The crisis that has just hit the cryptocurrency market is worrying investors. However, we must be careful not to put everything in the same basket.
The crisis that has just struck the market for cryptocurrencies, with the bankruptcy of the FTX platform, worries investors, and that’s normal. Nevertheless, we must be careful not to put everything in the same basket, everything related to the blockchain is not toxic, quite the contrary. Let’s go back to the basics.
Not all tokens are cryptocurrencies!
What is a token? The token is a token, a account unit, which exists on a decentralized register: this register is called the blockchain. This unit of account can express what you want. There are a myriad of tokens, they can be utilitarian, service, securities… They are simply linked by common characteristics and must in particular be transferable and divisible. The NFT (Non Fungible Tokens), are a kind of token, they have the same characteristics but are not fungible, they represent something that cannot be split, like a work of art.
The very first token was the bitcoin, the most popular cryptocurrency and this is where the confusion comes from. In other words, all cryptocurrencies are tokens, but not all tokens are cryptocurrencies! Cryptocurrency is just one application of blockchain and it’s not the most interesting one.
Example of tokens in real estate
Real estate tokenization involves dividing a property into several fractions and selling them. As you cannot divide a building or a house, you create a company backed by the property. The company can then issue shares. The investor is therefore the owner of a share which represents a share of the property. Tokenization simply means that these actions are represented by tokens and that they are recorded on the blockchain: the decentralized digital ledger mentioned earlier.
One security token, or in plain English, a security token, therefore has nothing to do with a cryptocurrency, and will therefore in no way be directly affected by the crisis raging in this market. This token has the same rights, requirements and restrictions as a stock. The tokens of security are RWA, “Real World Asset”. Unlike cryptocurrencies which are not based on anything, here the tokens are backed by a very real asset.
Tackling the real estate crisis with security tokens
Today, we also fear the arrival of a real estate crisis. Household purchasing power is falling, interest rates are rising, banks lend less and less easily, … So how to navigate in this context of threat of real estate crisis?
- Residential real estate, an investment to combat theinflation
Real estate remains a huge market, with many types of assets available. In real estate, it is customary to say that the investment is essential, but the timing is also essential. Indeed, real estate cycles are longer than financial cycles but they exist. Depending on the timing, certain assets will therefore be more relevant than others. You have to position yourself intelligently, anticipate. If a housing crisis really explodes, people will still need housing and will therefore simply downgrade, but the demand will still be there. Investing in residential real estate remains a good way to protect savings from inflation.
- Liquidity, removal of barriers to entry and compound interest
There is no magic: the value of a security token is intrinsically linked to the real estate market. Nevertheless, it has some advantages. Tokens are extremely liquid. They make it easy to enter but above all to be able to exit as soon as the investor needs liquidity, without an intermediary. Tokenization also makes it possible to issue shares at lower prices, so entry barriers are removed because you can invest from 50 euros. The security token is also a good tool for diversification, because the blockchain makes it possible to invest in real estate around the world.
Investing in shares allows you to benefit from compound interest. This mechanism is theoretically not possible with real estate investment which only offers a simple income, the rent. But with tokens, the rents collected can be automatically reinvested in other tokens, which will themselves generate rents.
We can choose whether or not to believe in cryptocurrencies, but tokenization is a virtuous movement that is not about to stop.
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Why the Cryptocurrency Crisis Isn’t a Blockchain Crisis
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