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Real Estate vs. Cryptocurrency: Which Investment is Smarter?

Heard the buzz surrounding cryptocurrency and wondering whether you should get in on it? In this article, we’re going to compare crypto to more traditional investments like real estate to help you decide which is a better fit for you.
Heard the buzz surrounding cryptocurrency and wondering whether you should get in on it? In this article, we’re going to compare crypto to more traditional investments like real estate to help you decide which is a better fit for you.

When it comes to investing in 2019, there’s a new player in town, and it’s made entirely of 1’s and 0’s. Cryptocurrencies, the new kids on the block, have been changing the face of finance by slowly decentralizing our economy, providing faster and cheaper transactions, and liberating money from the threat of government interference.

These digital currencies have become a very popular speculative investment due to the absolutely massive appreciation they’ve seen over the past few years. Bitcoin, the most famous of the bunch, shot up from less than $1,000 per Bitcoin in March 2017 to close to $20,000 in December 2017 — that’s almost a 2,000% increase in less than a year. Unfortunately, just a month later it crashed to approximately $9,000.

Huge ROI’s like this have caught the attention of many investors who have dollar signs and lambos in their eyes. However, despite their huge upside potential, cryptocurrencies are still in their nascent days: the crypto space remains largely unregulated, and it’s wrought with scams and market manipulation.

To put it simply: cryptocurrency is a highly volatile and extremely risky investment, but it can sometimes produce great returns if proper care is taken. Unfortunately, if you’re not really on the ball, you stand to lose a lot of money.

When considering any investment option, it’s important not to view it in isolation: investors should always take care to compare the risk-reward potential of different assets when making investment decisions. This means that if you’re thinking about investing in cryptocurrency, you should also be weighing your decision against other traditional investment options such as stocks, bonds, and real estate.

Real estate has long been considered the gold standard of investing: not only do home values generally appreciate over time, but real estate owners can make passive income by renting out their properties. Overall, real estate is considered a safe investment as the market tends to trend upwards with only temporary dips and pullbacks. However, it comes with its own risks as well — just take a look at the 2008 housing crash.

So, if you’re interested in entering the investment world, where should you put your money in 2019? High-tech cryptocurrency? Or tried and true real estate? Let’s find out.

What Is Cryptocurrency?

Bitcoin, the first cryptocurrency, was invented in 2012 by a person or group of people operating under the pseudonym Satoshi Nakamoto. Bitcoin was the world’s first decentralized currency, meaning that there is no central bank backing it. Instead, Bitcoin operates on a blockchain, a type of public record that contains details of each of the currency’s transactions.

This is commonly referred to as a ledger: it’s a public record of every single Bitcoin transaction, and everyone that owns any amount of Bitcoin has a copy of it. Each and every transaction is recorded in a new “block” that’s linked to the previous block via a cryptographic hash function.

You can think of a hash as a really complex password that tells you where the last transaction’s information is stored. Once you find that location, there will be another hash that points you to the preceding transaction’s information, and so on and so forth.

So, why is this important? Well, since everyone has a copy of the ledger, it’s practically impossible to forge any transactions. As soon as someone tries to give themself more Bitcoin than they actually have, everyone would compare this event to the ledger and notice it doesn’t match up — something wouldn’t look right, and the transaction would be flagged as suspicious.

In order for someone to fake something like this, they’d need to forge it on every single copy of the ledger. That’s pretty much impossible, thus making Bitcoin a very secure currency.

Investing in Cryptocurrency

The technology behind cryptocurrency is incredibly complex and going much deeper into it is simply beyond the scope of this article. However, now that you’re familiar with the basics, you’re ready to get to the good stuff: how does investing in cryptocurrency work?

While cryptocurrency itself may be a complicated topic, investing in it is relatively simple: you just sign up for a cryptocurrency exchange like Coinbase and buy some. Easy-peasy.

However, soon after Bitcoin was invented, tons of other currencies like Litecoin, Ethereum, and even Dogecoin (yes, that’s actually a cryptocurrency) started popping up. In fact, anyone can make their own cryptocurrency just by copying the Bitcoin source code and altering it a bit — Clevercoin, anyone?

This can make it difficult to decide which crypto to invest in: after Bitcoin’s rise, cryptocurrency became a goldrush — everyone wanted to find the next currency that would “moon”, or have an exponential increase in value like Bitcoin did. This means that there are a lot of people trying to sell extremely risky investments and even outright scams, so you need to be careful when deciding where to put your money.

The best investment strategy for newcomers is to simply buy a certain amount of a currency you’ve researched and hold it — or “hodl,” as the cryptokids like to say. While there aren’t really any bluechip cryptocurrencies, Bitcoin, Litecoin, and Ethereum tend to be viewed as the safest investments. However, you need to be aware that the cryptomarkets are extremely volatile, and even with these currencies you should be prepared to lose all the money you invest: do not invest more than you’re willing to lose.

That said, cryptocurrency could end up being an economic game changer, so if things end up going your way, you could make a lot of moolah.

Investing in Real Estate

Overall, real estate is a much less volatile investment than cryptocurrency. While it has risks of its own, real estate generally experience fewer fluctuations in value, whereas it’s completely normal for Bitcoin or Ethereum to drop 10% in a single night — that’s just a typical Tuesday in the wild west of cryptocurrency.

However, real estate requires a much bigger upfront investment than crypto does. While you can buy a single Litecoin for just $88.70 as of the time this article was written, you’ll usually need to pay a down payment of 10 - 20% of a home’s value in order to buy it. Considering the median home value in the United States is $226,800, that means you’ll need around $22,000 to $44,000 in starting capital just to get your foot in the real estate market.

Real estate is a tried and true investment strategy. In fact, in the last two centuries, approximately 90% of all millionaires accrued their wealth by investing in real estate. That’s a pretty impressive track record, and it makes it clear that real estate should be on any investor’s shortlist.

Investing in Crypto and Real Estate

Although it may come as a surprise, a number of houses have actually been purchased with cryptocurrency. While these real estate transactions are still outliers and far from the norm, it seems reasonable to expect that as government regulation and acceptance of digital currencies continues to grow, so will the number of houses purchased with crypto. Currently, the biggest issue with buying a house in cryptocurrency is the massive fluctuations that occur on a day-to-day or hour-to-hour basis: buying a house for 20 BTC could mean a difference of thousands of dollars from one hour to the next.

That said, having a diverse investment portfolio tends to be the best way to manage risk and maximize risk-adjusted returns. This means that a solid investment portfolio should usually include a number of diverse assets such as stocks, bonds, index funds, real estate properties, and perhaps even cryptocurrencies.

However, before jumping into any major investment, be sure to consult with a financial advisor and do your own thorough research — this article is just a starting point. If you want to learn more about real estate investing, you can check out our investment guides here. When it comes to crypto, there’s lots of information to be found throughout the world wide web — just be careful to vet your sources and not to follow anything blindly.

If you want to learn more about real estate investing, you can also get in touch with an experienced real estate agent to ask any questions you may have. To speak with a Clever Partner Agent, you can simply fill out this short form and we’ll reach out to you shortly.

Disclaimer: The above content is for informational and educational purposes only and should not be construed as financial or investment advice. There are risks associated with investing in securities. Investing in stocks, bonds, exchange traded funds, mutual funds, cryptocurrency, and money market funds involve risk of loss. Loss of principal is possible.

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Ben Mizes

Ben Mizes is the co-founder and CEO of Clever Real Estate, the free online service that connects you with top agents to save thousands on commission. He's an active real estate investor with 22 units in St. Louis and a licensed agent in Missouri. Ben enjoys writing about real estate, investing, personal finance, and financial freedom. He's a serial entrepreneur, having run several successful startups before Clever Real Estate. Ben's writing has been featured in Yahoo Finance, Realtor News, CNBC, and BiggerPockets.

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