Real estate is one of the oldest investments in the world, with many recommending it as a strong option for growing wealth. But how has the market looked in recent years, and how does it stack up against contemporary assets such as those found in the crypto sector? While the two share far more differences than similarities, they both have their merits when it comes to yielding returns.
Brief Overview of Crypto And Real Estate as Investment Assets
At their very core, crypto and real estate can feel like complete opposites. One is extremely physical, with an obvious utility and legacy as an investment option. Whereas the other is entirely non-physical, has questionable (but by no means nonexistent) utilities, and has only existed for a handful of years. And yet, despite this, there are traders who treat them as equals– at least in the sense that they seriously invest in both of them.
The two markets actually contain a strong connective tissue that binds them. The real estate sector, in particular the housing market, faced a meteoric collapse during 2008, making for one of the most defining aspects of the global recession which started that year. Within the very same year, the crypto industry began with the birth of Bitcoin.
We are long past this period, and so real estate does not contain the same risks as before, as it was restructured in the aftermath. This essentially means that both the current-day real estate market and the crypto market are both intimately influenced by the same global crisis. While both would have been viewed as outlandishly risky for the first few years after the recession began, their risk profiles have both altered and dropped (with real estate’s risks dropping much further than crypto’s) as they have undergone significant evolution and maturation processes.
Crypto Vs Real Estate: Historical Performance
A good starting place when comparing crypto vs real estate is to see what their market performance has been like. Unlike with gold or stocks, where statistics are readily available from trading platforms and brokers, it is slightly tougher to get to the bottom of things for real estate. However, we can compare market caps over the years and see what that tells us.
In 2023, the global real estate market was worth $613.30 trillion, whereas the crypto market cap was at $1.725 trillion.
Going one year back, in 2022 real estate was worth $601.20 trillion, and crypto was at $0.828 trillion.
Pushing back five more years, in 2017 real estate was worth $477.76 trillion, and crypto was at $0.616 trillion.
We could look at these numbers as they are now and note that real estate is clearly a more lucrative market overall. However, these figures do not give a clear enough picture. To add some dimension to this discussion, let’s look at their percentage increases over the six years mentioned– from 2017 to 2023.
For real estate, it experienced a 28% increase in its market cap. For cryptocurrency, it saw a staggering 180% increase. This gives a very different picture, highlighting the meteoric rise that crypto is undergoing. That being said, real estate’s 28% increase is also genuinely impressive, but it is clearly eclipsed by the skyrocketing of the crypto sector.
Crypto Vs Real Estate The Key Differences
There are countless differences between these two asset types of assets. To examine them all would be an extraordinary task. Instead, we will assess three of the biggest elements that separate them from each other.
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Barriers of Entry
The real estate market is notoriously hard to invest in. While you do not actually need to own a property to partake in the market (as you can access investment instruments online or via brokers), you still need to be registered to certain organizations and undergo significant paperwork. It is by no means a simple process. Getting involved in the crypto market, however, is much easier. It is open and accessible to anybody, and can be engaged with in a decentralized way without even registering to a platform of exchange.
Regulations and Taxation
Real estate may be the one market that is more regulated than even gold. It has been traded for millennia, and so governments have developed many rules and restrictions for how the sector should be handled. Depending on how you are planning to engage with real estate, you may need to be clued up on 10s of 100s of rules. Alongside this, there may also be higher taxation on real estate compared to crypto assets.
Ethical Considerations
The real estate market comes with some ethical complications that you may or may not need to know about. The fact that land is such an important part of human life means that governments, courts, and regulators must consider the impacts of real estate development and ownership on communities, the environment, and the economy at large. To some extent, you do not need to actively know about all of these elements unless you are being very hands-on with your investments, but the moral makeup of a sector is something that many people like to keep in mind when making a decision. The crypto market does not come with the same level of considerations, although it also has some environmental question marks surrounding it (especially for Bitcoin).
The Advantages and Disadvantages of Real Estate
Our discussion has only scratched the surface when it comes to real estate. Let’s delve further into this by looking at its pros and cons.
Advantages of Real Estate
To present real estate in its best light, let’s see what its advantages are first.
A Long Legacy
The real estate market is as old as human civilization, and has remained just as important throughout that time. While the market can crash and falter, you never need to worry about it entirely disappearing.
Consistent Growth
While the real estate market has obviously struggled at some points in recent history, it generally appears to be a solid investment with consistent yearly rises. In the very long term (spanning multiple decades) a real estate investment has a decent chance of being significantly profitable.
There is Always Demand
The real estate market will never entirely crumble and fall. There will always be some level of demand. This is a good sign for any investor, and something that cannot be said with the same amount of surety for the crypto market, as we cannot predict its future or longevity.
Disadvantages of Real Estate
Of course, the real estate market is also filled with many issues and points of contention. Here are three major ones for potential investors to consider.
Real estate is non-fungible
Fungibility is the ability to swap two assets of equal economic value and experience no difference in utility. This cannot be done with real estate, as each investment relates to a genuine location or plot of land, with its own physical elements, weather and climate, neighboring locations, and history. While it is technically possible to consider some real estate investment vehicles, such as real estate investment trusts (REITs), as fungible as they are structured more like stocks, the underlying factor of the investment would still point towards a genuine physical space that cannot be seamlessly swapped out with another.
Non-fungibility is not inherently bad, but it makes the market harder to navigate, as each individual property or plot of land will have its own features that make it harder to price. The downside lies in the fact that the real estate market could technically be succeeding, and yet your own investments could plummet for unique and specific reasons.
Real Estate is Highly Taxed
It is hard to generalize about tax on something like real estate, as different types of properties and assets will be treated differently around the world. However, it is typically taxed higher than many other assets, including crypto. In reality, it will come down to the type of real estate you are investing in to determine what sort of tax you have to pay, and there are some types of investments which might not be taxed much higher than other assets, so there are certainly options that make this difference negligible.
Real Estate is Hard to Invest In
As mentioned, there is a high barrier of entry for many real estate investments. This is especially the case if you want to buy or sell properties, as sizeable finances are needed for this. Of course, there are other ways of getting involved which require less money, but these often still need complex documentation to be filed and examined. Overall, it is more cumbersome to invest in compared to other sectors.
The Advantages and Disadvantages of Crypto
Now that we have seen what some of the pros and cons of the real estate market are, let’s give the cryptocurrency sector the same treatment.
Advantages of Cryptocurrency
Here are three major advantages of investing in crypto vs real estate.
Crypto is Easily Accessible
The crypto market is hailed as being the most accessible market in the financial world. You can begin trading with a tremendously low amount of money and without any official documents or sensitive information being handed over. While there is a technical barrier for some aspects of it, CeFi platforms do a good job of simplifying the process. In fact, it's even fair to say that crypto is getting more and more accessible as time goes on, as it is easier to use now than it was even just five years ago.
The Crypto Market Cap Has Seen Huge Growth
The crypto market has risen tremendously over the years. As mentioned, its market cap has increased by a bewildering 180% in six years. Growth like this is simply impossible to find with real estate (or any traditional market, for that matter).
You Can Earn Additional Crypto Via a Savings Account
Many services offer savings accounts for a range of cryptocurrencies, meaning that you can earn interest on your long-term holdings. For instance, Ledn’s Growth Accounts allow you to currently earn up to 3% APY on your Bitcoin, and up to 4% APY on your Ethereum. This can add up significantly over many years– especially if you store relatively large quantities in them.
Disadvantages of Crypto
While the pros are extremely enticing, the crypto market also comes with some significant negatives that we need to explore.
The Future of Crypto is Uncertain
The unfortunate truth of any new and boundary-pushing asset class is that we do not know what its future will look like. With the crypto market, we have such little historical data that we cannot make strong assumptions about what will happen next, or even if it will remain popular over a very prolonged time. This level of questioning and guesswork can be offputting for many.
The Crypto Market is Volatile
The crypto sector is notoriously volatile. There is no asset in this space (excluding stablecoins) that is not prone to sharp rises and falls. If you prefer more steady market activity, then the crypto sector may not be for you. Of course, in the somewhat distant future, this could change. But for the time being, it looks like it will stay volatile and highly unpredictable.
Related Content: Is Bitcoin Safe? Everything You Need To Know
Crypto is Prone to Regulatory Changes
The crypto market is still being explored by governments and regulatory bodies, meaning that many of them are actively in the process of building laws and guidelines for how it should run. As a result, this can affect price movements, and can leave many traders questioning what they can and cannot do. For instance, some countries have restricted (or even banned) certain cryptocurrencies and crypto-related products in the past. There is no saying whether that will happen in the future, as the entire globe is coming to terms with this extremely fast-paced industry, and so change is happening at a rapid rate.
Crypto Vs Real Estate as a Hedge Against Inflation
It is hard to say whether crypto or real estate makes for great hedges against inflation. While some aspects of each sector may hold well against inflation, it is far too hard to say whether either are fantastic candidates.
For instance, when it comes to real estate, the analytics company Avison Young conducted an investigation that found the market may not be the best at this, especially not in the short run, and sometimes even in the long run.
When it comes to crypto, the situation changes depending on whether you are talking about the entire industry, or about specific coins and tokens. Bitcoin and Ethereum have proven to be good hedges against inflation, but for most other cryptoassets they are sadly not. Cryptocurrencies rise and fall very often, and only a handful of them have built a positive financial legacy.
Therefore, the overall answer is that neither market is the ideal hedge, but they both can do so under certain conditions. It is wise to look at other options for hedging against inflation, such as stocks and gold, as these might be more favorable.
Is Real Estate a Better Investment Than Crypto?
This is the ultimate question, and one without a simple answer. In truth, it comes down to preference. If you enjoy working with assets that have a long history, some tangible elements, and a steadily rising market cap year by year, then real estate may be the one for you. If, however, you are a bigger fan of experimental technologies that do not have any physicality, and which are prone to volatility, then cryptocurrency is the winner.
You could say that crypto is better than real estate and argue that its market cap is growing faster, but this would be ignoring the sheer level of risk that is baked into the industry. For instance, even though crypto rises at a stronger rate, it would not be overly shocking if that progress was wiped out at some point in the future. Nobody knows how long this industry will last for, and so that level of uncertainty needs to be priced in.
Make the Most Of Your Crypto Investment With Ledn
If you choose to go down the crypto route, then you may be able to earn interest on it by storing it in one of Ledn’s Growth Accounts. These are savings accounts that allow you to grow your wealth in a passive and low-stress way. You can open a Bitcoin or Ethereum account and begin saving immediately with monthly compound interest. They are perfect for people looking to hold for the long-term, offering an additional way of diversifying your portfolio.
Conclusion
The debate around real estate vs crypto may never get settled. These are two highly different markets with their own quirks, positives, and limitations. Neither one is exactly better than the other, but with so many elements that separate them, there is a high chance you will gravitate to one of them more.
If you find that crypto is the most appealing to you, then be sure to check out Ledn’s Growth Accounts. These can help you earn interest on your Bitcoin and Ethereum as a form of passive income, whilst also adding some diversification to your crypto holdingstrategy.
This article is sponsored by 21 Technologies Inc. and/or its subsidiaries (“Ledn”) and is for general information, discussion, or educational purposes only and is not to be construed or relied upon as constituting legal, financial, investment, accounting, tax, estate-planning, or other professional advice or recommendation. Past performance is not a guarantee of future results. Please read Ledn’s full Risk Disclosure Statement and Disclaimers.
