Every Real Estate Investor Should Own Bitcoin – Bitcoin Magazine
This is an opinion editorial by Leon Wankum, one of the first financial economics students to write a thesis on Bitcoin in 2015.
Prologue
The following article is part of a series of articles where I aim to explain some of the benefits of using bitcoin as a “tool”. The possibilities are endless. I picked out three areas where bitcoin has helped me. Bitcoin helped me take my entrepreneurial work to the next level by allowing me to easily and efficiently manage my money and build savings. This allowed me to build up my confidence and look to the future with more optimism. I have developed a lower time preference, which means I value the future, which makes me act more consciously in the present. All of this has had a positive impact on my mental health.
When I was new to Bitcoin, so many people helped me that I want to share some of my positive experiences with you. The three-part series includes this article, aimed at real estate investors, as an introduction. Part two looks at the positive implications for mental health and general well-being when adopting a “bitcoin standard”, for example using bitcoin as a unit of account. Part three will explain why bitcoin is a better savings vehicle than an exchange-traded fund (ETF), which has been one of the best inflow savings vehicles in recent decades, and the positive impact bitcoin can have on retirement savings.
Why Every Real Estate Investor Should Own Bitcoin
Bitcoin is digital real estate and should appeal to any real estate investor as such. Real estate exploits scarcity in the physical realm. Bitcoin introduced scarcity to the digital realm.
Bitcoin established the first instance of digital ownership. Bitcoin is digital property. Digital property law brings the connection between the internet and the economy into modernity. Therefore, real estate investors whose business is the acquisition and construction of physical real estate are destined to hold bitcoin as it is the digitized form of physical real estate. This statement may surprise you, but who would have thought in 1995 that most retail stores would eventually also have a digital business in the form of a website or e-commerce store? Of course, e-commerce sites and retail stores are more similar than bitcoin and real estate, but that is the best comparison to show the need for real estate investors to get involved in bitcoin. I find such comparisons useful to explain complex and new technologies like Bitcoin in an understandable way and to show why the adaptation of such a technology is important.
As I explained in my article “Why Bitcoin is Digital Property”, one of the many things real estate and bitcoin have in common is that they both act as a store of value. In theory, it is desirable to own property because it generates income (rent) and can be used as a means of production (production). But for the most part, real estate now serves a different purpose. Given the high levels of monetary inflation in recent decades, simply keeping money in a savings account is not enough to preserve value and keep up with inflation. As a result, many people – this includes wealthy individuals, pension funds and institutions – typically invest a significant portion of their disposable cash in real estate, which has become one of the preferred stores of value. Most people do not want property so that they can live in it or use it for production. They want property so they can store value.
However, real estate cannot compete with bitcoin as a store of value. The characteristics associated with bitcoin make it an ideal store of value. Its supply is limited, it is easily portable, divisible, durable, fungible, censorship resistant and non-custodial. It can be sent anywhere in the world at almost no cost and at the speed of light. On the other hand, property is easy to confiscate and very difficult to liquidate in times of crisis. This was recently illustrated in Ukraine. After the Russian invasion on February 24, 2022, many Ukrainians turned to bitcoin to protect their wealth, take their money with them while fleeing, meet their daily needs, and accept transfers and donations. Properties had to be left behind and were largely destroyed. This could mean that when bitcoin has reached its full potential and people around the world understand that it is a superior store of value compared to real estate, the value of physical real estate may collapse into utility value and no longer carry the monetary premium of being used as a store of value. It may take a long time, possibly decades, but the probability is there. Therefore, it makes sense for you as a real estate investor to get involved in bitcoin at an early stage. It is well known that those who adopt new technologies first will have the greatest advantage.
Source: Bitcoin Magazine
Property investors are experts in using existing properties as collateral to take out debt for the purchase and development of new properties. As I described in my article “Is Leveraging Legacy Assets to Buy Bitcoin a Good Strategy?” using existing property to consolidate debt and buy bitcoin is potentially an even bigger business opportunity as the value of bitcoin is likely to grow faster than the property. Thus, a higher return can be achieved. Real estate (fully rented properties) is the perfect collateral to take on debt to buy bitcoin since rent generates income. Therefore, you never have to sell your bitcoin to pay off debt, instead you can use the rental income. If my forecast seems too bullish for you, you can also use a small part of your real estate portfolio for such a project, so the risk is relatively low, but the upside potential is still high.
This should not distract from the profitable business of property development. I’m not asking you to stop developing real estate, I’m asking you to add a bitcoin strategy.
Property development is highly dependent on the ability to build creditworthiness. Bitcoin can help here as well. The continued use of bitcoin is driven by its superior monetary properties. The increasing adoption is accompanied by a price increase as the supply of bitcoin is limited. There is a positive feedback loop between adoption and price. When demand increases and supply remains almost constant, the price must increase – mathematically. For you as a property developer, this means that the more bitcoin you own, the more security you have to finance property construction in the future. Bitcoin should be part of every real estate investor’s strategy as it is a pristine security that will help you build your credit over the long term.
The common sense of using your property as collateral to borrow money and buy bitcoin can solve another problem: liquidity. Property is an illiquid and immovable property. In German, property translates to “immobilien”, which literally means “to be immobile”. Using your fixed liquidity in your income-generating properties to buy bitcoin can be a good business opportunity – and an option to protect your wealth from confiscation should you have to move. Of course, you could just sell real estate to buy bitcoin, but that’s a bad idea for two reasons. First, income-producing property is historically made by buying it and holding it for the long term. Second, a real estate investor typically purchased a property with a loan, so the rental income is needed to service existing debt obligations.
Conclusion
I believe that the “worlds” of real estate and bitcoin will merge sooner or later. Both assets share similarities and complement each other. Property is an income-generating asset (rent), but it is very immobile. Bitcoin does not generate income, but is highly liquid and mobile. The two are a good match.
Bitcoin’s volatility should not distract from the opportunity it represents. Those who rejected the Internet missed one of the greatest business opportunities of their lifetime. Those who reject bitcoin will likely face the same fate.
In addition, we will most likely not see the same type of return on real estate investments as we have in the past. Since 1971, house prices have increased almost 70 times. This corresponds to the “Nixon shock” of August 15, 1971, when President Richard Nixon announced that the United States would end the convertibility of the US dollar into gold. Since then, central banks began to operate a fiat money-based system with floating exchange rates and no currency standard.
The monetary inflation rate has risen steadily since then. Real estate served as a resource for many to preserve the value of their money. However, bitcoin serves this purpose much better. This can result in two things: Firstly, property can lose its monetary premium by being used as a store of value. Second, if bitcoin (digital property) continues its adoption cycle and replaces real estate (physical property) as the preferred store of value, returns will be many times higher than real estate in the future, because bitcoin is only at the beginning of the adoption cycle.
In conclusion, as Satoshi Nakamoto said, “You might get some just in case,” or to paraphrase Mark Twain, “Buy bitcoin, they can’t make it anymore.”
This is a guest post by Leon Wankum. Opinions expressed are entirely their own and do not necessarily reflect the opinions of BTC Inc or Bitcoin Magazine.
