A lot of traditional investors are only now discovering the crypto industry. Most of them are still rather hesitant to buy bitcoin as there is nothing tangible involved in the process. A digital coin? Worth $40.000? Why in the world would I want to do this?
Yet, over the past few years, Bitcoin has massively outperformed all investment markets. While its market cap is still low, we have seen it perform better than stocks, precious metals, and real estate on a year-over-year basis.
Aside from that, buyers can now use their cryptocurrency to generate stable passive income through a number of different financial products, all from the comfort of their computer. This makes the crypto industry at least equal in cash flow opportunities as compared to the real estate market. So where should you invest in?
Real estate is going nowhere, but is it the best option?
Let’s face it – real estate is one of the most proven investment markets in the world. It is one with a lot of security, steady cash flow, and ever-increasing demand due to inflation rates.
A house that costs $100.000 today will nearly certainly cost 10% more in the next 5-10 years. This is because the money supply continues to increase on a steady basis, while housing value remains stable.
Real estate provides the strong upside of both value preservation and cash flow generation – While your money remains stored in a rental property (which you can sell at any point in time), you can generate at least 6-8% returns per annum simply by renting it out.
Aside from that, real estate property can be used as collateral when trying to take out loans for further investments.
So, long story short, real estate is a great investment opportunity – this is why it is a $10 Trillion dollar market. But there are also several drawbacks to consider:
- Short-term rentals (like Airbnb) are not sustainable as they can be banned on a state by state basis.
- Long-term rental agreements favor the tenant and you could end up losing money while the latest stays in your apartment without making payments.
- Geopolitical situations can heavily affect the pricing of homes, as well as the demand to obtain them.
- Taxes, fees, and repairs are all paid from the landlord’s pocket, which can take a large bite from your profits.
- Requires sizeable upfront investment.
- Offers low returns compared to other investment opportunities.
Cryptocurrency as a new investment opportunity
Cryptocurrency is not tangible. It is also a lot more volatile than the real estate market. For many, the price swings and uncertainty experienced in the markets make it impossible to transition from real estate – a proven and long-standing investment vehicle – into crypto.
However, it might be smart to allocate a small amount of your portfolio to cryptocurrency investments, and there are multiple reasons for that. Let’s describe them one by one:
- Cryptocurrency is an investment market in its infancy and still at a price discovery phase. While its fundamentals are stronger than many established markets, the public is still hesitant to invest, which would make you an early adoption, making the biggest upside.
- Much like real estate, cryptocurrency investors can earn a cryptocurrency cash flow by “staking” their coins. This is currently possible only with coins that run on PoS blockchains.
- On the contrary PoW coins can be stored in high-yield savings accounts on insured platforms, offering annual returns that nearly match that of the real estate industry. Among these platforms, BlockFi is about to go public, with a very high valuation. For reference, the platform offers an annual return rate of 8,6%, which is paid out weekly, thus taking the compound interest rate to nearly 10% at year’s end.
- Many low-cap cryptocurrencies pose a short-term money-making opportunity. For those who are aware of market cycle dynamics, technology trends, and sentiment conditions, crypto investing can be more rewarding than any other form of investing.
That being said, there are also some drawbacks to crypto as compared to real estate:
- ROI fluctuates massively, and so does the value of your investment.
- Regulations around crypto investments are constantly changing, and so does its taxation.
- Self custody (which is highly promoted in the crypto space) can be risky for non-tech savvy investors.
So what is a better investment option?
In our opinion, both real estate and cryptocurrency should be part of a balanced portfolio. While real estate should form the majority of your investments (due to its low-risk and moderate returns), it would be unwise to disregard the growing industry of cryptocurrencies. Even a small, 1% allocation of your portfolio could quickly turn into 10% when cryptocurrency prices decide to (once again) go parabolic. And given the bull market, we are currently in, this is more likely than some tend to think.