Protecting Your Crypto Assets From Unexpected Dips With DeFi: Real Estate And Other RWAs
The start of 2024 looked like it would be a banner year for the cryptocurrency market. Bitcoin surged to all-time highs in the months preceding the halving, Solana rocketed from under $100 to a little over $200, and new multi-billion dollar meme coin projects were being created daily.
News from the ‘real world’ threw fuel onto the fire lighting up the marketplace. The FTC approved Bitcoin ETFs, which allowed major financial firms to get in on the action. Bitcoin volume multiplied nearly overnight, with transactions measured in billions of dollars taking place daily.
Unfortunately, the golden bull run many investors were crowing about was not to last. Volume slowed to a trickle in the weeks leading up to the halving as the initial rush wore off. Consequently, many skittish investors began to wonder why price movements were relatively lackluster despite the spike in demand.
This uncertainty began seeping into the markets, with trigger-happy investors who had expected prices to triple deciding to hedge their bets and take profits early. This initial sell-off flipped sentiment like a light switch, sending previously bullish traders into a panic.
The panic cascaded through the marketplace, sending entire ecosystems into a tailspin. Solana lost nearly 40% of its value in a few short days, taking many of the most profitable meme coins down with it.
April marked a lackluster month for the crypto sphere, with Bitcoin stabilizing around the mid- to low-$60,000 range. Even the opening up of Bitcoin ETFs in Asian marketplaces like Hong Kong hasn’t been enough to break the market out of its current holding pattern.
This hum-drum atmosphere has done nothing to alleviate the apprehension in the marketplace as even experienced traders scratch their heads, trying to make sense of things. Needless to say, this kind of uncertainty will not bode well in the coming months.
This kind of volatility is nothing new for the crypto marketplace, as any trader worth their salt will tell you. How you handle this volatility separates the profitable trader from the degen trader, who is just as likely to lose everything as you are to make money on any given day.
Crypto markets offer a few significant hedges against volatility. The most common are stablecoins, which are cryptocurrencies that are pegged to the value of the U.S. dollar. Stablecoins do come with some drawbacks, as they provide limited opportunities to increase your net value by putting that money to work.
The DeFi community’s answer to the volatility problem comes in the form of tokenized real-world assets, or RWAs. DeFi companies take real-world assets like gold bullion or artwork and digitize their value in the form of tokens, similar to how buying a stock represents a percentage ownership of a company.
RWAs take many forms, with some companies like RealT even offering fractional real estate ownership with their RealT Tokens. Each token represents a percentage ownership of a rental property, which means buyers don’t just own a portion of the building but also a percentage of the monthly rental income.
The months ahead are a major trial period for the crypto marketplace. If Bitcoin can break out of its current holding pattern, we might see a return to the euphoric rush seen in 2021. If not, we’re likely in for a bumpy ride until interest rates are dropped to pre-2023 levels, a process that could take years.
Now is the time to start taking action to protect yourself and the money you’ve invested into the crypto marketplace by hedging against volatility. By investing in RWAs like RealT that pay out monthly, you can both hedge your bets and gain a nice monthly income stream. Happy investing!