Think Investor. Can real assets buoy interest?

There seems to be a rush to digitise financial assets. Non-fungible tokens (NFTs), derivatives on cryptos, and now, several asset management companies in the U.S. are tokenising mutual fund investments. In this article, we look at why the interest in real assets may not wane despite the increasing interest in digital assets.

Divergent interests?

It is not uncommon for individuals to buy both insurance and lottery tickets. The former indicates an individual is risk averse whereas the latter suggests that the same individual is risk seeking. This suggests we can be aggressive in certain areas and very conservative in other areas of life.

It is in this context you need to appreciate the interest in real and digital assets despite contrasting characteristics.

The interest in digital assets can be attributed to two factors. One, young professionals prefer to take exposure to new investment products. And two, digital assets appear to be more secure, given the arguments supporting blockchain technology. The interest in real assets is behavioural. For one, real assets are touch-and-feel assets, unlike financial and digital assets.

So, there is a strong feeling about ownership. For another, such assets typically double-up as consumption and investment assets. Take antiques. You can ‘consume’ them as personal effects. When you are ready to part with the assets, you can sell them at a higher price. It is, therefore, moot if the recent interest in digital assets will reduce the appetite for real assets.

Conclusion

Digital assets could gain more traction in the coming years. But it is unlikely to lead to fading interest in real assets. For one, sceptics of digital assets will continue to prefer real assets. For another, followers of digital assets may want to invest in real assets to ‘diversify’ their interests. Also, the supply-side constraint for real assets is more ‘real’ than that of digital assets. Antiques, for instance, command high value because they are rare (supply-side constraint) and at least 100 years old.

Of course, the supply of, say, bitcoin is controlled. But such constraint is more policy-driven than a ‘real’ factor, as in the case of antiques or land. The upshot? The novelty factor will drive the demand for digital assets; real assets may continue to attract interest because of their behavioural attributes.

(The author offers training programme for individuals to manage their personal investments)

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