Alexis Bienvenu

Virtual investments

On the face of it, nothing is more tangible and robust than real estate: it offers utility, income, a regulated environment, a long track record and market depth. In English even the name – real estate – reflects these qualities. In contrast, cryptocurrencies are the most virtual of investments: intangible, little used, abstruse for lesser mortals, offering no intrinsic revenue, little regulation and a limited track record.

However, investment real estate has seen gigantic sums evaporate in the space of a few months across the entire world, as if the valuations of recent years were ultimately purely virtual. This isn’t just the case in China where the bankruptcy of some of the largest real estate developers has provoked general mistrust, but holds across most developed countries, to the extent of destabilising some regional banks in the US and more recently in Germany, e.g. Deutsche Pfandbriefbank. In Sweden, one of the countries where real estate is under the greatest pressure, the central bank is closely monitoring a generalised risk to the banking sector. In France, more than 20 real estate investment companies (SCPIs) have been forced to downgrade the value of their shares since the beginning of 2023[1], generally by between 10% and 15%. And further downgrades have been announced at the start of 2024.

At the same time, virtual currencies are skyrocketing. The price of a Bitcoin hit USD 63,000 at the end of February, rising by close to 50% since the beginning of the year, approaching the 2021 record highs of over USD 67,000. So a purely virtual asset holds its value better than the soundest real asset when interest rates rise? Is a digital asset worth more than bricks and mortar?

Of course, some of the characteristics of virtual currencies are to their advantage – transactions are relatively easy when compared with real estate, the price is adjusted real-time, there is a growing diversity of vehicles, and traded volumes are on the rise, etc. The US regulator has just accepted the creation of funds focused on Bitcoin, which have seen several billions of inflows in two months[2]. In addition, virtual currencies make no secret of their volatility, so there is a certain transparency to the risk involved. In contrast, investors sometimes tend to underestimate the risk of physical real estate, where volatility is seen only in bursts and is hidden the rest of the time. Real estate risk is not regular, but it erupts or is “wild” as the mathematician Benoît Mandelbrot wrote.

That said, although the risks inherent in purely virtual assets are obvious, they are not necessarily properly understood. How else can we explain Bitcoin’s 520% rise in seven months[3] followed by a fall of 75% in a year[4] other than as primarily speculation? Whilst the risk in real estate is of course partly hidden, at least it corresponds to relatively intuitive data, primarily interest rates, building quality, location and the solvency of the tenant. Meanwhile, the risk in virtual currencies seems very difficult to link to fundamental parameters thus far.


The unrooted nature of Bitcoin is one of the main arguments against it that is developed in the recent pamphlet by two authors from the European Central Bank[5]. They state that the fundamental value of Bitcoin is zero, given that it has no intrinsic return or other sustainable and legitimate use! Yet investors clearly reflect little on the risk that the value of Bitcoin could one day fall to zero. In this respect, savers’ perception of its profound risk is not necessarily adequate. On the other hand, the risk in real estate is fundamentally limited – how could real estate assets be worth nothing, even if of mediocre quality?

There is therefore every reason to believe that the real will ultimately regain the upper hand over the virtual in investor preferences, once prices have adjusted – admittedly this could take a while. The purely virtual will remain uncontrollable as long as it is without any fundamental value. Unless we count as fundamental, the pleasure of speculation, the utility of a currency for illegal trading, or, above all, mistrust of state currencies. If these three factors count as fundamentals, then there is little chance that the value of the Bitcoin will one day fall to zero. Thus real and virtual assets each have their place – providing we discriminate between their respective (de)merits.



Final version of 1 March 2024. Alexis Bienvenu, Fund Manager, LFDE



[1] Les Echos, 18 January 2024
[2] Bloomberg, 29 February 2024.
[3] Between 23 September 2020 and 15 April 2021, source Bloomberg
[4] Between 9 November 2021 and 9 November 2022, source Bloomberg
[5]ETF approval for bitcoin – the naked emperor’s new clothes,” ECB blog, by Ulrich Bindseil and Jürgen Schaaf, 22 February 2024