Real estate or cryptocurrency — where to invest in 2023

Real estate or cryptocurrency — where to invest in 2023

The last year has been turbulent for the world of cryptocurrencies and, in many ways, decisive. Uncertainty in the global economy, crises caused by high inflation, rising interest rates, the armed conflict in Ukraine — all this has put investors in a rather uncertain and precarious position. At the head of the corner, the question quickly arose — «what to do?». Is it worth withdrawing funds to the cache, sorting through the portfolio of assets, changing markets?

Despite the fact that no investment asset protects against economic shocks by 100%, two main alternatives quickly appeared before many investors. The real estate market, on the one hand, which is traditionally considered a «quiet bay» for savings in times of crisis, or a completely new type of investment assets — blockchain, cryptocurrencies and NFT, the main promises of which were «transparency, decentralization and Independence».

Of course, no one in a single impulse decided to invest either in one or the other. Someone stayed with his own, someone made a bet on real estate, and someone believed in cryptotechnology. Looking back at the past 12 months, we can say with a fair degree of confidence that the latter category should have thought twice.

Over the past year, a number of crisis phenomena have occurred with the crypto market at once, undermining confidence in the sector. There has been a sharp drop in the value of the most popular tokens, in particular bitcoin. In a few months, tokens have lost almost $ 2 billion.

In May 2022, there was a complete collapse of the so-called «stablescoin» TerraUSD (UST) and LUNA. Billions of dollars were lost in a matter of days («stablescoin» or a stable cryptocurrency is so called due to its binding to the exchange rate of another asset). Together with Terra, the crypto hedge fund Three Arrows, Voyager Digital and Celsius Network experienced the collapse.

Six months later, the crisis also happened with FTX, an online digital currency exchange service that was previously recognized as one of the most reliable platforms on the market. The company even offered to post a deposit for some of the firms affected by the May crash. However, this caused an increase in distrust of the site due to a possible conflict of interest between FTP and a hedge fund managed by the company's CEO Sam Bankman-Fried. However, already in November 2022, FTX got into a number of scandals at once and has already filed for bankruptcy under Chapter 11 of the US Bankruptcy Code.

In view of all that is happening, it is not necessary to talk today about the reliability of the crypto market and the trust in such assets. What can be said about real estate?

The future of real estate market

The described situation contrasts with the stability of the real estate market. A number of factors play into the hands of the market at once, one of which is the property of real estate to grow in price following inflation, due to the process of revaluation of market value. High demand with a fairly limited supply, due to the fact that real estate, especially residential, is always needed. Of course, inflating prices in certain market segments and rising interest rates on mortgage lending have an impact on the real estate sector, but it still retains amazing stability.

However, in the last weeks of 2022, reports began to appear in the information field about the imminent collapse of the global residential real estate market. An example of this is the situation in countries such as Canada, Australia and New Zealand, where prices have fallen by almost 10%, but the evolution of these markets does not have as much in common with the situation of Spain and other global markets as it may seem at first glance. Many of the countries have mastered the levels of the 2007-08 crisis quite well.

Indeed, Spain seems to be far from collapses and price bubbles. At least for now. Thus, according to the consulting company BNP Paribas Real Estate, in the first 9 months of 2022, real estate investments reached a volume of 13.1 billion euros. This is 57% more compared to the same period in 2021. Its forecasts indicate that by the end of the year the figure will exceed 15 billion euros and break the record of 2019.

Quite positive assessments can be given regarding the situation with rental rates. Despite the fact that it is difficult to get access to rental real estate in some large provincial capitals of the Spanish regions, there is still enough supply at the national level and the demand is great. At the same time, the gross return on investment in this segment of the market is about 7% today.

Despite the fact that both sectors, cryptocurrencies and real estate, are experiencing various kinds of censure from experts, especially when it comes to inflating markets, real estate today is a fairly safe asset. It has a strong foundation, great support from the state, stable real consumer demand and confidence on the part of investors. At the same time, scandals, akin to those that occur around FTX, emphasize how much weaker an asset is that does not have a reliable basis for growth.

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