Since COVID-19 first hit back in 2020, the economy has undergone a tumultuous few years. Inflation numbers the world hasn’t seen since the 1970’s, unprecedented supply chain crunches that left store shelves empty, and a resurgence of geopolitical unrest has left the future economic outlook tottering and unsteady. Everywhere you look, experts are divided on whether the next few years hold continued stability or an apocalyptic crash.
For crypto investors, this level of volatility and uncertainty is nothing new. Bull and bear markets appear and disappear with little warning, massive firms go from worldwide success to destitution overnight, and rug pulls are a nearly constant danger. All that being said, many crypto investors long for the stability provided by physical assets, including precious metals, art, and real estate in the outside world to help shelter their investments from the day-to-day volatility of the markets.
Old Money Risk Management
Risk management is an essential part of older forms of money management, with firms and ‘whales’ taking part of their earnings and parking them in assets like paintings, real estate, and precious metals rather than having them subject to the volatile market at all times. After the crash of 1929, those who managed to retain their wealth recognized the importance of creating a hedge between the entirety of their wealth and the inherent risk associated with keeping their money on the market.
While classical investors typically put their money on productive assets, including farms, factories, lumber mills, and many more, things have changed since the unpegging of the dollar to the price of gold. Many have shifted to keeping their money in unproductive physical assets that retain their value even in the face of inflation, including precious metals and real estate. One of crypto’s primary weaknesses has been the lack of risk hedging assets, as the entirety of an investor’s portfolio is subject to the whims of the day’s market unless the crypto is converted into dollars.
This is where the Decentralized Finance space really shines, as the DeFi community has been working day and night to help create a system where crypto investors can buy into physical assets with stable values without losing the benefits and liquidity of their crypto assets. By creating ‘tokens’ that are assigned a percentage of the asset’s value, buyers can park their crypto assets into tokens, which only change in value when the asset’s value does.
Hedging With BlockChain Real Estate
One firm operating in the DeFi Space, RealT, has been working on tokenizing real estate investments. This serves the dual purpose of providing a value hedge while simultaneously providing investors with a stream of rental income, giving a solid and reliable income stream to those who may not have the means to buy a piece of property outright.
Utilizing DeFi for hedged assets has a number of advantages over utilizing traditional investment methods like REITs. Tokenizing real estate preserves liquidity in your investment, allowing you to quickly transfer your real estate tokens back to crypto in order to take advantage of a new opportunity.
It’s hard to enumerate the exact advantage of this liquidity, as within just 24 hours investors can buy or sell their tokens in order to shield themselves from volatility or buy into new opportunities in the market. This is a groundbreaking innovation in the real estate market, which is traditionally considered one of the most illiquid assets one can own. Property is typically held for years at a time, only bought and sold in infrequent, large batches.
By putting real estate on the BlockChain, RealT is creating a more democratized and liquid form of real estate investment on the market. If you are interested in creating a value hedge for your investment, or are just looking to get on the ground floor of a rental property investment using your hard-earned cryptocurrency, get in contact with RealT today.