The Hottest New Trade in Crypto

The hottest new trade in crypto doesn't involve meme coins, stablecoins, or altcoins. It's not a buzzy new AI crypto, and it certainly does not involve Bitcoin (CRYPTO: BTC). Instead, the hottest new trade in crypto, according to the Wall Street Journal, is tokenized oil futures.

If you've been following geopolitical events in the Middle East (and who hasn't?), then you'll understand why. Oil prices can zigzag wildly, based on nothing more than a single social media post, and crypto traders want a way to get in on the action.

There's nothing new, of course, about speculating on the future price of oil. Here's what is new: the ability of individual crypto investors to do so, 24/7, using new blockchain-based trading platforms.

What in the world is tokenization?

The buzzword here is tokenization, and it's one that you're going to need to learn fast if you want to stay one step ahead in the crypto market. In layman's terms, it simply refers to the transformation of real-world assets into digital assets that can be traded on a blockchain. These digital assets are often referred to as crypto tokens, hence the term "tokenization."

The first mainstream financial assets to be tokenized were bonds and money market funds. But you can literally tokenize anything, including commodities, real estate, and art. The sky's the limit for what this could mean for the future of financial markets, which is why Wall Street has suddenly embraced the asset tokenization trend.

Image source: Getty Images.

Last year saw a watershed moment for asset tokenization. On June 30, Robinhood Markets (NASDAQ: HOOD) held a high-profile event in Cannes, France, dedicated to tokenized equities. The big reveal was giving European investors the ability to trade U.S. stocks on a 24/7 basis. All Robinhood had to do was tokenize these stocks and put them on a blockchain. The company even raised the prospect of investing in private U.S. companies, not just publicly traded companies, via new crypto tokens.

And then came this year, and the breakout success of tokenized oil futures. For now, the primary place to buy and sell these tokenized oil futures is on the Hyperliquid (CRYPTO: HYPE) decentralized exchange. You even have your choice between tokenized oil futures for Brent Crude and West Texas Intermediate (WTI). These oil futures have become so popular that they are now the second-most popular product to trade on Hyperliquid, trailing only Bitcoin.

How to get involved in tokenization?

Investors have several ways to get involved in this hot new crypto trade. You could, for example, invest in Hyperliquid, which is up more than 50% this year and now ranks among the top dozen cryptos by market cap.

A big caveat here is that the Hyperliquid trading platform is off-limits to U.S. investors. For example, if you try to use the site from a geographic location within the United States, a red "you are in a restricted jurisdiction" message pops up. The good news is that HYPE, the token for Hyperliquid, is now available for trading on mainstream cryptocurrency exchanges such as Coinbase Global (NASDAQ: COIN).

You could also invest in companies like Robinhood and Coinbase. Both now have a goal of tokenizing everything possible and making it available for trading. The more assets that are tokenized, the more trading will happen on their platforms, and the more money they will make. So if you think asset tokenization is going to be the next big thing, both of these companies will be primary beneficiaries.

And, if you're willing to stomach a lot more risk, you could also invest in what's called an RWA ("Real World Asset") coin. If you use a site like CoinMarketCap or CoinGecko, it's easy to generate a list of the RWA coins by market cap, and then filter through them until you find one that matches your overall investment goals.

My top pick here would be Chainlink (CRYPTO: LINK), which is at the forefront of the asset tokenization trend, and currently ranks as the 14th-largest cryptocurrency in the world.

Be wary of the risks involved with tokenization

This might sound obvious, but tokenizing anything and putting it on a blockchain doesn't make it less risky. So there's tremendous risk if you are buying and selling crypto tokens linked to the price of oil.

Case in point: A crypto trader recently lost $17 million on a Hyperliquid trade gone bad, due to the wild gyrations of oil prices and the chaotic geopolitical uncertainty that exists right now. All it took was a 5% spike in the price of oil.

From my perspective, a less risky way to get involved is to focus on companies such as Robinhood or Coinbase. Learn what they are doing with tokenization, see which products they are offering to smaller investors, and understand how tokenization could impact their future business models. Once you've done that, that's when it might be time to move on to the really risky stuff.

Dominic Basulto has positions in Bitcoin and Chainlink. The Motley Fool has positions in and recommends Bitcoin, Chainlink, and Hyperliquid. The Motley Fool recommends Coinbase Global. The Motley Fool has a disclosure policy.