 24 hours a day, 365 days a year. Because of the speed and efficiency of blockchain trades, the investor can save significant money on fees.

For example, if you suddenly needed cash and decided to sell some stock, you might sell a security today, and it would settle at the end of the day. The funds would be available tomorrow, and it might take another day to clear your bank’s ACH system. The transaction would take three business days from start to finish.

However, if you had a Coinbase account (a digital cryptocurrency wallet that you alone control), along with a cell phone and an internet connection, you could use XRP (a digital currency exchange) to liquidate the necessary crypto securities and access the funds immediately, all for a fee of about 0.002%. And it wouldn’t matter whether it was Tuesday morning or late Saturday night. The digital blockchain market never closes.

All kinds of financial transactions, including credit cards, carry fees that can range up to 3% or 4%. Even though the customer may not see the fees, they drive up the cost of banking as well as the goods and services we buy.

As more transactions move to blockchain, the potential for saving money on fees and gaining efficiencies from the speed of the transactions will benefit investors of all types.

Who Uses Tokenization?

Right now, trading in tokenized assets is primarily the province of institutions such as BlackRock, J.P. Morgan, UBS, Citi, Goldman Sachs, Bank of New York Mellon, Societe Generale. Some are doing it with money markets, and others are bundling tokenized assets made up of individual stocks. This sector of the market currently has about $2.3 billion in assets under management.

It’s important to understand that individual investors cannot yet invest in tokenized assets without going through a money market or ETF. Pending federal legislation called the Clarity Act, this will change if it is passed. The Clarity Act would establish a regulatory framework for digital commodities, defined as digital assets that rely on blockchain technology for their value.
Proponents say the Clarity Act will end years of regulatory uncertainty in the digital asset sector by creating a clear statutory framework for how tokens and blockchain-based assets are classified and regulated. The bill also addresses noncustodial wallets, protocol developers and open-source infrastructure, clarifying that these entities are generally not treated as brokers or exchanges, while centralized trading venues remain subject to oversight.

Opponents are concerned that the bill could weaken U.S. securities regulation and allow large companies to bypass oversight.

The bill passed the House in 2025 and is awaiting consideration by the Senate Committee on Banking, Housing and Urban Affairs.

Opportunity for Investors

By allowing a broad base of investors to gain fractional ownership, tokenization will provide investors all over the world with access to types of investments they never would have had a chance to buy otherwise.

A good example is that Picasso painting. Without tokenization, such a painting generally would be owned by a single extremely wealthy individual or institution. With tokenization, perhaps hundreds or even thousands of investors can share in the ownership and the ROI.

Looking to the future, tokenization has the potential to bring non-traditional assets to the broad-based investment market — such as that Jimi Hendrix guitar — as well as traditional securities such as stocks, bonds and real estate, which can be traded with much more speed and significantly lower fees on blockchain. This will appeal to investors who are comfortable with a bit of risk.

Both the New York Stock Exchange and NASDAQ have applied to the SEC for approval to begin trading tokenized securities, and NASDAQ has been approved. The NYSE’s application was more recent and is still pending. But it’s important to remember that even as it begins to resemble the traditional markets, the digital crypto-based market is still quite volatile, and it’s essential to be knowledgeable before entering it.

As they venture into this new territory, investors may find it advantageous to stick with money market and bundled products like tokenized mutual funds in the beginning. Though it’s a safe marketplace, it may be difficult to identify the winners and losers early in the game. A single failure of one investment product may ding a mutual fund slightly, but if an investor is wholly invested in that one product, the losses could be serious.

Questions?

Adams Brown is watching developments in the tokenization market closely and is prepared to help clients with their initial investments, once the new laws and regulations are in place. If you would like to know more about this marketplace, contact an Adams Brown Wealth Consultant.