How farmland stacks up against one of the most hyped asset classes of the past decade.
Bitcoin and other cryptocurrencies have made plenty of headlines over the past few years. Many investors and pundits have heralded this new sector as the future of investing and monetary systems. And to be fair, some who got in and out at the right time made a lot of money.
But not everyone has been optimistic about the asset class that sprung from the ashes of the 2008 financial crisis. Investing gurus like Warren Buffett label the cryptocurrency market as volatile and high-risk and question whether it creates any intrinsic value.
When choosing between investing in Bitcoin, a highly speculative “asset” class, or farmland in 2023, which makes more sense for your portfolio?
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Does Bitcoin only move up and to the right?
Since 2018, the cryptocurrency market has seen more than its fair share of volatility.
The early long-term bull run of Bitcoin (BTC) prices has largely been followed by unpredictable ups and downs, leaving many investors questioning cryptocurrency’s long-term viability. Following a high of around $20,000 in December 2017, Bitcoin’s value fell 84 percent to around $3,000 in December 2018, and then rose again to approximately $69,000 in November 2021. After decreasing 77 percent to about $15,000 in November 2022, BTC hasn’t done much besides hovering around $20,000, which is the same price it was in December 2017.
On the other hand, investing in farmland has become increasingly attractive. As farmland remains a relatively safe, stable, and profitable asset class for investors, it stands out as a favorable option over cryptocurrency investments’ higher risk and unpredictable nature. This is especially true when you consider that its steady returns are far more reliable than betting on Bitcoin’s erratic price movements.
In short, the price of Bitcoin has fluctuated wildly, returning to the same value as it was five years ago, while the value of farmland bought at the same time continued to rise at an annual rate of 4 to 10 percent.
Some still believe Bitcoin is a good investment
Despite the instability inherent to the crypto market, many still view BTC and other digital currencies as valuable investment propositions. After all, the cryptocurrency’s volatility presents an exciting opportunity for those seeking to generate high investment returns.
Although such instability can mean enormous gains for speculators searching for good short-term returns, with instability comes riskiness and uncertainty.
Why you might want to avoid Bitcoin
Although there may be a place in your portfolio for high-risk instruments, most investing experts recommend allocating only a small portion of your assets to risky bets. High risk usually means high volatility, which can spell long-term trouble for a poorly balanced set of holdings.
There are a few crucial reasons to avoid using BTC to anchor your savings and investments.
Correlation to the stock market
The early days of Bitcoin show an alternative asset class largely decoupled from the broader stock market. However, its correlation to the equity markets has increased significantly in the past few years as more and more consumer and institutional investors participate in cryptocurrency exchanges.
Bitcoin’s volatility can be a double-edged sword. Of course, timing your investments well to take advantage of the wild price swings can generate returns.
But only a tiny percentage of day traders consistently produce income. The rollercoaster ride of watching the value of your assets swing up and down is something to avoid.
Inadequate medium of exchange
Among the core functions of money is its ability to store value. Because of its volatility and susceptibility to market forces, it’s challenging to predict Bitcoin’s future worth.
This instability discourages individuals from holding onto risky investments for the long haul due to the fear of being exposed to drastic exchange rate fluctuation, making BTC a poor choice as an asset storage medium.
There are more reliable alternatives to BTC
Savvy investors typically look for solid returns, transparency in the investment process, low risk, and dedicated management. With these considerations in mind, most would be better off shying away from significant Bitcoin allocations in favor of a more secure alternative with steadier expected yields: farmland.
The Bitcoin market and its investors have lost more than $2 trillion in the past year and a half. Farmland has easily outperformed cryptocurrency over the same period, producing an average return in the U.S. of 9.6 percent in 2022, making it a better investment for those looking to grow their portfolio over time.
Aside from a short period in 2021 and 2022, $100 invested in Bitcoin at the beginning of 2018 would have been worth less at the end of 2022 than the same $100 invested in farmland. The near-constant up-and-down of Bitcoin highlights an asset class that’s significantly more volatile and produces lower returns than agricultural investments.
Here’s a closer look at why farmland is the better choice.
What makes farmland such a solid investment?
Although many see agricultural real estate as an under-the-radar investment, it appeals to those looking for actual inflation- and recession-resistant assets for their portfolio.
Unlike many other asset classes, including cryptocurrency, farmland has the potential to generate stable investment income through farming activities. On top of land value appreciation, agricultural products can provide a unique and reliable earning stream.
Why exactly is agriculture so appealing?
Over the past three decades, farmland performance has proven stable regardless of global economic sentiment. Its long-term value also tends to be recession-proof and inflation-resistant, and the fixed or declining amount of arable land in most areas combined with a growing population’s need to eat limit farmland’s correlation to the performance of the broader economy.
Backed by tangible assets
Farmland offers investors the opportunity to invest in a real asset that’s valuable beyond market trends. Additionally, values tend to increase due to population growth and urbanization, which create increased demand for sustenance and living space.
You only need to look at the skyrocketing farmland prices in the United States that has put farmland out of reach for many would-be American farmers as an indication of strong demand and limited supply.
Resilient, predictable, dual returns
Farmland’s double return streams offer a unique appeal to investors seeking predictable yields. Landowners benefit from stable or steadily increasing land values, and the fact that real assets anchor a good agricultural investment means it is unlikely to go to zero.
But there’s another component beyond the value of the land that makes farmland so attractive. The sale of produce or rent from farmers working the land also generates steady income for shareholders.
Where to find agricultural opportunities
Farmland can serve as a powerful hedge against inflation and a recession-proof lever for balancing your portfolio. However, as the developed world passes peak agricultural land and prices balloon out of reach for average investors, opportunities in nearby emerging markets will become increasingly attractive.
Colombia, for example, is a nearby location that benefits from a diverse yet favorable climate, sophisticated farming infrastructure, and easy access to both the Pacific and Atlantic oceans. Additionally, Colombia is in the middle of a historical economic shift away from extractive industries like oil and gas toward more sustainable ventures like farming and tourism.
Farmland as a Powerful Alternative to Cryptocurrency
Wild fluctuations in the price of Bitcoin over the past few years have led many to question its future. Although early investors may have realized significant returns, the current outlook seems highly volatile. This unpredictability is just one of several reasons many investors are avoiding Bitcoin as a lever for long-term growth of their portfolio.
On the other hand, investing in farmland is arguably a better, more durable option for investors looking to hedge against inflation and overall market risk. Farmland investments have historically provided dependable, steady returns that stand in contrast to the underperformance and market volatility other investments, like Bitcoin, have experienced.
This resilience offers an added security layer for investors looking for long-term, consistent profitability. Unlike Bitcoin, diversifying with farmland is an excellent way to anchor your portfolio against uncertain markets and create a reliable foundation to build financial success. To learn more about why a greater number of investors are choosing farmland over cryptocurrencies, fill out the form below and someone from our team will be in touch.