This is an opinion editorial by Leon Wankum, an early financial economics student who wrote a thesis on Bitcoin in 2015.
Prologue
The following article is part of a series of articles in which I aim to explain some of the benefits of using bitcoin as a “tool”. The possibilities are endless. I selected three areas where bitcoin has helped me. Bitcoin helped me take my entrepreneurial endeavors to the next level by allowing me to easily and efficiently manage my money and generate savings. This allowed me to increase my self-confidence and look to the future with more optimism. I have developed a lower time preference, meaning I value the future, which leads me to 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. The second part discusses the positive implications for mental health and general well-being when a “bitcoin standard” is adopted, for example, the use of 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 main entry-level savings vehicles for the past few decades, and the positive impact it can have bitcoin in retirement savings.
Why Every Real Estate Investor Should Own Bitcoin
Bitcoin is digital property and should appeal to any real estate investor as such. Real estate takes advantage of scarcity in the physical realm. Bitcoin introduced scarcity into the digital realm.
Bitcoin established the first instance of digital ownership. Bitcoin is digital property. Digital property rights bring the connection between the Internet and the economy into modernity. Therefore, real estate investors who are in the business of acquiring and building physical property are destined to own bitcoins as it is the digitized form of physical property. This statement may surprise you, but who would have thought in 1995 that most retail stores would also have a digital business in the form of a website or e-commerce store? Of course, e-commerce websites and retail stores are more similar than bitcoin and real estate, but it is the best comparison to show the need for real estate investors to get involved with bitcoin. I find these comparisons useful to explain complex and new technologies like Bitcoin in an understandable way and to show why the adaptation of this technology is important.
As I explained in my article “Why Bitcoin Is Digital Real Estate,” one of the many things that real estate and bitcoin have in common is that they both act as a store of value. In theory, real estate is desirable because it generates income (rent) and can be used as a means of production (manufacturing). 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 its value and keep up with inflation. As a result, many people (this includes wealthy individuals, pension funds and institutions) tend to invest a significant portion of their available cash in real estate, which has become a favorite store of value. Most people don’t want real estate to live in or use for production. They want real estate so they can store value.
However, real estate cannot compete with bitcoin as a store of value. The properties 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, real estate 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 when they fled, meet their daily needs, and accept transfers and donations. Properties had to be left behind and were largely destroyed. This could mean that once 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 property may collapse to of utility and cease to carry the monetary premium of being used as property. a store of value. It may take a long time, possibly several decades, but the probability is there. So it makes sense for you as a real estate investor to get involved with bitcoin at an early stage. It is well known that early adopters of new technologies will benefit the most.
Source: Bitcoin Magazine
Real estate investors are experts at using existing properties as collateral to raise debt for the purchase and development of new properties. As I detailed in my article “Is Leveraging Legacy Assets to Buy Bitcoin a Good Strategy?” using existing real estate to take out debt and buy bitcoins is potentially an even bigger business opportunity, since the value of bitcoin is likely to grow faster than real estate. Thus, higher performance can be achieved. Real estate (property that is fully rented out) is the perfect collateral to take out debt to buy bitcoins as the rental generates income. So you never have to sell your bitcoin to pay off debts, instead you can use the rental income. If my forecast seems too optimistic to you, you can also use a small part of your real estate portfolio for this project, so the risk is relatively low, but the upside potential is still high.
This should not distract from the profitable business of real estate development. I’m not asking you to stop developing real estate, I’m asking you to add a bitcoin strategy.
Real estate development is highly dependent on the ability to generate credit. Bitcoin can also help here. The continued adoption of bitcoin is driven by its superior monetary properties. Growing adoption is accompanied by an increase in price, as the supply of bitcoins 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 real estate developer, this means that the more bitcoin you have, the more collateral you will have to finance real estate construction in the future. Bitcoin should be part of every real estate investor’s strategy, as it is a pristine collateral that will help you improve your creditworthiness in the long run.
Smartly using your real estate as collateral to borrow money and buy bitcoins can solve another problem: liquidity. Real estate is an illiquid and immovable asset. In German, real estate is translated as “immobilien”, which literally means “to be immobile”. Using your real estate cash in your income generating properties to buy bitcoins can be a good business opportunity and an option to protect your wealth from confiscation in case you have to move. Of course, you could just sell real estate to buy bitcoins, but that’s a bad idea for two reasons. First, money is historically made in real estate that generates income by buying and holding it for the long term. Second, a real estate investor typically purchases a property with a loan, so 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. Real estate is an asset that generates income (rent), but is very immobile. Bitcoin does not generate income, but it is very 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 biggest business opportunities of their lives. Those rejecting bitcoin will likely have the same fate.
Also, we most likely won’t see the same kind of returns from 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 system based on fiat money with floating exchange rates and no currency standard.
Monetary inflation rates have risen steadily since then. Real estate served as an asset for many to preserve the value of their money. However, bitcoin serves this purpose much better. This can lead to two things: First, real estate could lose its monetary premium from being used as a store of value. Second, if bitcoin (digital property) continues its cycle of adoption and replaces real estate (physical property) as the preferred store of value, its rate of return will be many times higher than that of real estate in the future, because bitcoin is only at the beginning. of its adoption cycle.
In conclusion, as Satoshi Nakamoto said, “You might want to get one just in case,” or to paraphrase Mark Twain, “Buy bitcoins, they don’t make them anymore.”
This is a guest post by Leon Wankum. The opinions expressed are entirely my own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.
