Cryptocurrency Millionaires Are Diversifying Into Property. You Should Be Too.
05-19-2021
Samuel Leeds
ENTREPRENEUR LEADERSHIP NETWORK CONTRIBUTOR
Founder of Property Investors
Opinions expressed by Entrepreneur contributors are their own.
As a property investor and coach, I speak to a wide range of people. This includes people in the cryptocurrency space, and I've noticed that a lot of them are either investing in property or plan to do so at the top of this market cycle. Here are three of the reasons behind this trend and why this form of diversification is a good way to protect your wealth.
1. The 4-year cycle
Every four years, Bitcoin goes through an event called "the halving," where the number of newly created Bitcoin is split in half. As long as demand stays the same or goes up, the reduction in supply causes the price to rise. Each time this has happened, it has caused a bull run in the asset followed by a sharp crash in prices.
This means that many cryptocurrency investors attempt to take profits towards the end of these cycles. They can then buy back in once prices drop during the bear trend. Cryptocurrency investors are particularly aware of inflation caused by continual currency printing by central banks across the world, so they prefer not to keep such profits in cash. Therefore, many investors are looking to buy income-producing assets like property and use the cash flow they receive to buy more crypto at the end of the bear trend.
2. New altcoin millionaires
The meme cryptocurrency Dogecoin saw a huge rise in price following attention on Twitter from Tesla founder Elon Musk. Dogecoin was intended to be a joke cryptocurrency featuring the Doge meme, a picture of a Shiba Inu dog. Unlike Bitcoin, the token does not have a limited supply and was never intended as a serious store of value. This explosion in price has meant that many people that bought Dogecoin as a humorous purchase are now rich and have cashed out for fiat currency or Bitcoin!
This same process has happened with other smaller cryptocurrencies, many with more serious intent, collectively known as altcoins (as they are alternatives to Bitcoin). Altcoins normally suffer harsher crashes than Bitcoin and, unlike Bitcoin, many never recover in price. Many newly made altcoin millionaires are looking for a place to put their wealth that can provide them with a passive income. Property is just such a vehicle and capital appreciation means that it combats the effects of inflation too.
3. Property’s similarities to bitcoin
In many ways, Bitcoin and property couldn’t be more different. One is digital, the other physical. One is new, the other has existed since the beginning of civilization. But there are some key similarities: namely, limits on supply and growing demand for both.
Bitcoin is limited to 21 million coins by its code. As central banks continue to print currency, the demand for a money with a fixed supply will inevitably continue to rise. Property is limited by the amount of land available. Population is rising worldwide and many Western nations are seeing increasing numbers because of immigration. This means there is a similar investor thesis for both assets and leads some cryptocurrency investors to move a portion of their portfolio into property to hedge against drops in the cryptocurrency price.
It's important to know about the things you invest in. If you know the cryptocurrency market very well and have your expertise there, you should keep your focus on crypto. That said, it always makes sense to spread your risk between asset classes.
Holding a cash flow-producing asset like property will allow you to have an ongoing income to invest in crypto while having the security of a much less volatile asset class. Before you get started in property, however, it's important to acquire the correct training and knowledge. There are many pitfalls you will need to avoid. With such training, property is a perfect way to diversify any portfolio.