During a period of geopolitical and macroeconomic turbulence, will Bitcoin be a more valuable asset than real estate? This article, authored by LEON WANKUM and compiled, translated, and written by Block unicorn, explores this question.
Summary:
Mark Cuban, the owner of the Dallas Mavericks, has stated that he buys Bitcoin every day and prefers it over gold. Ethereum’s practicality will be the key to its success.
Background:
Wu Danru boasts about making a 70% profit in two years with her “regular investment in Bitcoin.”
Table of Contents:
The Destruction of War and Wealth
Physical and Digital Value Storage
Digitization
Confiscation of Assets
Macroeconomic Changes
Bitcoin VS Real Estate
Absolute Scarcity
Conclusion
We live in a highly digitalized world, yet most people still use physical goods to store value. Real estate is the most commonly used means of value storage in the world. Statistics show that around 67% of global wealth is held in real estate. However, recent macroeconomic and geopolitical headwinds have highlighted the weaknesses of real estate as a physical means of value storage. What happens in the event of a war? What if the houses used as a store of value are destroyed?
In German, real estate is translated as “Immobilie,” which literally means “immovable.” Owning real estate creates a dependence on the local area, which can pose problems in a world of increasing conflicts and radicalization. In the event of a war, you cannot carry real estate with you, and it is easily destroyed.
This may sound like a dystopia, but I believe that if you take long-term wealth management seriously, you should consider the worst-case scenario and the potential global impact.
Since the beginning of the 21st century, the losses caused by wars have never been so great. Over 238,000 people died in conflicts last year. Global conflict hotspots such as Syria, Sudan, Ukraine, Palestine, Israel, and Lebanon are increasing.
Some of these areas have already suffered massive destruction. There is no more property left, and the stored value has effectively evaporated. Besides the pain and sorrow brought by wars, it is hard to imagine how much more economic setbacks people have to endure.
Despite some exceptions, such as Japan, real estate is used as a means of value storage worldwide. With the intensification of the threat of destruction, the labor of millions or even billions of people is at risk.
In addition to inflation and taxes, the destruction of material wealth has always been one of the biggest threats to overall prosperity. In ancient times, armies cruelly plundered cities and destroyed the wealth of the residents.
Fortunately, with Bitcoin, the threat of wealth stored in physical assets being destroyed can be addressed. As a digital and nearly perfect portable means of value storage, it is difficult to destroy and easy to move.
Bitcoin’s launch in 2009 challenged the role of real estate as the preferred means of value storage for humans because it represented a better choice that allows people around the world to protect their wealth relatively easily.
You can purchase very small amounts of Bitcoin, with the smallest denomination being 1 satoshi (1/100,000,000 of a Bitcoin), priced as low as ≈ $0.0002616 (February 12, 2024).
All that is needed for safe storage is a computer without internet access and a BIP39 key generator, or you can spend $50 to purchase a hardware wallet. If you need to move, you can remember 12 words, the backup of the wallet (mnemonic), and “take” your Bitcoin with you.
Digitization optimizes almost all value storage functions. Bitcoin is rarer, easier to acquire, has lower maintenance costs, higher liquidity, and most importantly, it allows you to transfer your wealth during crises.
Bitcoin is truly your wealth. With the threat of wars around the world, I believe holding wealth in digital assets like Bitcoin is better than holding physical assets like real estate, gold, or art, as these assets are easily taxed, destroyed, or confiscated.
If we look back at history, it is clear that physical value storage makes people vulnerable to excessive government intervention. A historical example is the deprivation of Jews by Nazi Germany. Unfortunately, such repression is not a historical exception. It happens frequently. As Michael Saylor likes to point out, many people lost their property in Cuba after Fidel Castro came to power.
These painful historical lessons emphasize the importance of protecting wealth in digital assets like Bitcoin, which has proven to be challenging to confiscate, tax, or destroy, and is also easy to transfer.
Furthermore, changes in the macroeconomic landscape can lead to a rapid devaluation of real estate. Typically, real estate is purchased through loans. Therefore, an increase in interest rates will reduce financing capacity, leading to reduced demand and subsequently lower real estate prices.
We can see this happening globally now, as a combination of rising interest rates and reduced demand has led to a decline in global real estate values.
Compared to real estate, Bitcoin is less affected by issues in the traditional fiat financial system because it operates independently. Variables such as interest rates, central bank decisions, and arbitrary government actions have a limited impact on Bitcoin, with its price primarily determined by its supply, issuance schedule, and adoption rate.
Bitcoin follows a deflationary model, meaning its supply gradually decreases over time until it reaches a hard limit in 2140. Every four years, the Bitcoin block reward is halved (e.g., currently miners receive a reward of 10 bitcoins for mining a block, but after four years, the reward will be reduced to 5 bitcoins).
The upcoming halving, scheduled for April 19, 2024, Friday, is expected to reduce the block reward from 6.25 bitcoins to 3.125 bitcoins, meaning 450 bitcoins will be issued daily instead of 900.
Currently, Bitcoin’s annual inflation rate is around 1.8%, which is expected to decrease to 0.9% after the upcoming halving. Afterward, the inflation rate will be negligible. Additionally, a significant amount of Bitcoin has been lost, and we can foresee that more Bitcoin will be lost in the future. The continuous decrease in the limited supply increases deflationary pressure on the Bitcoin network. The increasing demand from more people (and machines) using Bitcoin offsets the decrease in supply.
This extremely strong deflationary movement is not observed in the real estate sector. Although real estate is scarce due to limited land for construction, there is no hard limit. For example, new land can be developed, and zoning laws allow for the construction of taller buildings.
For most people, it is difficult to imagine the impact of a fixed supply on asset prices. The concept of inherently scarce goods did not exist before the advent of Bitcoin. Even gold has elastic supply. Increased demand leads to more intensive mining, a flexibility that does not apply to Bitcoin.
Therefore, each halving event signifies a decrease in supply, causing the price of Bitcoin to rise and continue to do so as long as there is corresponding demand, which can be attributed to Bitcoin’s unique monetary properties.
This dynamic is expected to continue even during periods of global economic crises. Bitcoin’s supply will continue to decrease, and prices are likely to continue to rise. As explained, due to the anticipated sustained demand during crisis periods. Even inflation has a positive impact on Bitcoin’s price as it increases the supply of fiat currencies available for investment in Bitcoin.
In a world of an increasingly radicalized and deeply crisis-ridden financial system, Bitcoin becomes the best choice for storing value, especially during periods of macroeconomic volatility. In this turbulent time, the importance of Bitcoin is expected to rise and may eventually replace real estate as the preferred means of value storage for humans.
We hope that more and more people will recognize the advantages of Bitcoin, not only for preserving wealth but also for safeguarding livelihoods in extreme situations.
Related Reports:
Why should Bitcoin be treated like a panda when investing?
Signal of Surge! Tesla rumored to increase its Bitcoin holdings by 1,800, Musk to accept Bitcoin payments again?
Michael Saylor: Bitcoin’s spot ETF is competing with the S&P 500 and will soon surpass gold
Bitcoin regains its position as the 9th largest asset worldwide! Market cap exceeds $1.3 trillion, less than 1% away from silver.