Farmland, Bitcoin, & You
Investors in today’s economy are always on the lookout for an opportunity to diversify their portfolio, take advantage of new high-yield assets, and hedge against market volatility. There are more options than ever before, and cryptocurrency is an increasingly popular one with investors.
Bitcoin is far from the only unique investment opportunity around, however. Other alternative investments, such as farmland investing, can provide unique advantages in your portfolio. Plus, farmland has a longer track record of growth—as well as a longer track record in general—than Bitcoin or other cryptocurrencies.
This isn’t where the farmland versus Bitcoin comparison ends, either. These two alternative assets may share some similarities in terms of their role in your portfolio, but they also offer stark differences in terms of stability, long-term growth, and how they’re valued. Here’s what you need to know about farmland and Bitcoin before bringing either into your diversified portfolio.
How (and Why) Bitcoin Surged as a Long-Term Investment Play
Cryptocurrency was initially designed to complement the role of cash in everyday purchases, be they online or through brick-and-mortar operations that accept digital currency. Bitcoin is accepted by an increasing number of businesses, but most users see it as an investment vehicle rather than a replacement for greenbacks or debit cards.
There are several reasons why Bitcoin is worth considering as a long-term asset. The biggest has to do with how the Federal Reserve has responded to the COVID-19 crisis’ economic toll. Many of the same programs instituted during the Great Recession in 2008 were tapped again when the global economy began to grind to a halt. Injecting cash into the economic system and slashing already-low interest rates made cash easier to come by—and potentially less valuable.
Low interest rates lead to meager yields on the average Treasury Bill, making them less attractive for investors looking to safeguard assets. Inflation may also eat into the small yield you’d receive if a dollar doesn’t go as far as it used to when your bond matures. Bitcoin, on the other hand, has grown in value rapidly since 2020. The cryptocurrency topped $1 trillion in market value this past February for the first time, and continues to go through spikes and drops in value as 2021 progresses.
When interest rates are low, the typical options for conservative yield-generating investments offer little upside compared to Bitcoin and other cryptocurrencies. This, in turn, makes Bitcoin an alluring investment opportunity during shaky times on Wall Street.
Bitcoin’s Potential Challenges for Long-Term Investors
Even if Bitcoin is being used by many investors as a financial safe haven, there’s no guarantee that it will behave the same way as other alternatives with a longer track record. First, Bitcoin is much more volatile than other conventional investment hedges. News of potential changes to the tax code caused a brief plummet in Bitcoin value, signaling that this asset isn’t immune to market-moving headlines.
You might get a bigger return with Bitcoin than bonds or other popular inflation-era investments, but you may also lose big too. And since Bitcoin has never witnessed a recession, it’s hard to tell how it might handle a significant economic downturn. Bonds and other inflation-resistant investments may not boast the same kind of astronomical returns as Bitcoin, but they’re much more stable and less likely to lose value.
During a recession or inflationary period, real assets prevail. That’s because real assets, such as farmland, are priced due to their physical value rather than their perceived value. Farmland and the crops grown on it are still essential for human survival, but digital currencies and stocks don’t enjoy that same underlying necessity.
Why Farmland Holds Up in Volatile Markets
Bitcoin might be getting a closer look from investors that want to beat the average bond yield, but it’s far from the only (or best) option around. Real assets have a long history of holding value during recessions and when inflation is on the rise. Farmland is no exception to this trend, either.
Farms are an essential part of the domestic and global economy. The United States is the world’s biggest exporter of food, meaning that the farms on which this food is grown have global importance. This also means that farmland value isn’t very dependent on things like the stock market or other exchanges, otherwise known as a low-correlation coefficient. The lower an investment’s correlation coefficient, the less it moves in tandem with another asset class (in this case, stocks).
Farmland value will always be determined in large part by the underlying necessity for food and agriculture, making it more impervious to market swings. Assets that don’t have real value may not fare as well as those that do.
The Importance of Real Assets
Bitcoin is the opposite of a real asset. First, it does not exist in a real capacity as it is entirely digital. Plus, it does not have any tie to an underlying asset or source of value. Even fiat currency derives its value from external sources, such as the strength of the issuing country’s economy. Bitcoin’s value is based mostly on perceived scarcity and the price that investors are willing to pay in order to own it. Although Bitcoin may also enjoy relatively low correlation with the stock market, it doesn’t derive its underlying value from a real asset. Bitcoin may have other overlapping characteristics with real assets, like limited supply and sizable demand, but its overall value depends on whether investors are interested in it.
Farmland and other real assets, on the other hand, derive value from what they create. For real estate, this takes the form of a house or commercial building that provides people with places to live and work. Gold is always in demand for jewelry and electronics. Farmland is essential for feeding the world. These characteristics build in a certain amount of security that persists even when market moves are hard to stomach.
In fact, one financial expert suggests that investors take the money they’d invest in Bitcoin and put it toward—you guessed it—farmland.
Striking a Balance Between Farmland and Bitcoin in Your Portfolio
That said, you don’t need to pick farmland or bitcoin over one another in order to generate value and diversify your assets. Rather, the two investments can complement each other quite well: Bitcoin can provide you with an opportunity to reap greater returns with more risk, while farmland investing avails you to steady returns in a recession-resistant sector of the economy.
Picking out alternatives that offer steady yields alongside those that may build value faster can help provide exposure to broader upside. When you use FarmTogether to invest in farmland, you’ll avail yourself to the top farmland real estate opportunities in the country.
Investing with FarmTogether takes as little as $15,000 to get started, which provides you with a digitally savvy management tool to identify new investment opportunities and track their progress. Plus, just like with Bitcoin, FarmTogether makes fractional investments easy to make.
There are plenty of reasons to consider both farmland and Bitcoin as you look for alternative investments that can weather recessions and inflation.
To find out more about farmland investing with FarmTogether, you can check out our FAQ. When you’re ready to start, you can create a FarmTogether account and be paired with one of our investing experts right away.
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.