How tokenized real estate can diversify investment portfolios
The price of Bitcoin continues to reach new heights. In late 2020, when Bitcoin prices were below $ 24,000, I had predicted that the price would hit $ 60,000 by 2025. With Bitcoin at a new all-time high of $ 61,711, those estimates have already come in.
However, the reality of this situation is based only on paper. Actual wealth can only be gained by selling the asset and making a profit. The excitement of seeing potential property gains to never-before-seen highs can be attractive, but the potential to lose that profit in the short term is a very real possibility that affects all cryptocurrency holders.
In the game of Monopoly, the winner is determined by a player’s amount of money, not their wealth. This is an all too common scenario for investors who are asset rich but cash poor. And when it comes to these assets, the risks shouldn’t be ignored.
Previous gains were made with even steeper declines. How can an investor who is rich in cryptocurrency assets reduce the potential for volatility in their portfolio? An answer can be found through income generating commercial real estate.
As in many industries, real estate could find ways to label investments. The global real estate market is worth over $ 200 trillion and is the largest asset class in the world, according to Savills World Research. More importantly, it offers stability.
A more stable way to build wealth
While valuations of cryptocurrencies have historically seen massive ups and downs, even during Covid, the value of commercial property is remarkably stable from month to month, with a general upward trend over a long period of time. So now is an incredibly beneficial time to diversify your portfolio of digital assets into something that can last even when cryptocurrencies fluctuate wildly. In this way, the volatility of the entire portfolio is dampened against a volatility where 100% of the cryptocurrency has been allocated.
Accessibility and liquidity have traditionally been the biggest hurdles when investing in commercial real estate. Access to high quality assets has been limited to high profile investors, while ongoing business is often held up by too many chefs in the kitchen. Tokenization got rid of all of this.
With tokenization, the arduous investments in commercial real estate in a blockchain can make it easier to sell in the secondary market through online supply offices. It’s not difficult to imagine a scenario where real estate can be traded like stocks.
Risk reduction through hard assets
Business models have emerged similar to a traditional bank, calculating interest rates on altcoin loans and the amount paid on the interest on altcoin deposits. However, these models go beyond the norms and offer preferential rates to depositors if they agree to earn and collect their interest income using the company’s domestic utility token, allowing for more attractive lending rates.
It may be a fantastic business for those looking at these novel banking options, but there are flaws. As with cash loan expenditures, tokens have little intrinsic value and are simply a function of cash flows determined by loan and credit volume. And everything is serviced at the discretion of the lender. It is possible that external factors could devalue the cost of the token or lower that attractive price.
But what if the same intermediaries invested part of their capital in digital tokens backed by commercial real estate? You have a hard asset that gives the utility token some minimum value. And because commercial real estate generates revenue, the crypto intermediary can use the revenue and reward its utility model owners with a dividend.
As Bitcoin continues to appreciate in value, real estate strategies become much more beneficial for achieving higher overall investment results. In addition, the tradability of digital securities contributes to their attractiveness compared to analog partnerships. Real estate tokenization creates more financial opportunities and a more efficient platform for investors to access and use commercial real estate investments.
Blockchain commercial real estate through tokenization is making capital market opportunities more accessible, affordable and productive for property owners looking to raise capital. In the past, real estate has always provided significant tax advantages and achieved consistent returns for long-term investors. The future of investing in commercial real estate looks extremely exciting as blockchain technology, cryptocurrency, and decentralized finance (DeFi) expand their capabilities to improve practical solutions for the industry.