There is no denying the fact that cryptocurrencies, most notably Bitcoin, is a rising star within the investment community. But as more people add cryptocurrencies into their portfolio, smart investors are still debating whether or not it can match against traditional asset classes that have, for years, made people substantial wealth. One of these asset classes is real estate.
So, does Bitcoin have a leg up against real estate? If you’re looking to maximize gains by positioning yourself favorably in the market, here are some things to consider.
Low Barrier to Entry
One of the things that makes Bitcoin a more appealing asset, especially to small-time investors, is its low barrier to entry. Although the cost of Bitcoin has soared in a relatively short period of time, investors with low capital can still purchase stakes or fractions of it on investment platforms. In fact, you can start buying Bitcoin at the dip with as little as $50.
Optimistic Valuation
The increasing interest in cryptocurrency and blockchain technology in general is pushing Bitcoin valuation higher. More retail and institutional investors are getting on board and buying their share of the Bitcoin market, with some financial pundits even predicting Bitcoin price to surpass $100,000 in the next several years.
Easier to Manage
Acquiring investment properties tend to be a long and tedious process, filled with a number of procedural steps. Filling out paperwork, assessing the space, and applying for a mortgage are few of the many things you’ll need to do when you invest in real estate. On the other hand, buying Bitcoin can be done in a matter of minutes using just your smartphone.
Possible Bubble Waiting to Pop
Bubbles are an asset class that is priced far above its fundamental value. The abrupt price change of Bitcoin over the past few years is predominantly a product of speculation rather than strong intrinsic valuation. If you get caught buying at the top when the bubble pops, you stand to lose a significant portion of your capital.
Prone to Cybersecurity Threats
Bitcoin’s ledger is stored digital, meaning that hackers and their malware can easily target the cryptocurrency. The most notable hacking incident to date is the 2014 heist of roughly $460 million worth of BTC from Mt. Gox. And since Bitcoin transactions do not leave paper trails, you won’t be able to ask for help from authorities if your wallet gets hacked.
Extreme Price Fluctuations
Extreme volatility in Bitcoin prices makes the asset class a very risky position to add to any typical portfolio margin. In 2017, for instance, BTC rose from around $1,000 a coin to almost $20,000 per coin at the end of the same year. A year later, the currency’s price was back to around $7,000 per coin. These whipsaws in price can result in significant losses, especially if you are using a leveraged or margin account. If you do decide to invest in Bitcoin, make sure you regularly monitor crytpocurrency prices.
Overall, Bitcoin has its own pros and cons from an investment standpoint and the same goes for real estate. Consider what style of investing best suits you, what capital risk you are comfortable committing to, and your expected ROI over a pre-defined time frame.
