May 21, 2021
At A Glance Comparison of Farmland and Cryptocurrency
Cryptocurrency is a hot topic among investors—especially whenever Bitcoin prices jump. With Bitcoin hitting new records at the beginning of 2021 (and other altcoins also increasing in value), many investors are once again considering where crypto might fit within their portfolio.
There are several downsides to investing in cryptocurrency however— especially when prices are high and bubbles begin to inflate. That’s where other alternative investments, such as farmland, might add more value to your portfolio.
Investing in Cryptocurrency
Cryptocurrency investing went from being a fringe asset to a media darling in a matter of months about four years ago. As the price of Bitcoin skyrocketed, investors flocked to crypto as a must-have within their portfolios. Even Wall Street giants expressed interest in crypto, with some even going so far as to build out their own cryptocurrency.
The crypto craze has gone up and down since the Bitcoin bubble burst in February 2018, and despite the volatility we've witnessed, it hasn’t deterred investors from seeing value in the role of cryptocurrency within their portfolios. Indeed, there are several advantages and disadvantages to incorporating Bitcoin and altcoins into your own investments. Here’s what you need to know before entering the market.
The Pros of Cryptocurrency Investing
Cryptocurrency offers several advantages within your average investor’s portfolio. First is its accessibility. Investors can buy fractions of their cryptocurrency of choice, rather than an entire coin. This flexibility makes this market an attractive option for many people who may want to dip a toe into the crypto waters, rather than having to set aside a considerable investment total just to satisfy their curiosity.
The sheer number of cryptocurrencies to invest in is another compelling factor for investors. If Bitcoin is prohibitively expensive, for example, an investor can look into the options that another currency might provide. Other crypto options trade at different valuations, which gives you a range of right-sized opportunities.
Last but not least, it appears that the appetite for cryptocurrency investing isn’t going away any time soon. Major banks see the value in blockchain technology, which is the backbone of how cryptocurrency works. Plus, with major players offering their own currencies, investors should be bullish on the future of crypto in general.
The Cons of Cryptocurrency Investing
There are several potential pitfalls when investing in cryptocurrency. Some are obvious—crypto is still a new investment type compared to other long-standing options. The first cryptocurrency debuted in 2009 and one can argue that the overall market is still in its nascent stages of development. Crypto markets are still speculative compared to many other alternative investment types, which means you might be sticking your neck out from a risk perspective.
The variety of cryptocurrencies can also make investing a challenge for newcomers. There are several leaders in the field, but they are also among the more expensive options. Less expensive cryptocurrencies are available, but they may also get less attention from investors. Fewer investors means less of a chance of a major return.
Investing in Farmland
Farmland investing, like cryptocurrency, is an alternative investment that can help diversify your portfolio. Farmland investments allow you to own a portion (or the entirety) of a farm and the land it sits on. Plus, you’re entitled to a share of the profits made when the farm’s agricultural products go to market.
There are tons of upsides to farmland investing, as well as a few considerations to bear in mind before you begin. Here’s what you need to know before getting started.
The Pros of Farmland
Unlike crypto, there’s a proven demand for what farmland brings to the (literal) table. In 2019, the U.S. agricultural sector and related industries made up $1.109 trillion of the gross domestic product in the country. This was a whopping 5.2 percent of the country’s overall GDP. The demand for agriculture isn’t poised to slow down in the near future either. This means that investing in farmland provides you with an opportunity to invest in a known entity with proven demand.
Farmland investing also avails you to a real estate opportunity within a historically stable sector. Farmland has generated double-digit returns for decades despite other economic phenomena, such as recessions and inflationary periods. Other real estate-related alternative investments, be they through property ownership or participation in real estate investment trusts, come with much less certainty.
Another advantage farmland investing provides is exposure to commodities. Commodities, particularly agricultural commodities, are historically resistant to inflation and recessions. Although farmland investing isn’t a commodity by definition, it does play in a similar arena given that farms produce grains, crops, and livestock.
The Cons of Farmland
Farmland may not be perfect for everyone, however. Most farmland investments take a long position, with target hold periods beginning at five years. If you’re looking to make an investment that you can pull out of quickly, you may want to look elsewhere. Farmland is designed to be a steady earning for the long-term rather than the kind of investment that yields a fast return on a short trade.
Another challenge that farmland investing might pose is that you’ll have to be an accredited investor to take part. Although investing with FarmTogether comes at a low minimum of $15,000, you’ll need to make sure you’re eligible to participate. Cryptocurrency investing, on the other hand, has no such minimums.
Farmland and Cryptocurrency Investing: the Right Option for Your Portfolio
Both cryptocurrency and farmland investing offer different opportunities to expand your portfolio, albeit through different ways (and at different rates). These two asset classes are obviously more dissimilar than they are similar, especially when you factor in the cost of entry and the potential upside of each. If you’re looking for an investment known for steady returns over the medium- to long-term, farmland investing provides an unparalleled opportunity as an alternative asset in your portfolio.
Disclaimer: FarmTogether is not a registered broker-dealer, investment adviser or investment manager. FarmTogether does not provide tax, legal or investment advice. This material has been prepared for informational and educational purposes only. You should consult your own tax, legal and investment advisors before engaging in any transaction.
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