WisdomTree’s digital assets lead predicts 'big reorganization' of finance around tokenization

Count WisdomTree, the New York-based asset manager with some $74 billion in assets under management, among those that believe digital assets have the potential to radically alter financial markets.

“We’re going to see a big reorganization of financial services around that technology and how people can interact with exchange value,” Jason Guthrie, head of capital markets and digital assets for WisdomTree in Europe, said during an interview with The Block. 

WisdomTree’s belief in the power of digital assets is evident in that it already runs two exchange-traded funds (ETFs) for bitcoin and ether in Europe — which had collected £161 million and £15.6 million by the end of July, respectively — and has filed applications to launch equivalent products with the Securities and Exchange Commission in the United States. 

The company has also filed applications to launch blockchain-linked versions of its existing ETF products, such as gold and U.S. treasuries.

“I think there’s going to be big shifts in the way the ecosystem plumbs together and so we’re looking to drive a few initiatives in that direction,” he said.

WisdomTree has also made strategic investments in tokenization startup Securrency and Onramp Invest, a crypto platform for financial advisors.

Driving all these moves is the view that tokenization — the process of creating digital versions of securities, which are underpinned by blockchain technology — is destined to make markets more efficient.

Competitive dynamics

Guthrie believes that the increased adoption of tokenization by financial markets will lead not only to the reduction of middlemen-linked fees — but also a greater focus on the needs of customers.  

What tokenization will do to the investment industry is comparable, he said, to the way the emergence of ETFs shook up the fund management sector in the 1990s. Before ETFs, investors’ access to mutual funds was funneled through gatekeepers like fund platforms and advisor houses. But because ETF products trade on public exchanges, in theory, anyone with a broker could access them.

“And because everyone had access to everything all of a sudden, fund providers needed to compete on the actual value that those consumers, who could exercise their choice, actually wanted to see,” said Guthrie. “You saw lowering of cost but you also saw much more consumer-focused product development.” 

A digital asset ecosystem in which value can move freely will “create the same sort of competitive dynamics that we see in that fund space,” he added. 

The unique competitive dynamics of digital assets have already started to challenge regulators. The SEC, for instance, has been hesitant to approve crypto ETFs and other offerings. “Historically if you don’t approve something then people can’t really offer it and people can’t access it,” Guthrie said. 

With crypto, “if you’ve got an internet connection you’ll be able to find a business that’s nominally based in the Cayman Islands or whatever,” he said.

A truly radical reorganization of financial markets, should it come to fruition, could spell trouble for a large number of service providers currently plugged into the investment process — like brokers, market makers and custodians.

Ultimately, said Guthrie, the number of intermediaries will fall, leading to lower overall costs for investors. “I believe we will end up with a more efficient system… A system that is less dependent on always building on top of itself,” he added.