Farmland: A Real Asset In The World of Bitcoin
Bitcoin has become a go-to for investors who want diversification that can deliver market-beating results. Recent estimates forecast that a $10,000 investment in Bitcoin at $100 a pop could be worth $5 million over the long-haul, which could dwarf many other alternatives.
At the same time, Bitcoin and other cryptocurrencies are still somewhat new in the world of investing. The Bitcoin market is, according to some experts, a wildly speculative one. Take the December 2017 Bitcoin bubble, for example, where skyrocketing value was followed by a precipitous drop. Bitcoin’s value has shot up dramatically since then, due partially to market-wary investors seeking out alternative investments.
Bitcoin gets a significant amount of attention as an alternative investment, but it’s far from the only lucrative option out there. Real assets like farmland can offer something crypto investing can’t: shares of tangible property with a strong and steady increase in value over the long-term.
Let’s dive into the value of bitcoin as an alternative investment, and highlight more specifically how farmland provides a unique investment opportunity versus crypto and other alternatives.
The Value of Bitcoin in Alternative Investing
Bitcoin already enjoys significant attention. Now, it’s gaining more respectability as well. Large investment banks expressed interest in crypto as far back as 2018; by 2021, many have made concrete plans to enter the cryptocurrency field in earnest. This comes alongside a skyrocketing Bitcoin bull run, fueled in part by a push into the market by investors looking for a place to store cash outside of a volatile stock market (and a low-interest environment for bonds).
Right now Bitcoin offers two things for investors: reduced exposure to broader stock market trends and the potential to realize more value than bonds or mutual funds can match. The legitimacy of Bitcoin and cryptocurrency more generally is becoming more apparent than ever. This gives investors a reason to consider how Bitcoin might fit within their alternative investment holdings, too.
That being said, Bitcoin is still subject to its own ups and downs.
Bitcoin value dropped significantly in March 2020 as the pandemic unfolded and markets tanked. Prices dropped by 50 percent in a 24-hour span, indicating that it has a market correlation significant enough to matter. The asset made up for this loss handily and experienced tremendous growth through the first quarter of 2021 Via TradingView. However, the coin once again fell to below $30,000 in June 2021, a reflection of the asset’s continued volatility.
Real Assets Dominate in the Face of Volatility
Crypto has earned a seat at the alternatives table as a major option for investors. Many investors in this and other stablecoins hold onto their positions for the long-term. This means that Bitcoin plays a role not dissimilar to gold, in many respects. Should this trend continue, that would mean that stablecoins may mirror many properties enjoyed by real assets. Real assets consist of things like precious metals, real estate, farmland investments, and other tangible goods.
Although crypto may serve an important role that’s similar to real assets, the jury’s out on whether it has all of the same properties investors are looking for. For example, gold prices only dropped by 4 percent during the most recent Bitcoin price drop. This suggests that real assets still have an outsized role in protecting value for investors that newer, headline-grabbing options can’t reliably match. Bitcoin and other blockchain-based currencies may offer an outsized return for market-wary investors, but this prospect still comes at the expense of stability.
Investors who want to find a low-correlation investment should still look toward real assets if protecting value is paramount. Real assets in hot market sectors can offer steady appreciation over time without the same propensity for volatility. You may not get as large a return as you would with Bitcoin, but you also expose yourself to much less risk.
Even if crypto proves to be an investment for when markets are rocky, there’s a world of difference between real assets and crypto. Real assets—be they precious metals, real estate, or other commodities—have intrinsic value by way of being tangible. Even if you own gold shares, you still own physical pieces of gold; they’re just not within your possession.
Not all Safe Harbor Investments are Alike
While crypto might share properties with some tangible assets, it’s about as far from being one as you can get. There are no physical Bitcoins that stand on their own as a physical asset. Therefore the value of your cryptocurrency is predicated entirely on its demand and scarcity online, rather than in circulation (or in the ground). With the total number of Bitcoin set to be reached by 2140, scarcity isn’t likely to affect the online currency any time soon.
Commodities and real estate, on the other hand, do have a limited supply and are tangible. You own that parcel of land whether or not you have access to it. That’s what makes investments like farmland retain their value during periods when commodity prices increase.
When markets are volatile, having real assets is essential. Tangible property holds onto value even when inflation diminishes the purchasing power of a dollar, and rarely fluctuates the way in which stocks and funds do under the same circumstances. This makes them a staple of any investor’s portfolio hedge.
How Bitcoin Compares to Farmland Investing
Bitcoin and farmland investing might seem at odds with each other: one is entirely in the digital realm, while the other is rooted in one of the oldest practices in human history. From an investor’s perspective, however, there’s much more to the story.
Some of the biggest considerations for investors are growth, stability, and value. Bitcoin has growth in spades: just look to the most recent boom by way of example. Bitcoin spiked from Central banks around the world have injected mind-boggling amounts of currency into the global economy: the Fed pumped $2.3 trillion into the economy since March 2020 alone. This sent many investors fleeing from conventional investments for holdings with a low correlation to market volatility.
At the same time, Bitcoin is much less stable than most market investments. Even something as simple as a statement from Federal Reserve Chairman Jerome Powell about cryptocurrency can create a significant dip in price. And as far as value is concerned, a significant amount of cash doesn’t get you a whole lot of Bitcoin these days. The price of one bitcoin hovers around $58,000 and, although you can invest in fractions of a coin, you’re going to pay a premium to invest in the space regardless.
Farmland investing, on the other hand, gets you far more bang for your buck in addition to being growth-minded and stable. When you invest in farmland, you’re backing an asset class that has increased, on average, since the mid-1980s increased in value.
Credit: USDA ERS
Although farmland hasn’t skyrocketed the same way Bitcoin prices have twice since its inception, it has a much longer track record of significant growth in value. In fact, farmland has increased in value decade after decade since the 1990s. This is driven by many factors; one of the larger being the anticipated growth in human population. The UN suggests that the world’s population is set to grow from 7.7 billion to 9.7 billion in less than 30 years. This means that farms will need to feed an increasing number of people—all on a finite amount of land.
Farmland is shrinking in the United States, making it a scarce commodity just when agricultural output becomes more important than ever. According to the most recent Census of Agriculture, 34 out of 50 states witnessed a reduction of farmland. The country lost a little more than 14,310,081 acres from 2012-2017 as well, making remaining land all the more vital.
That means farmland investors get access to a much more reliable hedge against inflation. Better still, they also get a stake in real property with high demand and limited supply.
Why Farmland is the Go-To Real Asset in 2021
Market volatility in the wake of the COVID-19 pandemic has sent investors running with their assets to greener pastures. More adventurous investors have chosen to bolster their cryptocurrency investments, particularly within Bitcoin. But with great reward comes great risk: for all of the promise cryptocurrency holds for the financial future, it is nowhere near as stable as real property.
Stability is a crucial element to a successfully hedged portfolio: although real assets may not always skyrocket in value the way that Bitcoin has, it’s also uncommon for these assets to come crashing back to earth in a similar fashion. That’s why farmland investing is crucial for investors looking for stability when markets can’t provide it. Bitcoin might have limited exposure to the ebbs and flows of Wall Street, but it’s not quite certain if it enjoys the same low correlation as commodities, farmland investing, and real estate do. If bolstering your portfolio during shaky economic times is the goal, then farmland can be the real asset you need in a sea of digital currencies.
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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.