Bankless advocates combining "real estate" as the best leverage strategy to deal with the extreme fluctuations of crypto assets.

The cryptocurrency research institution Bankless analyst Lucas Campbell recently published his insights on the future investment market, explaining his favored barbell investment strategy.

Original Article: "The Best Barbell Strategy for Crypto Natives"

The barbell strategy is an investment concept that involves simultaneously making highly risky investments and risk-free investments in the same investment portfolio, while avoiding investments in any assets with intermediate risk, thereby achieving "limited losses" and "unlimited gains." This strategy was proposed by Nicholas Taleb, the author of "The Black Swan."

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In the article, Lucas Campbell outlined the reasons why assets such as cash, bonds, and stocks are no longer attractive in the market, and he believes that real estate is the best investment strategy to balance cryptocurrencies.

What are the investment options?

Lucas pointed out that while the cryptocurrency market holds high expectations for the future of digital assets and leverages can quickly accumulate wealth, as a wise investor, it is worth considering hedging their volatility in a bear market.

Among the investment options in the chart below, the potential growth in returns also comes with higher risks.

Cash, US Dollar

Lucas quickly touched on the part about cash. With savings accounts offering an average interest rate of only 0.06% and the US dollar's circulation increasing by 37% since last year, the inflation narrative has shifted from "won't happen" to "temporary" and now to "more severe than expected."

Countries are printing money at an unprecedented pace. He believes it may be sufficient to keep only emergency funds in an Oh Shit Fund, perhaps supplemented with a few months of liquid cash. If one chooses to hold a large amount of US dollars, it may be doomed to fail over the next decade.

Bond Market

Bonds were swiftly passed over as Lucas emphasized that he burst into laughter when writing about bonds:

• One-year US Treasury bond yield: 0.1%
• Five-year bond yield approximately 1.0%
• Ten-year bond yield 1.5%
• Thirty-year bond yield 2.0%

Even the US ten-year Treasury Inflation-Protected Securities (TIPS) yield has dropped to -1%. He considers the bond market a joke and, given market trends, does not foresee any meaningful growth in the future.

Stock Market

Lucas pointed out that while the US stock market offers long-term sustainability and moderate returns, for cryptocurrency investors looking to create a balanced leverage strategy, cryptocurrencies already represent a high-risk element, necessitating another low-risk asset to complete the leverage strategy.

Since the era of quantitative easing, stocks such as GME, AMC, TSLA, etc., have experienced sudden surges and drops. Although investment strategies akin to Warren Buffett's may still yield substantial returns, the returns pale in comparison to meme stocks and tech stocks.

Therefore, the stock market has evolved into a low-volatility casino similar to the crypto space, where investors see lower returns due to similar correlations, making it not worth the try.

Considering the above viewpoints, Lucas believes that a combination of cryptocurrency and real estate will be the best leverage strategy for the next decade.

Two Scarce Assets

Real estate, gold, and Bitcoin are all scarce hard assets. Bitcoin's constant total supply of 2,100 represents only 0.0025 BTC per person globally.

The argument for real estate is surprisingly similar, with approximately 15 billion acres of habitable land on Earth. This equates to about 2.3 acres per person, just like any hard asset as defined by the Austrian School of Economics, no one can physically create more land on Earth.

Advantages of Real Estate

1. Stable Returns, Flexible Leverage

Lucas pointed out that many have been highly skeptical of real estate investments since the 2008 financial crisis, but real estate performance has been relatively stable and reliable over the past decade, and this is expected to continue in the next ten years.

Furthermore, assuming a property valued at half a million dollars is purchased with a hundred thousand down payment, this is akin to opening a low-interest five times leverage. Looking at the average annual return of 3.5 – 4% for US properties, the annual return would be $17,000 to $20,000.

If one calculates the annual return based on the principal of a hundred thousand plus the required mortgage and interest payments as costs, the annual return would be 17.5-20%, rather than the apparent 3.5 – 4%.

2. Practicality

Real estate is not only an attractive low-risk investment, unlike NFTs, it has real utility. When you choose to rent a property, you are burning money for short-term utility without ownership. However, every mortgage payment made after buying a house accumulates more ownership in that property over time.

3. Cash Flow

Referring to the cash flow generated from renting, Lucas believes that rental income usually covers the mortgage payments, allowing asset ownership to accumulate while handling issues like property maintenance.

Risks of Leverage Strategy

What if the market crashes?

Lucas pointed out that many people have feared real estate since the 2008 financial crisis, but real estate is often a relatively safe haven. It is considered a "non-liquid asset" and would be the last to collapse. Conversely, the public would sell liquid assets like cryptocurrencies and stocks to weather the storm.

Why not pursue stablecoin financial products with high returns?

Lucas believes it is possible, but one must face widespread risks associated with cryptocurrencies, such as regulators targeting DeFi, USDC, DAI, or lending products like BlockFi, Coinbase Lend, and even smart contract failures, etc.

Real estate, on the other hand, is an area completely unrelated to the cryptocurrency market.

What about Metaverse assets?

Lucas simply replied with a "No."

Building Wealth in the Next Decade

He believes that for those holding a significant amount of cryptocurrency assets and seeking other diversified investments, real estate may be the best option. He suggests trying to cash out a small portion to pay for a down payment and take on a mortgage.

Stocks, bonds, commodities, and cash are no longer attractive to cryptocurrency investors, either offering low returns or having too high correlations. However, many people may have overly allocated their cryptocurrency assets. He believes cashing out a portion and investing in other areas is a good move to weather the next bear market over the coming years.

He concluded that real estate interestingly balances the asset allocation of cryptocurrency investors, perfectly combining two scarcity games: "digital and physical real estate." Investors who can play these two games well may likely become the most successful people in the world in the next decade.