Watching economic trends and attempting to understand them is not a sport of the faint of heart. Pundits and lay-people alike are at times equally flummoxed by booms and busts, by what catches on and what fails. Some trends are connected, while others boast similar curves but otherwise bear little resemblance to each other.
When two trends converge and appear to do so for similar reasons, though, further study is called for, to see if the connection is real or simply one of happenstance.
Two such trends that have come to dominate the business news of late are the rise in home prices (and in general the buoyancy in real estate) and the growth in cryptocurrencies and other assets built on the blockchain. While these asset classes are in some ways spectacularly different — one residing in the material and tangible world, the other in the ether — they are connected by one strain: attitude and culture.
It’s wise to visit the data for a moment. With the much-written-about frothiness in the housing sector in 2020 and 2021, the residential real estate asset class in the U.S. alone has crossed the $40 trillion mark, landing in fact closer to $44 trillion as of the end of the first quarter of 2022. Housing is the largest and perhaps most important asset class in the world.
This unprecedented buoyancy is matched by the excitement in cryptocurrencies ,which for the first time hit the $3 trillion mark just a few months ago. While real estate dwarfs crypto in total size, the strains that run through them both are quite alike.
For starters, both are seen as “havens,” though for different reasons. The world round, an investment truism has been that real estate is the most important investment for a family to make — it governs not only the qualities of life but also constitutes a fixed asset with both high use value and high exchange value. In that sense, real estate is a haven for families looking to lock-in value and manage risk.
Similarly, crypto is seen as a haven for those investors who feel that the traditional financial sector is imperfect, unstable, even rigged. Crypto is seen as a decentralized, democratic formulation, whereas fiat currencies are seen as the province of government and government only. Oligopolistic tendencies are, in the minds of many crypto investors, too common in the traditional financial sectors; thus the flight to crypto.
While there are other similarities, this one common strain is sufficient to suggest that there ought to be more connective tissue between the two asset classes. As housing affordability problems are largely a result of constrained supply, emotional desire for the permanence of home, and what appears to be a “managed” land-grab (literally), the ethos of those who opt out of traditional models of real estate finance and those who invest in crypto is the same.
Crypto investors resonate with the idea that normal, working families are being priced out of the market by the often predatory behavior of large financial institutions and concentrations of private equity- as they buy swaths of houses to either convert to rentals or to arbitrage over time. Storming the gates of tradition is the joint calling.
Finally, as both asset classes get bigger, the opportunities for natural interplay increase. It’s high-time these two asset classes meet and build a friendship.
In other recent proptech news, TheGuarantors raised a $50 million Series C and stated plans to launch new financing and rental products. RET Ventures also announced launching its ESG-focused Housing Impact Fund and securing investments from REITs Essex Property Trust and UDR.