Early Investing

The Convergence of Stocks and Cryptocurrency

The Convergence of Stocks and Cryptocurrency
By Vin Narayanan
Date April 14, 2021

In five or ten years, there might not be any difference between trading stocks and trading crypto. The two asset classes are converging in ways we couldn’t have imagined just a few years ago.

More than 9.5 million Robinhood customers traded crypto in the first quarter this year. Robinhood is most commonly known for giving everyday investors wider access to the stock market. On Robinhood (and Charles Schwab), investors don’t have to buy whole shares of companies anymore. They can buy fractional shares, which are just small pieces of individual shares. Fractional shares were popularized by crypto. In fact, crypto was designed for fractional ownership.

Fidelity already allows its wealthiest clients to buy and sell crypto. It also wants to launch a bitcoin ETF. So do Van Eck and several others. And last week, crypto exchange Binance announced it was launching a token pegged to the price of Tesla stock.

Each Binance Tesla token represents a Tesla share (future tokens will represent shares of other stocks). The token is backed by a depository of underlying securities. And it will behave much like Tesla stock. As the price of Tesla goes up, so will the token’s price. And as the price of Tesla goes down, so will the token. According to Binance, “stock splits will be respected,” and dividend payments will be honored. The whole goal of the stock token is to participate in the economic development of the underlying asset.

The tokens will be purchased and settled in the Binance USD stablecoin. And Binance isn’t charging a commission to trade the token. That gives Binance users the same “stock investment experience” as people that use Robinhood, Charles Schwab, TD Ameritrade and E*Trade (among others). And investors can buy fractional shares of the token, just like they would any other crypto.

The stock token is a major breakthrough for investors. It just won’t help American investors — yet.

There’s no reason for American investors to buy a Tesla token when they have access to actual Tesla stock — including fractional shares. In fact, American investors aren’t even allowed to buy Binance’s Tesla token right now.

But the token is immensely useful for people outside of the U.S. that want to invest in Tesla. Tesla is popular throughout the world. Millions would like to invest in it. But they can’t. Tesla is only listed on the NASDAQ. And investing in stocks outside of your own country can be expensive and incredibly difficult (and in some places, impossible). Combine that with the fact that Tesla stock is incredibly expensive (fractional shares aren’t everywhere yet) and you get a giant pool of investors with no exposure to Tesla.

Binance’s new Tesla token changes all of that. It gives people outside of the U.S. a chance to gain exposure to Tesla.

Investing in Tesla through Binance’s stock token also offers a convenience factor that shouldn’t be underestimated. The ability to track all of your investments on one platform is a big win for all investors. And trading platforms know it. It’s why Robinhood allows its users to buy bitcoin.

Binance is clearly bullish on stock tokens. It debuted the Coinbase stock token today — the same day Coinbase went public on the NASDAQ

Eventually, stock tokens will make their way to the U.S. — either through Binance or another company. The market opportunity is too big to ignore. Right now, most American investors are locked out of stocks that trade overseas like Samsung, Aramco, Volkswagen, Nestle etc. Sure, you might be able to get exposure over the counter or via ETFs. But stock tokens are a much better option — almost as good as investing in the stock itself.

In a few years, I think investors will be able to buy stocks, stock tokens, crypto, ETFs and other investment instruments all on the same platforms. And it’s likely that multiple platforms will be competing for our business — which should lead to more innovation, more investment opportunities and better customer service. 

 That’s my kind of convergence.

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