The pandemic has strained even the world’s greatest economies. Business closures, lack of trade, and travel restrictions have taken their toll on our collective finances. Unlike the great slump of 2007-2008, however, the immediate effects of this crisis are harder to identify.
One of the important aspects of this slump is that investors, supported by government handouts and stimulus checks, were able to keep their capital in the investment market. This meant that the S&P was able to bounce back much faster than in the early noughties.
The ‘07 slump compared to today
During the last great slump, quantitative easing did little to put cash into the hands of ordinary citizens. Instead, what we saw was a sluggish housing market and investment prices that took many years to return to their pre-crisis norms.
Brian Suder, real estate investor and owner of the Suder Company, points to historical data from 07-08 and explains that if you had proverbially put all of your eggs in one basket—the housing basket—you would have experienced severe losses. In fact, the middle classes who owned rental and investment properties were often the worst hit by the crisis. In a down market, with many unable to pay rent, it was the property owners who took a hit, declaring bankruptcy and having their properties foreclosed.
In a crisis, a common denominator is that cash-poor individuals are often forced to cash in investments they will need in later life—think pensions and long-term savings. In order to avoid this situation, Suder recommends protecting yourself from market shocks by investing in a spread of different assets.
Although Suder invests in bricks-and-mortar, he is not averse to dabbling in some of the more esoteric alternatives such as crypto-currencies. At a time when many traditional assets are unstable, to say the least, and people have declining confidence in institutions, many are turning to alternative forms of investment to strengthen their portfolios.
Crypto offers an alternative store of wealth
For millennia, physical objects like properties, gold, silver, and other precious metals have formed the basis of our stores of wealth. However, these physical objects are poised to be replaced by digital coins. With quantitative easing creating unwanted deflationary pressure that threatens to undermine the dollar’s value, change is inevitable.
Several governments worldwide are already looking at minting their own digital currencies as a replacement for fiat currency. The US dollar—universally accepted as the mainstay of worldwide currencies, for generations—may even be replaced by blockchain, with the US expressing interest in minting its own digital coins.
Suder sees Crypto as a hedge: a strategic alternative to the usual assets. Of the current crop of digital currencies, Bitcoin appears to be most useful as a store of wealth: ‘digital gold’, if you like. Etherium seems to have the most utility because of its plethora of uses in the DeFi, NFT and other markets.
Indeed, NFTs have revolutionized the digital art world, allowing once struggling artists to monetize their work and, in the process, create a lucrative secondary market for dealers. Blockchain’s ability to authenticate ownership has created a surge of interest in acquiring all sorts of art as an investment.
Crypto goes mainstream
Despite crypto’s relative newness in the market, there are signs that it is being adopted by many of the world’s leading companies. Tesla owner, Elon Musk, has reportedly exchanged $1.5 billion of company cash for Bitcoins.
Michael Saylor, CEO of the leading software company MicroStrategy, also invested the majority of his company’s cash assets into Bitcoin over his fears that the mighty USD is losing up to 15% of its face value, per annum. In a tweet, he also encouraged Elon Musk to invest even more of Tesla’s assets than he already had. Musk is reported to have replied he didn’t know that was possible and wanted to further pick Saylor’s mind.
Payment giants, Visa and Mastercard, are also hoping to facilitate payments with the use of digital currency. Although the technology was designed to avoid the need for an intermediary, these firms believe that adding a brand name will reassure users that the technology is dependable.
Finally, Coca-Cola has given its seal of approval to blockchain technology by offering its customers the option of paying with Bitcoin. In the future, we could see many crypto-enabled vending machines and services available for ordinary consumers. Given the low cost of paying with digital currency and the speed of transfers, some companies are rolling out crypto payrolls.
Don’t abandon the traditional stores of wealth
Despite the many advantages that digital assets offer, Suder still encourages investors to hedge their bets. There’s a reason gold has been so dominant and for such a long time: it holds its value, has an established secondary market, and is easy to convert into cash. Property, also, can’t be ignored.
With remote work creating a huge shift in working practices, many have decided to move to another location to enjoy a better quality of life. A recent ABC news article reported on the tens of thousands moving from New York to Florida, in pursuit of a better climate and lifestyle. The result has been a stark increase in house prices as wealthy New Yorkers try to buy up prime sites. Suder advises that there are still opportunities to buy properties for rent, turning idle cash into a viable investment.