Where Do I Invest? Crypto or Property?

Highlights

• Historically, property has been the coveted asset that, particularly in the major cities, has achieved appreciating returns over the long term.
• Analysts believe that house prices will continue to rise throughout the rest of 2021 and well into 2022.
• One of the biggest performers in 2021 in the crypto space has been Axie Infinity. The online platform which provides crypto with gaming has seen returns of around 25000% since its launch in November 2020.
• The key to investing, as any seasoned investor will tell you, is diversification. And this isn’t just limited to crypto and property. There’s additionally stocks, bonds and businesses that an investor can spread their money to.

Living in any major city in Australia, particularly Sydney and Melbourne, becoming a first homeowner can be an extremely difficult task.

The reason is obvious, given the fact that both Sydney and Melbourne are among the most expensive places to buy homes in the world, giving global cities like New York and Hong Kong a run for their money, so to speak.

This is where the emergence of cryptocurrency has been a Godsend for many millennials who continue to struggle to enter the competitive housing market which exists in the nation’s premier cities.

Property – The Traditional Holy Grail of Investment

Historically, property has been the coveted asset that, particularly in the major cities, has achieved appreciating returns over the long term. Although warnings of a bursting bubble have been touted by so-called experts over the last 20 years, property has continued to be a reliable investment, providing healthy returns on an annual basis.

Historically returns of 7% per annum have been considered an above-average return as far as asset returns have been concerned.

Sydney property growth returns have even exceeded the 7% figure in 2021, with Sydney dwelling values having risen 9.3%, and regional NSW dwelling values up 9.0% through the calendar year to April 2021. This is perhaps surprising given the lockdown restrictions enforced by the federal and New South Wales state government throughout 2020 and now 2021, with the new Delta variant looming large in the Sydney community, where the enforced restrictions have been stricter than ever. These have been so strict that AU$5000 fines have been issued to citizens wandering outside who have chosen to simply sit down in a park or on the beach.

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Although,  it should be noted that Sydney has been driven largely by the cities high-end market. Accompanying these rapid growth rates across already expensive median house prices, aaffordability has become a major problem, particularly for first home buyers.

To put that further into perspective, since the start of the year the median house value, equates to a rise of over AU$80,000 for the median Sydney house value, and around AU$46,000 for the rest of NSW.

The Case for Property Investment

Property prices in Sydney have been rising at an alarming rate in 2021 as strong demand from buyers outpaces the volume of new listings coming onto the market. While this has been good news for homeowners, those searching for homes have been left disenfranchised as the market becomes more and more impenetrable.

As previously mentioned, there’s been consistent warnings over the past two decades from analysts that the housing market is in a bubble that is threatening to burst at any moment. And while there have certainly been slight corrections in the market over that time, it would be fair to say there's been no bubble bursting.

However, that hasn’t stopped the naysayers predicting an inevitable crash this time around.

And while the ever-increasing rate of capital gains has possibly peaked, that doesn’t necessarily mean that home prices are about to drop.

Analysts believe that house prices will continue to rise throughout the rest of 2021 and well into 2022.

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The Saving Grace for Young Home Owners could lie in high-rise apartments as these properties are likely to continue to be less desirable than houses and therefore more affordable. The downside of this, of course, is that the capital growth rate for high-rise apartments will remain low in comparison to that of houses.

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The Case for Crypto  

The saving grace for many aspiring homeowners who have been locked out of the market has been the emergence of digital currency.

2021 has seen a plethora of cryptos offering massive returns which homeowners could only dream of. For example, one of the biggest performers in 2021 has been Axie Infinity. The online platform which provides crypto with gaming has seen returns of around 25,000 per cent since its launch in November 2020 – and no that isn’t a typo. It has returned 25,000 in less than a year. That means an investment of US$100 would now equate to US$2.5 million. Extraordinary.

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Axis Infinity is an exception though. But if we examine the world’s premier and largest digital currency – Bitcoin – it began 2021 at just under US$30,000 on 1 January. Today, as of 17 August 2021, Bitcoin’s price stands at US$46,342 – an increase of over 50% in seven and a half months. Again, this blows the appreciation of house prices well and truly out of the water.

However, this is not the whole story as any Bitcoin enthusiast will testify to. This year saw Bitcoin undertake a tumultuous rollercoaster ride. In mid-April, Bitcoin’s price hit a record high of US$63,000. But just as soon as it reached that high, seemingly in the blink of an eye its value dropped by more than half as it dove to US$30,940 on July 20, just two months after reaching its all-time pinnacle.

And therein lies the problem for crypto investors. While there’s clear evidence that with good timing, a crypto investor can enjoy significantly high returns, not found in any other investment (or at least legal investment) a person’s money can just as easily disappear in a matter of hours or even minutes.  It’s a highly volatile and therefore risky endeavour.

This is where property investment will always trump crypto investment. While certainly, the returns of property don’t hold a candle to some crypto gains the market’s experienced, particularly in the last 12 months, it’s highly unlikely a property investor will see their asset depreciate to half its value in a short space of time.

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The Key is Diversification

Cryptocurrency is considered a speculative investment, meaning that by and large, it holds no real-world value. Its value instead is based upon the speculation of those investors in the market. The price of crypto rises and falls at the discretion of outside forces.

One perfect example has been Tesla billionaire Elon Musk’s influence on Bitcoin as well as other digital currencies such as the meme crypto – Dogecoin. The crypto market has witnessed the price of currencies like Bitcoin and Dogecoin rise and fall as a result of a simple Musk tweet.

It’s even possible that Musk’s decision, in May this year, to stop Tesla from accepting Bitcoin as legal tender for their electric vehicles was a key factor in Bitcoin’s subsequent nosedive.

Property, however, doesn’t suffer this vulnerability. Property has continued to provide solid returns and is likely to continue to do so.

The key to investing, as any seasoned investor will tell you, is diversification. And this isn’t just limited to crypto and property. There’s additionally stocks, bonds and businesses that an investor can spread their money to.

While the crypto market is indeed the modern gold rush, it can just as easily be the casino that bankrupts an investor.

So be wary when it comes to digital currency no matter how alluring the returns are because, let’s face it, it will never be as safe as houses.

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