This is about to get weird.
And when I say weird, I mean really weird.
I’ve been telling you for a while now that crypto is becoming the plumbing underneath the financial system.
Stocks, bonds, commodities and eventually just about anything of value can move onto blockchains.
We’ve talked about markets trading around the clock and the new financial rails crypto has built.
I’ve even written about watching assets trade “onchain” on Saturday afternoon while the traditional stock market is closed.
I knew this was coming.
What I got wrong was the speed. I thought we had more time.
Apparently, we don’t.
This week AMC Entertainment (AMC) CEO Adam Aron discovered that Robinhood had created tokens tied to his company’s stock.
He wasn’t exactly thrilled.
Aron called the practice “contemptible, outrageous, disgusting, detestable, inexcusable, vile.”
That’s a pretty impressive collection of adjectives.
His basic argument was simple: That’s our stock. We didn’t approve this. What the hell are you guys doing?
Robinhood Markets (HOOD) CEO Vlad Tenev had a different answer.
Basically, Tenev said: It’s not really your decision.
Once a company goes public, Vlad argues, its stock becomes property that investors can buy and sell. The company still controls the business and the rights attached to the shares it actually issues.
But it doesn’t control every financial product somebody else builds around those shares.
And that’s where this gets interesting.
Welcome to Wall Street
This sounds like some crazy new crypto problem.
It isn’t.
Wall Street has been doing versions of this forever.
Elon Musk spent years fighting the people shorting Tesla (TSLA). At one point he promised the “short burn of the century.”
Patrick Byrne, the former CEO of Overstock, became so obsessed with naked short selling that he accused Wall Street of creating phantom shares of his company.
He sued some of the biggest financial firms in America and famously talked about a mysterious “Sith Lord” working against him.
Herbalife (HLF) went to war with Bill Ackman after he made a massive bet that the company’s stock would collapse.
And here’s my favorite part: AMC has complained about this stuff before, too.
Years before Adam Aron was yelling about tokenized AMC shares, he was on CNBC talking about AMC being a victim of short selling.
That’s life as a public company.
You run the movie theaters. You don’t run the casino surrounding the stock.
Investors can short your shares, trade options on them, or buy an ETF that owns them.
There can even be leveraged ETFs designed to move twice as much as your stock in a single day, or products specifically designed to make money when your stock falls.
Nobody needs to call the CEO and ask permission first.
Now Wall Street has discovered another wrapper.
Tokens.
And suddenly everybody is freaking out again.
But here’s where it gets even crazier.
Robinhood has already created tokens tied to private companies too.
When Robinhood introduced tokens tied to OpenAI, OpenAI basically said: Hold on. Those aren’t our shares. We didn’t approve this.
And OpenAI was right.
They weren’t OpenAI shares.
Robinhood’s own documents explain that its OpenAI exposure was hedged through an investment vehicle holding OpenAI convertible notes. Its SpaceX exposure was hedged through a vehicle holding SpaceX preferred shares.
The person holding the token wasn’t suddenly a SpaceX shareholder.
They owned a financial product whose value was connected to SpaceX.
Think about what just happened there.
We went from putting stocks on blockchains to creating markets around companies that weren’t even public yet.
This is exactly the direction we were talking about when I wrote Everybody’s Wrong About Tokenized Stocks. The point wasn’t one token or one company.
It was that tokenization could eventually give investors around the world access to assets through an entirely different set of financial rails.
And we’re already further down that road than I expected.
That escalated quickly.
Things Are About To Get Weird
This is the part I don’t want investors to miss.
We’re going to hear some unbelievable stories over the next few years.
There will probably be fraud. Products will break. Tokens will trade at prices that make absolutely no sense.
CEOs will lose their minds when they discover financial products tied to their companies that they never approved.
The regulators and lawyers will have plenty to do, and CNBC will have no shortage of scary red graphics to put on television.
There will be shenanigans. But none of that changes what’s happening underneath the surface.
The financial system is moving onchain.
That’s the story.
This is really the next chapter of the TradFi-crypto merger we’ve been watching all year.
The line separating “crypto” from “traditional finance” keeps getting harder to find.
Eventually, I’m not sure we’ll bother making the distinction at all. It’ll just be finance.
Assets that once lived inside traditional brokerage accounts are starting to live on blockchains too. Markets that once closed every afternoon can trade around the clock.
And people all over the world are gaining access to financial products that either didn’t exist before or were previously very difficult for them to own.
We’ve already watched this happen in real time with SpaceX (SPCX).
Around the biggest IPO in history, we suddenly had new ways of watching and trading exposure to the company that simply didn’t exist during the great IPOs of the past.
That’s part of what made the SpaceX IPO such an important market-structure event in the first place.
Apparently, all of this is happening much faster than I expected.
New things scare people. They always have.
When something changes quickly, the natural reaction is to focus on everything that can go wrong. And believe me, plenty will go wrong here.
But as investors, we have a different job.
We need to figure out where the money goes if this trend continues.
Every stock, bond or other asset that moves onchain needs infrastructure around it.
Somebody has to make the markets work, provide liquidity, hold the assets and build the places where all this trading happens.
Those are the opportunities I care about.
That’s what we’re doing here at TrendLabs.
We’re not here to decide whether every token somebody invents is brilliant or stupid. There are going to be plenty of stupid ones.
We’re here to make money.
And if the tokenization of the world’s financial assets is really happening right in front of us, and we can’t figure out how to monetize one of the biggest changes to financial markets in our lifetimes, then what the hell are we even doing?
So enjoy the shenanigans.
Just don’t let them distract you from the trend.
Get your popcorn ready. Things are about to get weird.
Stay sharp,
JC Parets, CMT
Founder, TrendLabs