DECEMBER 30, 2021 12:00 AM BY PETER REX
President Joe Biden has made narrowing the racial wealth gap one of his administration's top priorities. Yet, the White House is advocating more government programs when it should be getting government out of the way. By repealing outdated restrictions on who can invest, Washington, D.C., can empower more minority communities to build wealth and overcome historical injustice, especially through promising technology such as blockchain.
To understand the need for action, consider the consequences of so-called “ redlining .” From the 1930s to the 1960s , the federal government frequently denied mortgages to residents of mostly African American, Latino, and Native American neighborhoods, stopping millions of people from buying homes and establishing a financial foundation on which they and their descendants could build generational wealth. This policy, like many others, caused damage that has cascaded over time — see lower minority homeownership rates and lingering and large wealth gaps . Many communities have been kept to the lower rungs of the economic ladder if they were even allowed on at all.
Enter blockchain. It doesn’t know or care what color you are. It can lower the bar to entry for financial investments and keep costs low or even nonexistent. Simply put, blockchain opens the door to the kind of financial opportunities that have historically been out of reach. Minority communities already recognize blockchain’s usefulness: They account for nearly half of all cryptocurrency owners , and African Americans and Latinos are more likely to use it than others .
Yet, cryptocurrency is only a small part of blockchain’s potential. Perhaps the biggest opportunity remains elusive: using blockchain to make investments outside of stock exchanges, including startups, nonpublic businesses, and real estate. The federal government currently restricts those transactions to individuals making $200,000 in two successive years (or married couples making $300,000) or with a net worth of more than $1 million — so-called “ accredited investors .” To make these investments, you already have to be rich.
Yet, many minority communities have found it hard to clear those financial hurdles because of discriminatory policies such as redlining. That means they’re being cut off from incredible wealth gains simply because they didn’t start with the same advantages. A stunning 90% of the world’s millionaires achieved that status through real estate investing. And once someone can make these investments, wealth can become self-perpetuating, as returns often run much higher than traditional stocks . It’s the definition of the rich getting richer because they often have uniquely lucrative investment opportunities, with the added injustice that many who aren’t rich could be, had they and their families not faced discrimination.
The current system encourages these investments to be large, often to the tune of hundreds of thousands or millions of dollars. Yet, blockchain goes the opposite direction, enabling smaller investments and participation from virtually anyone. It does so by allowing people to “tokenize” assets, including stock or property, which can then be bought and sold either in whole or in part at price points open to everyone.
The real estate market shows the opportunity. With a total value of at least $280 trillion , real estate has almost always been the chosen investment of the rich and privileged. Yet, blockchain can empower people of any income to buy part of a home or an apartment building at the price that’s right for them — even if it’s just $1 or a couple of hundred dollars. They could watch their wealth grow as that investment appreciates while freely using it as collateral for home loans and other lines of credit. Homeowners could also sell shares in their own property, giving them ready liquidity for other investments.
By using blockchain, those who’ve been held back would find far more lucrative and far more affordable opportunities to build their wealth. But affordable investing doesn’t matter if it’s not accessible, which is currently the case. It’s time to loosen federal restrictions on who can invest in nonstock-market assets. Even if blockchain didn’t exist, those restrictions would deserve to be rethought. Yet, blockchain’s incredible potential makes the case for a reexamination even more clear.
We have an opportunity and obligation to empower everyone to rise, especially those held down in the past. For the federal government, giving them the freedom to build wealth through blockchain is a move worth making.
Peter Rex is the founder and CEO of Rex, an ecosystem of technology businesses that includes a startup at the intersection of real estate and blockchain.