Why Crypto Beats TradFi Options Like Stocks & Real Estate
You already know if you are reading this that crypto crushes bank rates for earning income. But there are other good ‘traditional’ investments out there. Investments like:
- Interest rates in emerging markets
- Dividend-paying stocks
- Buy to let properties (real estate for investment)
- Peer to peer lending
And how do they stack up against crypto? Let’s take a look…..
Interest Rates in Emerging Markets
There’s no question that in some emerging markets, your bank account will see high-interest rates. Argentina citizens can get a one-year fixed deposit account that pays up to 34%. That’s huge for a bank. So if you can qualify to open a bank account there, should you?
Probably not for two reasons:
- Currency devaluations
Argentina was considered a possible case of hyperinflation until just recently by the World Bank. Their current inflation rate is more than 50% year over year meaning you lose purchasing power even at 34%.
And then we have the second problem, that you are paid in ARS (Argentina Pesos). The ARS consistently loses its value faster than most other currencies. So your declining purchasing power after a year also gets you fewer dollars, Euros, Pounds, or Bitcoin.
Unless you have assets or expenses in an emerging market currency, it’s probably not a good idea to chase yield there.
As we discussed in our article on Passive Income with Staking, you can earn between 4.5%-7% on U.S. dividend stocks and 6%-10% on some UK dividend stocks. As we stated in that article, the risks you run are:
- your principal losing value and
- the deception that a high dividend yield could come from a declining stock price and not from a higher payout.
A higher dividend yield might not get you to whatever your income goal is if the reason the yield is 8% is that the stock dropped in value by 10%. It means your payout stays the same or even drops from the previous quarterly payout. Also, if you aren’t a citizen of these countries, you may not be eligible for an account that lets you buy these stocks.
Buy to Let Properties
Buying real estate to rent it out as an investment is a common traditional investment strategy. Numerous companies in this field say that a net yield of 5-8% is a successful investment.
The problem here, aside from the fact we can earn more with low risk in crypto is that real estate is expensive and illiquid. It costs a lot and takes lots of time to sell it if you are unhappy with your investment performance. You are often taking on debt to help finance this purchase. It’s not well-diversified as all your money is tied up in one expensive property at a time.
Peer to Peer Lending
Picture from Debt.org
This was my absolute favorite option before discovering cryptocurrency. You often get to choose who you want to lend to. You decide how much risk you want to take by lending to a C credit instead of an A credit or by lending individuals instead of lending to a business. And you have many platforms and risk profiles to choose from. The returns on individual loans are often over 10% too.
However, these loans have no collateral. Defaults can be common especially during difficult economic times. There are no decentralized lending options for p2p lending if done in fiat currencies like USD, EUR, or GBP. An American can’t lend EUR on Mintos and a German can’t lend USD on Prosper either. Both your principal and the potential interest you can earn are at risk. It does not take many defaults to bring your total portfolio return down into normal or sub-optimal territory.
Staking with Cryptocurrency
While staking is probably the lowest risk crypto investment, lending of some cryptos such as stablecoins offers lower risks too. Here are some other benefits staking offers:
- Anyone can ‘qualify’
- Payments in crypto
- Liquid all the time unless staking has a short lockup period
- Can start small and easy to diversify amongst many cryptos
Anyone from anywhere can qualify as long as they have crypto in a digital wallet. No residency is required like for stock dividends or p2p lending options.
Payments are in crypto which many believe to be a higher quality form of money than most, if not all, fiat currencies. And they are easily converted back into your home currency or another crypto of your choice if you prefer. Far fewer devaluation concerns than emerging market currencies.
Unless you must lock up your crypto for 30 days or 60 days, your entire investment is liquid all the time. You can unstake and sell for another crypto if you are unhappy with the performance, unlike with bank fixed accounts or real estate.
You can start small. No huge commitments like real estate or dividends. If you want to take 1000 EUR and spread 100 evenly over 10 different cryptos, then you can do that. That plus the liquidity features mean you can work to improve the performance of your underlying assets. And you can easily diversify. Try doing that with a piece of property.