Bitcoin vs. Real Estate: Which Is a Better Store of Value in Times of Conflict?

introduction

Although we live in a highly digital world, most of humanity still uses physical goods to store value. The most widely used store of value in the world is real estate. It is estimated that approximately 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 store of value. What should I do if war breaks out? What happens when a home that was used as a store of value is destroyed?

In German, real estate is translated as ‘Immobilie’, which literally means ‘immobile’. Owning real estate creates local dependencies that can cause problems in a world of ever-increasing conflict and radicalization. In the event of war, real estate cannot be taken and can easily be destroyed.

It may sound dystopian, but I believe that if you are serious about long-term wealth management, you need to consider worst-case scenarios and possible global impacts.

war and destruction of wealth

Not since the early 21st century has a war cost so much humanity. More than 238,000 people died in the civil war last year. There are increasing sources of conflict around the world, including in Syria, Sudan, Ukraine, Palestine, Israel, and Lebanon. Some of these areas have already suffered large-scale destruction. There are no more properties there and the values ​​stored there are literally evaporated. Aside from the pain and sorrow that war brought, it is difficult to imagine the financial hardships people had to endure.

Real estate is used as a store of value throughout the world, although there are some exceptions such as Japan. As the threat of destruction increases, the fruits of the labor of millions, perhaps billions, of people are at stake. The destruction of physical wealth, along with inflation and taxation, has historically been one of the greatest threats to overall prosperity. Already in ancient times, armies mercilessly plundered cities and destroyed the belongings of residents.

Physical vs. digital store of value

Fortunately, Bitcoin has a solution to the threat of destruction of wealth stored in physical assets. A near-digital, mobile store of value that is hard to destroy and easy to move.

The introduction of Bitcoin in 2009 challenged real estate’s role as humanity’s preferred store of value. That’s because real estate offers a better alternative that allows people around the world to protect their wealth with relative ease.

You can buy Bitcoin in very small denominations. The smallest denomination is 1 satoshi (1/100,000,000 of a Bitcoin). It’s only $0.0002616 (as of February 12, 2024). To store it safely, all you need is a basic computer without internet access and a BIP39 key generator. Alternatively, you can purchase a hardware wallet for $50. If you ever need to move, you can memorize the 12 words, Back Up Your Wallet (seed phrase) and “take” your Bitcoin with you.

digitalization

Digitalization optimizes almost all value preservation functions. Bitcoin is rarer, more accessible, cheaper to maintain, more liquid, and most importantly, allows you to move your wealth in times of crisis.

Bitcoin is wealth that truly belongs to you. With the threat of war looming around the world, I believe it is better to hold wealth in digital assets like Bitcoin rather than physical assets like real estate, gold, or art that can be easily taxed, destroyed, or confiscated.

confiscation of property

If we look at history, it is clear that physical stores of value have made people vulnerable to government overreach. A historical example is the internment of Jews in Nazi Germany. Unfortunately, these repressions were not isolated instances in history. It happens all the time. As Michael Saylor is fond of pointing out, many people in Cuba lost their fortunes when Fidel Castro came to power.

These painful history lessons highlight the importance of protecting wealth in digital assets like Bitcoin that are difficult to seize, tax, or destroy and are easy to move.

macroeconomic changes

Additionally, changes in the macroeconomic environment can cause real estate values ​​to decline quickly. Typically, real estate is purchased with a loan. Therefore, rising interest rates lead to a decrease in financing capacity, which leads to a decrease in demand and thus lower real estate prices. We can see this scenario playing out all over the world right now. Rising interest rates and falling demand have combined to contribute to falling property values ​​around the world.

Bitcoin vs. Real Estate

​​Bitcoin is less affected by the problems of traditional fiat financial systems than real estate. Because it operates independently of the system. Variables such as interest rates, central bank decisions, and arbitrary government actions have limited impact on Bitcoin. Pricing is primarily determined by supply, issuance schedule, and adoption rate.

Bitcoin follows an anti-inflation model where supply gradually decreases over time until a hard limit is reached in 2140. Approximately every four years, the Bitcoin paid out to miners who successfully order a transaction (every 10 minutes) is halved.

The halving, scheduled for Friday, April 19, 2024, is expected to halve the block reward from 6.25 bitcoins to 3.125 bitcoins, resulting in 450 bitcoins per day instead of 900 bitcoins.

Bitcoin’s current annual inflation rate is approximately 1.8%, and is expected to fall to 0.9% after the next halving. After that, the inflation rate will be almost negligible. Additionally, large amounts of Bitcoin have been lost and we can expect many more to be lost in the future. The continued decline in finite supply increases deflationary pressure on the Bitcoin network. As more and more people (and machines) use Bitcoin, the increase in demand is met with a decrease in supply.

Such extremely strong deflationary movements cannot be observed in real estate. There is a shortage of real estate due to limited supply of construction land, but there is no hard cap. For example, a new building site may be developed and zoning laws may allow the construction of higher floors.

absolute rarity

In most cases, it is difficult to imagine the impact of fixed supply on asset prices. Before Bitcoin, there was no concept of an inherently scarce commodity. Even gold has an elastic supply. Increasing demand triggers more intensive mining efforts, a flexibility that does not apply to Bitcoin.

As a result, with each halving event meaning a decrease in supply, the price of Bitcoin rises and continues to rise. This permanent increase will continue as long as there is corresponding demand, which is likely due to Bitcoin’s exceptional monetary properties.

This dynamic is expected to continue even amid the global economic crisis. Bitcoin supply will likely continue to decrease and its price will likely continue to rise. As explained, due to the ongoing demand expected during the crisis. Even inflation can have a positive impact on the price of Bitcoin because it increases the availability of fiat currency to invest in Bitcoin.

conclusion

In a world characterized by increasing radicalization and financial systems experiencing deep crises, Bitcoin is emerging as an excellent choice for store of value, especially during times of macroeconomic volatility. During these turbulent times, Bitcoin’s importance is expected to grow, with the potential to surpass real estate as humanity’s preferred store of value in the distant future.

The hope is that more and more individuals will recognize the benefits of Bitcoin not only to preserve their wealth but also to ensure their livelihood in extreme situations.

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This is a guest post by Leon Wankum. The opinions expressed are solely personal and do not necessarily reflect the opinions of BTC Inc or Bitcoin Magazine.