Consider Bitcoin as a superior store of wealth for real estate investors.
Consider Bitcoin as a superior store of wealth for real estate investors.
The Growing Importance of Bitcoin as a Digital Store of Value: A Real Estate Perspective
By Leon Wankum, a HODLer active in real estate and venture capital with a master’s degree in financial economics
Real estate has long been considered a reliable store of value, with property prices around the world skyrocketing since the 1970s. This rise in value coincided with the shift from the gold standard to a fiat-based monetary system. As central banks adopted floating exchange rates and increased the money supply, real estate became the primary asset to store value and protect wealth from inflation. Today, an estimated 67% of global wealth, valued at around $330 trillion, is held in real estate (Bitcoin Magazine).
Traditionally, people owned real estate for its utility value, as a place to live or use for production. However, in recent years, wealthier individuals and institutions have turned to real estate as a means to store their value. The low to negative interest rate policies implemented globally since 2008 have also prompted investors to withdraw their savings from banks and seek alternative investments (Bitcoin Magazine).
Yet, the macroeconomic and geopolitical challenges faced in recent times have exposed the weaknesses of real estate as a physical store of value. The benefits of bitcoin as a digital store of value have become increasingly evident. For instance, during the Ukrainian-Russian conflict in 2022, some Ukrainians turned to bitcoin to protect their wealth as they fled their homes, while real estate had to be left behind. This underlines the immobility and vulnerability of real estate in times of conflict (Bitcoin Magazine).
Bitcoin, on the other hand, offers unique advantages as a digital store of value. It is relatively easy to maintain, does not require daily upkeep or repairs like real estate, and offers the option of self-custody. While real estate can be destroyed or confiscated, bitcoin, being a digital commodity, cannot be physically lost. Moreover, the security provided by the Bitcoin network surpasses that of any other digital infrastructure due to its decentralized nature (Bitcoin Magazine).
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Furthermore, bitcoin’s digital nature makes it more challenging to tax, thereby offering protection against oppressive taxation policies seen historically and in totalitarian states. Real estate, due to its physical presence, is an easy target for taxation. Bitcoin, being digital, poses greater challenges for states looking to confiscate wealth. This protection against confiscation is especially crucial in times of crisis or geopolitical turmoil (Bitcoin Magazine).
The risk of property confiscation and the ability to flee during times of conflict were painfully witnessed during the Holocaust, where Jews faced the constant fear of property seizure and the inability to escape Germany. Bitcoin, as a digital asset, offers true ownership and the potential to escape with one’s wealth intact. Owning bitcoin provides individuals with control over their assets, as long as they remember their wallet’s backup phrase (seed phrase) (Bitcoin Magazine).
In terms of value appreciation, bitcoin has significant potential compared to real estate, which has already experienced significant growth as a store of value. Bitcoin’s limited supply and exceptional monetary properties make it a direct competitor to real estate in terms of storing value. Should bitcoin absorb just 10% to 15% of the real estate market cap, it could become a $30 trillion to $50 trillion asset. With a fixed supply cap of 21 million bitcoins, such demand could result in substantial price increases (Bitcoin Magazine).
Real estate investors can adopt various strategies to accumulate bitcoin while still maintaining their core business. One strategy is using a portion of their profits to buy bitcoin, ensuring they benefit from bitcoin’s growth without impacting their existing real estate operations. Another approach involves using rental income from real estate properties to accumulate bitcoin. Bitcoin, being disinflationary, helps protect rental income from the erosion caused by monetary inflation (Bitcoin Magazine).
For real estate investors who have already paid off a significant portion of their real estate debt, selling real estate to buy bitcoin becomes a viable option. This strategy allows investors to capitalize on bitcoin’s potential while protecting their wealth from the uncertainties associated with real estate. Lastly, real estate investors can leverage the value of their properties to acquire bitcoin, taking on debt secured by the real estate itself. The rental income generated can be used to service the debt, while bitcoin appreciates long-term (Bitcoin Magazine).
However, it is important to exercise caution and manage risk when pursuing these strategies. The volatility of bitcoin means investors should diversify their portfolio and consider using only a portion of their profits or rental income to accumulate bitcoin. Additionally, tax implications should be carefully considered, especially when bitcoins are owned through a company or real estate is used as collateral for borrowing to buy bitcoin (Bitcoin Magazine).
Despite these challenges, real estate investors can benefit significantly by incorporating bitcoin into their investment strategies. Property owners can protect themselves from geopolitical and macroeconomic issues while positioning themselves for long-term wealth preservation and growth. Bitcoin offers an alternative to the traditional financial system while providing increased liquidity and creditworthiness potential. It represents an opportunity to embrace the digitization of property and take advantage of the compelling risk-reward potential of bitcoin (Bitcoin Magazine).
In conclusion, bitcoin’s emergence as a digital store of value presents new perspectives for real estate investors. While real estate provides income and leverage opportunities, bitcoin offers secure digital custody, ease of maintenance, and the ability to relocate with one’s wealth intact. By adopting bitcoin strategies such as using profits or rental income, selling real estate, or leveraging property value, real estate investors can capitalize on bitcoin’s exponential growth potential while safeguarding their wealth from conflicts, confiscation, and inflation (Bitcoin Magazine).
As the world undergoes a digital transformation, the convergence of bitcoin and real estate offers novel opportunities for wealth preservation and growth. The digitization of property will create a more accessible and efficient financial system, empowering individuals to store value and build wealth in unprecedented ways. Real estate investors who recognize and embrace this paradigm shift will position themselves for success in the evolving landscape of global finance (Bitcoin Magazine).
(This is an opinion editorial by Leon Wankum, a HODLer active in real estate and venture capital with a master’s degree in financial economics. The opinions expressed here are his own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine).