Real estate tokens have delivered excellent returns to investors at the half ways stage of 2022. This is despite most cryptocurrencies recording poor results. In this article we take a look at some of the bigger cryptos and discuss why they have performed poorly this year. We then move on to real estate tokens and explain why these have bucked the trend.
The chart below is tracking the collective market cap of the largest 30 coins/tokens since the beginning of the year. As you can see, crypto coins came into 2022 as a very large market with over $2.3 trillion.
However, since the beginning of the year, the crypto market has retracted considerably. It momentarily fell below $1 trillion market capitalisation before rebounding in the last few weeks.
Why have cryptos fallen?
There are many reasons why cryptos have fallen in 2022. The biggest contributor to this is inflation. As investors have become increasingly concerned about the state of the financial markets due to global inflation, many investors have sold out of higher risk investments including many cryptocurrencies.
As most cryptos are volatile by nature (as most are not asset backed) they can retract very quickly when the market starts selling. Why is this the case? The answer lies with traders. As many traders expect the price to fall they move out quickly to buy back in when prices are lower. This creates a bigger sell-off and many smaller investors who incur losses walk away from crypto investments.
Collapse of stablecoin Terra
A stablecoin, as the name suggests, is a type of cryptocurrency that is supposed to have a stable value, such as US$1 per token. How they achieve that varies: the largest, such as tether and USD Coin, are effectively banks. They hold large reserves in cash, liquid assets, and other investments, and simply use those reserves to maintain a stable price.
Others, known as “algorithmic stablecoins”, attempt to do the same thing but without any reserves. They have been criticised as effectively being backed by Ponzi schemes since they require continuous inflows of cash to ensure they don’t collapse. This is why it is important to read the tokenomics section of the whitepaper before you make any investment into crypto.
Terra and its sister coin Luna collapsed in May. Both were algorithmic stablecoins, so were not fully backed by cash. The collapse of these so called stablecoins created a lot of negative sentiment in the crypto markets. This triggered a massive sell-off across most crypto coins. The video below explains how these algorithmic coins failed.
As crypto markets have matured, many participants have used borrowing to buy crypto. When cryptos rise this strategy can massively increase returns. However, the downside to this is that when the market turns losses are magnified. This use of leverage creates more risk. This is because a non-leveraged holder of a crypto coin can choose to hold onto it until the market picks up, whilst a leverage holder often can’t. As a result, many leveraged holders were forced out of the market and this made prices fall further still.
Most cryptocurrencies are risky by nature but some of them have done remarkably well. Back in 2010 bitcoin was not very well known. At one point in 2010 bitcoin had a value of $0.05. This price rose to $1.00 on the 11th of February 2011. Bitcoin has gone on to reach an all time high of $69,000.
Several other coins have come to the market and done incredibly well. Ethereum for example was trading at under $8 at the end of 2016. Today an Ethereum token changes hands for over $1,200 having reached all time highs of $4,865.
Many investors are continuously looking for the next big thing in the crypto market if they buy at the right time they could see exceptional returns on their investment. For other investors, crypto is seen as too speculative, and consider it nothing more than gambling.
Real Estate Tokens
One option for crypto that offers a lot more stability are asset backed coins/tokens. Real Estate tokens in particular can offer a high degree of stability. This is because the tokens are underpinned by a tangible asset, which is real estate. Often the real estate will also generate an income from tenants. This then could either generate an income for token holders or the income may be reinvested for further growth.
Real Estate tokens are a rapidly growing market as many offer an investor fractional ownership of real estate without any of the headaches that come with owning the property directly. As this market matures we are likely to see many more real estate tokens hit the market.
Contracoin offers investors the ability to gain fractional ownership of property by exchanging their contracoin for a percentage ownership of various properties that they hold on their platform. This allows investors to buy real estate internationally through their tokens. These properties provide an income to token holders. Its price has performed superbly in 2022. You can see a chart of Contracoin’s token price below. It has risen from 25cents to over one dollar since the turn of the year.
Another company operating in this space is Propy. The company facilitates the purchase of property through crypto. Their model allows sellers to tokenize their property. They have also recently started to record land titles through blockchain technology. As explained in a previous article, blockchain technology can revolutionise the real estate industry by changing the way property is bought and sold.
Over the past 12 months, Propy’s token price has risen significantly. Propy has risen by 382.84% in the last 12 months.
At Esper Wealth we believe that as blockchain technology matures tokenization will become commonplace. Industries such as real estate will benefit from the technology that it offers. In the longer term, technology will change the way property is bought.
However, in the shorter term, tokenization of real estate will be more focused on offering fractional ownership of real estate assets or developments. For early-stage investors, there is a real opportunity to buy emerging real estate tokens and see massive returns as the market gains popularity.