The world is undergoing a major shift in the way we think about money and investments as a whole.
For the first time in history, real estate, the long-time king of resilient and reliable asset classes, is being challenged by a digital asset that’s forcing us to rethink the very foundation of our economic system. Bitcoin vs. real estate. It’s a debate that most investors aren’t prepared to have, or even consider, in 2024.
That doesn’t make it irrelevant, however. If you want an actionable plan for how to adapt and allocate your money in a world where our idea of “value” is being flipped on its head, then this article may be transformative in the way you approach investing – or even convince you to avoid it entirely.
Understanding Bitcoin Vs. Real Estate
It’s safe to say that next to no one in the 21st century is arguing for real estate to be a form of money. I’m not walking into the grocery store with a house in my pocket. But for the sake of clarity, and in similar fashion to our Gold Vs. Bitcoin article, let’s first start by breaking down the fundamental properties of money and applying them to both assets.
Scarcity
- While real estate is relatively difficult to produce, as we’ll discuss later, it’s still inflationary and is becoming easier to produce over time.
- On the other hand, bitcoin is perfectly scarce. Satoshi coded the 21 million coin limit and implemented a proof-of-work consensus mechanism to create physical restraints that enforce this limit, along with an ever-decreasing inflation rate as bitcoin becomes harder and harder to mine over time.
Divisibility
- You can’t divide real estate into more real estate. Sure, you can turn one house into a duplex, but that cuts the living space in half to be divided up between two people. At scale, real estate’s lack of divisibility is an obvious reason why real estate can’t be considered money, among other reasons.
- On the other hand, since bitcoin is entirely digital, we can divide it infinitely into as many units as we’d like. “Satoshis” or “sats” are the socially agreed upon unit of division today, with 100 million sats equalling one bitcoin. However, there is no saying that we can’t denominate into even smaller units one day if needed. If bitcoin’s purchasing power became so great that a loaf of bread only costs you 0.01 sats, the protocol allows for further denomination to make the measurement easier to understand.
Durability
- While real estate can be built extraordinarily well, no building is immune to destruction. A tsunami can wipe out a coastline home (and thus its value), just as fault engineering can topple a building in the middle of Los Angeles. No matter what combination of materials a construction team uses, there’s no guarantee that the value stored in real estate can’t be wiped out, by chance or by deliberate action.
- On the other hand, bitcoin is the first technology ever created that could theoretically store value perfectly for millions of years, in the same way that the internet could theoretically store our information indefinitely. As long as there are people (or artificial intelligence) here to make use of them, distributed networks like the internet or bitcoin are more resilient than any physically constructed building.
Portability
- Real estate is anything but portable. Once that skyscraper goes up on Miami Beach, it’s not moving anywhere. Recreational vehicles (RVs) are the best argument for real estate being “portable”, but RVs come with many other significant tradeoffs and limitations that make them undesirable as a form of money. The obvious one being that you can’t drive your RV over the Atlantic Ocean to pay for a service that your friend in Europe provided.
- On the other hand, users can send bitcoin to one another over its decentralized network freely and instantly. If you store $1 billion in bitcoin instead of an array of real estate properties, now all you need to move it is a device that’s connected to the Bitcoin network, be it your phone, computer, tablet, or something else.
Fungibility
- Obviously no single house is the same as another. Sure, there are cookie cutter neighborhoods that are filled with identical homes that may make you feel like you’re living inside a Black Mirror episode, but each of those buildings still have small, unique identifiers that make them different from each other, be it the chip in the siding, the interior paint color, etc. Real estate is not fungible. If I trade my house for my neighbor’s nextdoor, we will get fundamentally different products.
- On the other hand, every bitcoin was designed to be the same as any other. With a quick reference to the blockchain using a block explorer like mempool.space, you can verify an authentic Bitcoin transaction on the Bitcoin network the moment that it takes place. Whether you’re holding freshly-minted Bitcoin UTXO from a miner in Iceland or a UTXO that previously came from Satoshi’s wallet himself, neither one of those UTXOs offer something different or more valuable than the other.
Transparency
- You can see on the surface what you’re getting when you purchase real estate. You can take a tour of the interior and ask real estate agents for information about the build, its previous history, or any other details. But no matter what level of transparency they may offer you, you can’t know without a shadow of a doubt whether the real estate is safe to enclose people within, or whether you’ll be able to continue paying for it in the future without risk of being evicted and having the government take it away from you. You have to place trust in the system that your real estate will be yours indefinitely.
- On the other hand, the Bitcoin protocol is fully open source and visible for anyone to see. The ledger organizes each and every transaction with time-stamped details of the amount, recipients, and costs to facilitate the transaction. You know for certain that when you spent or received bitcoin, it was authentic. You know for certain that even if the government comes to evict you from your house and throw you in jail, they still can’t get their hands on your bitcoin.
There are many obvious reasons why we can’t use real estate as a form of money. It’s not very durable, it’s not very portable, and it certainly isn’t scarce compared to bitcoin. So when it comes to treating real estate like an investment, what has made it such a historically great choice?
It’s fairly simple. It comes down to supply and demand. Dollars are simply easier to produce than real estate is. When something is harder to produce, assuming equivalent demand, the more difficult-to-produce items will always be more “valuable”. Just as there is infinite demand for money to circulate through the economy, so too is their relatively infinite demand for more housing.
The end result is that the real estate market rises in “value” over time, relative to fiat currency, like all other “assets”. But the reality that bitcoin reveals, however, is that real estate truly isn’t an asset at all.
Real Estate Is A Liability, Not An Asset
The fact of the matter is that real estate is a liability, and 21st century technology like bitcoin is revealing this truth. It actively requires taking money out of your bank account after you’ve purchased it, to be spent on maintenance, property taxes, utility bills, renovations, etc.
If you ask for the mainstream perspective on real estate, you’ll be told that it can be either an asset or a liability, depending on your situation. And this framing is correct in a fiat-based economy. Since the design of fiat currency inherently requires its value to drop over time, relatively scarce things like real estate rise in price over time and preserve your purchasing power. But on a Bitcoin standard, real estate does nothing but drop in value over the long run.
Don’t believe me? Just look at the numbers.
The average home cost in January 2017 was roughly $212,000. Today, the average cost of a home is $362,000. That’s a ~71% increase over ~7.5 years. Sounds like an appreciating asset, doesn’t it?
Well, consider that cost measured against bitcoin. In the same time frame, bitcoin went from $970 to $60,000. That’s a ~6,088% increase. Or in other words, the house was worth ~219 BTC, to now only being worth 6 BTC. That’s a ~97% reduction in value over 7.5 years.
In the world of asset investing, why would anyone choose to hold real estate long term vs. bitcoin? Unless you are planning to use and live in that house, you are much better off storing your capital in bitcoin than you are a home, or any other form of real estate.
Adapting To The 21st Century
One glaringly obvious but overlooked trend taking place in the world is the increasing amount of abundance we enjoy as the world progresses.
Think from first principles: As our technology improves, why wouldn’t our ability to produce goods and services also improve?
As we’ve seen over the past century, the world population has skyrocketed post-WWII:
This sheer explosion in the birthrate obviously called for more production of everything. And while certain countries are better off than others, as our efficiency improves, so too will our ability to create housing around the world for people who don’t enjoy it today.
Think about how much more arduous home-building was for landowners in the feudal age. Today, we have construction teams using machinery to put entire neighborhoods together in the amount of time it once took to build a single house by hand.
Think about 3D printing, and our increasing ability to produce more and more impressive structures with it. Do you earnestly believe that we won’t be able to streamline the production of housing to the point where we’re essentially printing it with very little overhead?
Companies are already using 3D printing to produce concrete houses and other buildings for dramatically less costs and much more quickly.
And it’s not just housing and commercial buildings. Land itself is also becoming easier to create. Just look at the Palm Islands of Dubai. By the time we “run out of land” on Earth, we will probably have expanded our reach to other planets within our solar system. Whether or not that’s realistic doesn’t dissuade from the reality here: We can *always* produce more real estate.
What we’re seeing is a trend taking place. Houses, land, and virtually everything else on the planet are becoming increasingly easier to create. Just as the internet created digital abundance – the ability to create copies of information for infinitely cheaper than doing so physically – so too are we now reaching that same ability in the physical domain. What becomes evermore valuable in times like these is true scarcity.
Bitcoin is the answer to financially protect ourselves in a world where supply has no cap. When supply can dramatically outpace the demand for any given item, the value of that item drops significantly. In the context of real estate, what makes you think this long-term trend is positive for real estate value?
On a broken fiat monetary standard, it’s true that real estate prices may still rise – because cash is easier to print than anything else. But their true value is actually falling in a world where cash and real estate are easier to create. It’s only against a proper measure of value – Bitcoin – that you can see this reality.
Final Thoughts
Real estate properties are designed to hold people within them. Bitcoin is designed to preserve purchasing power stored within it. Inflationary “assets” meant for holding people shouldn’t be used to hold money over the long term when there’s already a perfectly scarce asset designed for that specific purpose.
Up until 2009, we never had an optimized asset built for purchasing power preservation. So we used the best tools we had at the time. Real estate, gold, index funds, and every other investment all served that demand for monetary preservation. But now that we have bitcoin, the world has to rethink its strategy for maintaining capital over time. And for the first time in history, we have an asset that’s completely indestructible, no matter how long the time frame. Even if your family owned a block of real estate in Manhattan, there’s no guarantee that block of real estate will continue to exist one hundred, one thousand, or one million years into the future. Only the Bitcoin network can make that guarantee. Unless an asteroid or some other black swan event knocks humanity off the face of the planet (in which case you don’t need to worry about money preservation whatsoever), bitcoin will always be around, doing the same thing it’s always done.
Bitcoin simplifies investing for the world. Before you consider your next investment, price it against bitcoin over the past several years. Make the calculation, and ask yourself if it’s still a good choice to park your capital. As the data suggests, when it comes to bitcoin vs. real estate, there’s really nothing that comes close to bitcoin in terms of capital preservation over the long run. So act accordingly!
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