If you’re like most people, deciding where to invest your money is a crucial decision. According to Gallup, around 30% of Americans trust real estate as the most secure form of investment.
Stocks are also seen as a reputable investment vehicle (approximately 25% of Americans), despite how volatile the market can be.
Meanwhile, cryptocurrencies have been steadily gaining traction as an investment vehicle, with cryptocurrencies up an average of 300% to 700% since the pandemic struck.
Assessing Your Investment Options
How are investors supposed to choose between these three options? Well, it is all going to come down to personal preferences, of course, but also the risk profile of each investor.
When it comes to real estate, some of the “pros” to be considered are the fact that this is a tangible asset with tax benefits and long-term returns. In addition, investing in real estate can yield high cash flow and act as a hedge against inflation.
That said, real estate is not a fluid asset, and it can be a high maintenance investment when you commit to keeping your properties in good shape.
When it comes to Bitcoin, this investment vehicle has been readily adopted by younger investors, who are more familiar with the digital world. That said, even traditional investment firms like Wells Fargo have shown an interest in these markets. The reason for this?
Bitcoin has reached an astounding market capitalization of approximately $560 billion in only 12 years since it was launched. It is official, Bitcoin is here to stay.
One of the “pros” of investing in Bitcoin is that it is a peer-to-peer system, making it more accessible. In addition, inflation is not an issue, because cryptocurrencies have a limited supply. Plus, entering the cryptocurrency market usually has a lower cost than investing in real estate and Bitcoin does not require costly maintenance. Another benefit is how easy trading Bitcoin has become.
Some aspects that could be considered “cons” are that Bitcoin is not a tangible asset and it is still developing and growing. There is also the risk that new cryptocurrencies can be developed at any time. Dogecoin was originally a joke but two software engineers turned into a real cryptocurrency. Similarly, David Marcus, the head of Facebook Financial (“F2”), announced he aims to launch Facebook’s highly anticipated cryptocurrency, Diem, and its wallet Novi, this year in 2021.
Meanwhile, the stock market is a well-known investment option, but does that mean it is the best option? With stocks, long-term returns are usually the goal, although dividend payouts can substantially affect your total return as well.
Also, some types of stock market vehicles (like mutual funds and target date funds) have high notoriously management fees, which can reduce your overall rate of return. Finally, the fact that more companies are offering cryptocurrency trading now is something to consider.
Why Would Homebuyers Buy in Cryptocurrency?
Despite the encouraging data surrounding Bitcoin and cryptocurrencies at large, there are always risks and challenges to be considered. Most people still see cryptocurrency investment as a risky endeavor, which might dissuade some risk-adverse investors. In addition, the economic consequences of the long lockdowns that took place last year in 2020 are only beginning to be felt.
However, thanks to the immediacy offered by cryptocurrency purchases, owners may be able to sell their house to homebuyers fast, without the traditional closing periods of 30 days or more that have historically been required. Now, some homeowners are buying or selling in cryptocurrencies or cash, which is helpful for people who are looking to buy a house within a short time-frame.
The challenge for both Bitcoin and the stock market is to prove to investors that they continue to be profitable investment vehicles. For crypto, the next step could be finding support among traditional investment firms, something that is already picking up momentum. At the end of the day, it is going to come down to how much trust investors have in these markets.
Lastly, there are benefits to having a balanced portfolio, something that can be done by investing in both real estate and Bitcoin. By buying real estate, investors can control a long-term tangible investment that produces cash flow, appreciates, and creates tax advantages. In contrast, investing in Bitcoin can be a passive, low-maintenance activity that provides a hedge against inflation.
Plus, investing in Bitcoin allows investors to have an easy cash source they can access if and when they need it.
Novel Uses for Cryptocurrencies
As the uses of cryptocurrencies expand, with Bitcoin and Ethereum at the helm, new opportunities will emerge. As the public becomes savvier about Bitcoin and more familiar with it as a trusted form of payment, we will likely see it used across a new range of industries.
For example, using Bitcoin for real estate transactions is a great way to prevent fraud, thanks to the existence of certifiable digital IDs. In addition, real estate fees can be lowered through this approach and investors might benefit from selling or buying real estate tokens in fractions.
Furthermore, one of the main principles of cryptocurrency is decentralization and transparency between the parties involved while protecting their privacy at the same time.
Which of these investment vehicles do you prefer and why? Let us know in the comments below.
Authored by Victor Whittle
Victor is a real estate investment specialist, with more than four years of experience in the industry, specializing in real estate purchasing processes. Currently works as a Business Development Manager at Prospect Group.