Tokenization expands crypto market, but may come at altcoins’ expense

Tokenization has been the major narrative around the crypto market over the past year. Following US President Donald Trump's passage of the GENIUS Act for stablecoin regulation and the Senate's deliberation on the market structure CLARITY bill, every major crypto player has hopped on the trend.

Last Wednesday, Ondo Finance launched over 200 tokenized assets on the Solana (SOL) blockchain, including stocks, commodities, bonds and index funds.

BlackRock CEO Larry Fink, who has been vocal about his support for tokenized assets, noted in a speech at the World Economic Forum on Thursday that tokenization is the next step for global financial markets.

Meanwhile, the New York Stock Exchange (NYSE) recently announced a new trading venue specifically for tokenized equities and exchange-traded funds (ETFs), while the Nasdaq is seeking regulatory approval to begin trading tokenized assets.

Several crypto experts hailed the move, with the former Binance CEO, Changpeng Zhao (CZ), calling it "bullish for crypto and crypto exchanges." However, holders of native cryptocurrencies, particularly altcoins, may not agree.

Tokenization is the process of representing assets on a blockchain network or distributed ledger using digital tokens.

While the market cap of tokenized assets grew nearly 150% in 2025, Bitcoin (BTC) declined by 6%. Ethereum (ETH), touted to be one of the largest beneficiaries of the tokenization trend, dropped by 10%. Altcoins suffered the most, with an average decline of 45%.

The drop comes amid positive crypto regulations from lawmakers and new leadership at the Securities and Exchange Commission (SEC) and the Commodities Futures Trading Commission (CFTC).

In contrast, tokenized US treasuries almost doubled their market cap while tokenized Gold grew by over 200% in 2025, per Coingecko data.

"The combined market capitalization of gold-backed tokens rose by roughly 200 percent, while the price of gold increased by approximately 66 percent over the same period. The difference reflects net new capital entering the ecosystem through the minting of additional tokens," Bitfinex analysts told FXStreet.

Altcoins at risk from tokenization expansion

One underlying theme in these data is that capital isn't leaving the crypto ecosystem despite the noticeable drop in prices of traditional cryptocurrencies. Rather, it's flowing into traditional products with robust fundamentals and familiar risk profiles that are now represented on-chain. With President Trump's tariff unpredictability rocking the crypto market, investors seeking assets with "historical defensiveness" aren't going outside the market.

"What's different this cycle is that crypto-native investors can now express those views without leaving the crypto ecosystem," said Erikka Arone, SVP at sFOX. "From an infrastructure perspective, this looks less like a narrative trade and more like portfolio construction maturing on-chain."

However, the development appears to be primarily at the expense of altcoins, as Bitcoin and Ethereum have shown their appeal beyond crypto walls through strong ETF demand.

While ETFs made crypto accessible to TradFi, tokenized assets made TradFi accessible to native crypto users. But they've been sucking mindshare from altcoins.

"Tokenization is forcing a distinction between assets that exist because they can, and assets that exist because they solve a real financial need," Arone added. "Capital and mindshare are gravitating toward assets with clear utility, liquidity, and macro relevance, rather than speculative narratives alone."

Boris Alergant, Head of Strategic Initiatives at Babylon Labs, shares a similar sentiment, highlighting that crypto investors are showing that they're open to assets underpinned by sound economic foundations.

"After a year of memecoin fatigue and anticlimactic altcoin launches, it's not surprising that capital is rotating into something with intrinsic value and a track record," Alergant told FXStreet. "Tokenized assets give investors something familiar, liquid, and economically grounded. It's a healthy evolution: as the market matures, attention gravitates toward assets with stronger fundamentals."

However, Bitfinex analysts argue otherwise, stating that inflows into tokenized assets may be driven by new entrants into the crypto market.

Other experts state that investors are leveraging tokenized Gold to reduce volatility in crypto portfolios.

"Bitcoin tends to play the role of asymmetric growth, while gold, particularly tokenized gold, acts as a portfolio stabilizer," said Kurt Hemecker, CEO of Gold Token S.A.

Arone expressed the same position, stating that investors haven't discarded Bitcoin's long-term thesis. "They're using tokenized gold as a volatility dampener and liquidity management tool inside crypto portfolios [...] As crypto markets deepen, you naturally see more differentiated use of assets, Bitcoin for asymmetric upside, tokenized gold for stability and hedging."

No doubt, tokenization is expanding and maturing the crypto market while pulling in new investors. However, that growth has come at the expense of altcoins.

Gold is trading at $5,090, up 2.2% at the time of publication on Monday, while Bitcoin is changing hands at $87,390, down 0.50% over the past 24 hours.