Bitcoin vs. Real Estate: Which is a Better Store of Value in Times of Crisis?

We live in a highly digital world, but most people still use physical goods to store value. The world’s most commonly used store of value is real estate. According to statistics, about 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 if a war breaks out? What happens if the house used as a store of value is destroyed?

In German, real estate translates to “Immobilie”, which literally means “immobile”. Owning real estate creates local dependencies, which can be problematic in a world of growing conflict and radicalization. If war breaks out, you can’t take your real estate with you, and it can easily be destroyed.

This may sound like a dystopia, but I believe that if you are serious about long-term wealth management, you should consider the worst-case scenarios and possible global impacts.

War and the destruction of wealth

Since the beginning of the 21st century, the toll of war on humanity has never been so great. Last year, more than 238,000 people died in conflicts. Syria, Sudan, Ukraine, Palestine, Israel, Lebanon - the sources of conflict are increasing around the world. Some of these areas have already suffered massive destruction. There are no more properties there, and the value stored in them has practically evaporated. In addition to the pain and grief caused by war, it is hard to imagine how much more economic frustration people have to endure.

Real estate is used as a store of value around the world, although there are some exceptions, such as Japan. As the threat of destruction grows, the fruits of the labor of millions, if not billions, are at stake. Aside from inflation and taxation, the destruction of material wealth has historically been one of the greatest threats to overall prosperity. As early as ancient times, armies brutally looted cities and destroyed the possessions of residents.

Physical and digital storage of value

Fortunately, with Bitcoin, the threat of wealth stored in physical assets being destroyed is addressed. As a digital, nearly perfect mobile store of value, it is difficult to destroy and easy to move.

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

You can buy very small denominations of Bitcoin, the smallest being 1 satoshi (1/100,000,000 of a Bitcoin) for as little as ≈ $0.0002616 (February 12, 2024). All you need to store it safely is a computer without internet access and a BIP39 key generator, or a hardware wallet for as little as $50. If you need to relocate, you can memorize 12 words, a backup of your wallet (mnemonic), and "take" your Bitcoins with you.

Digitalization

Digitalization optimizes almost all of the functions of storing value. Bitcoin is more scarce, more accessible, cheaper to maintain, more liquid, and most importantly, it allows you to transfer your wealth in times of crisis.

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

Confiscation of property

If we look back at history, it’s clear that physical stores of value make people vulnerable to excessive government intervention. One historical example is the dispossession of the Jews by Nazi Germany. Unfortunately, these repressions are not isolated in history. They happen all the time. As Michael Thaler likes to point out, many people lost their property in Cuba when Fidel Castro came to power.

These painful historical lessons underscore the importance of protecting wealth in digital assets like Bitcoin, which has proven challenging to confiscate, tax or destroy and is easy to transfer.

Macroeconomic changes

Additionally, changes in the macroeconomic landscape can cause real estate to depreciate rapidly. Often, real estate is purchased with loans. Therefore, rising interest rates lead to lower affordability of financing, resulting in reduced demand and, therefore, lower real estate prices. We can see this playing out across the globe right now, with the combination of rising interest rates and reduced demand leading to a decline in real estate values ​​around the world.

Bitcoin vs. Real Estate

Compared to real estate, Bitcoin is less affected by the problems of the traditional fiat financial system because it operates independently of the system. Variables such as interest rates, central bank decisions, and arbitrary government actions have limited impact on Bitcoin, and the price is mainly determined by its supply, issuance schedule, and adoption rate.

Bitcoin follows a deflationary model, meaning that its supply decreases over time until it reaches a hard limit in 2140. Every four years, the Bitcoin block reward is halved (Block unicorn note: for example, now the miner packs a block reward of 10 yuan, and since the Bitcoin reward is halved after four years, the miner will only get 5 yuan).

The upcoming halving on Friday, April 19, 2024 is expected to cut the block reward in half from 6.25 bitcoins to 3.125 bitcoins, meaning 450 bitcoins will be issued per day instead of 900.

Currently, Bitcoin's annual inflation rate is about 1.8%, and is expected to drop to 0.9% after the upcoming halving. After that, inflation will be almost negligible. In addition, a large number of Bitcoins have been lost, and we can expect that many more will be lost in the future. The continued decline in the limited supply increases deflationary pressure on the Bitcoin network. As more people (and machines) use Bitcoin, the increase in demand is offset by the decrease in supply.

This extremely strong deflationary movement is not observed in the real estate sector. Although real estate is also scarce due to the limited supply of building land, there is no hard cap. For example, new building land can be developed and zoning laws can allow for higher floors to be built.

Absolutely scarce

For most people, it’s hard to imagine the impact of a fixed supply on an asset’s price. Before Bitcoin, there was no concept of an inherently scarce commodity. Even gold has an elastic supply. Increased demand drives mining to be more intensive, and this flexibility does not apply to Bitcoin.

Therefore, each halving event means a reduction in supply, and the price of Bitcoin will rise and continue to rise. As long as there is corresponding demand, this permanent growth will continue, which can be attributed to the special monetary properties of Bitcoin.

This dynamic is expected to continue even during the global economic crisis. The supply of Bitcoin will continue to decrease and the price will most likely continue to rise. As explained, due to the expected continued demand in times of crisis. Even inflation will have a positive impact on the price of Bitcoin, as it leads to an increase in the supply of fiat currency that can be invested in Bitcoin.

Conclusion

In a world of increasingly radicalized and financial systems going through a profound crisis, Bitcoin becomes the best option for storing value, especially during times of macroeconomic volatility. In these turbulent times, Bitcoin’s importance is expected to rise, potentially replacing real estate as humanity’s preferred store of value in the distant future.

We hope that more and more people will realize the advantages of Bitcoin, which can not only preserve wealth but also protect livelihoods in extreme situations.