Real estate has been a solid investment performer for decades and is often a great way for investors of all backgrounds to generate some meaningful income. That said, sometimes new investment trends lure some entrepreneurs. Right now, that investment trend is cryptocurrency.
Some currencies like Bitcoin saw substantial gains in 2020. This has prompted many to speculate that cryptocurrency might be the new gold standard in defense against inflation. But before you click “purchase” on Bitcoin or any of its digital look-alikes, there are a few things you should know.
The Nature of Cryptocurrency
Cryptocurrency was introduced about 12 years ago. It has no long-haul record in terms of inflation resilience. However, if there is one thing we do know about periods of dramatic inflationary increase it is that they tent to cripple unstable investments. Cryptocurrency has all the qualities of a volatile investment option.
The stability of cryptocurrency is based on its scarcity. Bitcoin for example promises not to create more than 21 million units. Unfortunately, this is not how true scarcity is derived.
There are two ways in which scarcity can be actually achieved, one it by being a limited resource such as land or gold. The other is if something cannot be replicated.
Cryptocurrency’s scarcity is not based on either of these standards. It has no physical limitations as in gold, or intellectual exclusivity as in an original work of art or a copyrighted process.
Also concerning is the minimum entry requirements to enter the online currency market. The first blockchain for cyber monies was created on a standard home computer. Since then, several companies including PayPal have been jumping onto the electric dollar bandwagon.
Because of its intangible nature, the potential value of cyber cash is impossible to predict. There are no balance sheets or income statements for investors to read, and there is a distinct lack of online currency regulations. This could be why Forbes has downgraded Bitcoin from an “investment” to a “trade” and even sees it’s further as “volatile.”
Real Estate
Real estate is actually the polar opposite of cryptocurrency when it comes to steadily weathering inflation.
Land is one thing they are not making more of. Investors can easily research neighborhood and development trends to determine which properties are on the rise. Furthermore, the housing price index shows real estate to be one of the most steadily increasing investments in the last 100 years.
If you are looking for a stable economic performer, you are better off forgoing the pixelated emoticon of a dollar sign. Put your feet and cash on real ground and embark on your journey as a real estate entrepreneur.
