An increasing number of Millennials are choosing cryptocurrency over traditional savings methods in a bid to get into the runaway property market.
One financial expert, however, said investors should enter the asset class at their own risk.
According to new research by Kraken, a San Francisco-based digital asset exchange, 22 per cent of Australians believe investing in cryptocurrency is an easier way to hit their deposit goals than leaving their savings in a bank earning record low interest.
“I think a large percentage of young people are feeling – especially in the context of this growth we’ve been seeing in property – that it’s become such a hard market to crack,” said Jonathon Miller, Kraken’s Australian managing director.
“Australians still maintain some conservative attitudes toward investment. Property has been a cultural norm and high on the wish list for most investors, but as affordability continues to be an issue, we’re seeing more young people look for other options to grow wealth,” Mr. Miller said.
The same survey showed more young Australians are becoming disillusioned by typical investment options, with 39 percent of Millennials saying cryptocurrency was a “good alternative to buying an investment property”.
A digital attraction
With property values rising at their fastest pace in decades, anyone not already on the property ladder is seeking out ways to catch up according to Mr. Miller.
“Younger people are fundamentally locked out of the property market. You rarely hear stories of young people buying houses without parental support, whereas you can absolutely get into crypto without third party support,” he said.
“People are looking at ways to grow their wealth and 22 percent of our respondents across the board – not just young people – believe that investing in crypto is an easier way to save for a mortgage deposit,” he said.
Mr. Miller said as the entry level for investing in bricks and mortar continued to rise, cryptocurrency offered a much lower starting point.
“I don’t think people are necessarily saying ‘I’m going to put everything into it’ but they’re looking at it as an option in terms of how they’ll grow their wealth. Otherwise, what are the options in the market now for saving? They’re few and far between,” he added.
Who’s cashing in?
Baby Boomers, however, are taking a ‘wait and see approach’ according to the Kraken study. Results revealed that 47 percent of older Australians said they hadn’t invested because they felt the asset class was too volatile.
“In general, I think there’s an appreciation that crypto is volatile and that it wouldn’t be necessarily appropriate for everyone,” Mr. Miller said.
“One of the really interesting things for me in this study was that even though people know this, 84 percent of people who currently own crypto plan to buy more. That’s evidence that people are willing to accept the volatility,” he said.
Additional results showed that 39 per cent of 18- to 35-year-olds said they hadn’t invested because they didn’t have the funds, while 29 percent of Millennials admitted that they didn’t know how.
“Younger Australians are changing the dynamic and with more education we expect the broader market to come around to the idea of investing in cryptocurrency,” he said.
Aussie swimmer Cam McEvoy is offering to accept Bitcoin for his $1.1m Gold Coast pad in a bid to reinvest his money into cryptocurrency.
He purchased the four-bedroom, three-bathroom property for $1.1m after returning from the Rio Olympics in 2016, at the height of his swimming stardom. The physics and mathematics students began researching and trading in the cryptocurrency market in late 2017.
“I wanted to do something that was considered a little bit unique in terms of offering for the house to be paid for in crypto, or in Bitcoin more specifically,” McEvoy told The Courier Mail.
“I see that on another angle as a good investment as well, converting my initial investment with a property into something like Bitcoin.”
Proceed with caution
Chris Bates, co-host of property podcasts The Elephant in the Room and co-founder of financial advisory Wealthful, warned that FOMO could be leading some first-home buyers into uncharted investment territory.
“I think people feel like they’re such a long way from homeownership and it’s going to take them a really long time to build up enough savings to then keep up with the market,” Mr. Bates explained.
But it’s not as much as people may think; you only need to save about $15,000 for every $100,000 the market goes up.
“It’s when a first-home buyer doesn’t really understand what they need to do to buy, that they can just think it’s so unattainable and turn to other ways to invest,” he said.
Mr. Bates said first-home buyers who are looking at alternatives to beef up their home loan deposits should shop around and do their homework before diving into the deep end with cryptocurrency.
“In my opinion, what crypto unfortunately does is have returns that are so staggering that it sorts of plays into that idea of ‘I can make a lot of money!’ and then there is this positive feedback loop around it. People are just taking enormous risks without really understanding it,” he said.
Avoid the rollercoaster ride
When it comes to cryptocurrency success and failures — the Wealthful financial Adviser has seen some clients catapult themselves into home ownership with the help of the cryptocurrency market.
However, he doesn’t believe there has been enough long-term analysis done on the market forces yet.
“We’ve seen first-home buyers lose $20,000 to $30,000 of their savings during the last big crypto crash, which for them was a lot of money. But we’ve also seen people on the other side of it,” Mr. Bates said.
“I had a client who bought crypto after the last crash, but who didn’t get greedy and sold out. They then bought their first house with a million-dollar deposit,” he said, adding that he also believed that luck played a large part in many cryptocurrencies' success stories.
“It’s not a skilled investment, it’s about timing. Even someone who bought shares last year probably thinks they’re a great investor right now – but they just bought shares after a market crash. They think that’s just what’s going to continue, and that’s the recency bias,” he said.
“We’ve seen with cryptocurrencies that they can drop dramatically in literally minutes – 20 to 30 per cent in a day – rather than over a few months. So, you can very quickly get burnt because you just don’t know when that day is going to come.”
RealEstate.com
