This article follows “Bitcoin is a better store of value than real estate”, which argued that bitcoin is the best store of value in the world. Even if real estate investors disagree with the conclusion, it doesn’t have to be binary. There are a number of reasons why they are also perfectly suited for investing in bitcoin, which this short article will outline.
Low time preference
Absolute scarcity and well-known deflationary supply timing of bitcoin means that holders maximize benefits by having a low time preference – i.e. they are willing to give up immediate benefits for potential returns. increased in the future. The opposite is having a high time preference – focusing on immediate well-being or quick returns – often at the expense of the long term (or at least having limited consideration of it). Real estate investors typically also have a low preference for time: Institutions model 10-year cash flows as a market standard, and most single-family home buyers take out mortgages over decades or at least recognize the downsides of buying and selling too often (eg, high transaction costs). This mindset is well suited to holding bitcoin, where historically returns have been maximized by maintaining one or more four-year halving cycles and a high time preference, short-term trading is incredibly risky. due to the volatility of bitcoin.
Those who hold a significant portion of their wealth in bitcoins have typically put in hundreds, if not thousands, of hours of work on the subject – the rabbit hole is endless. It helps build an unshakable belief, a belief that endures despite being constantly tested by outside forces and volatility. Bitcoiners know what they own and are happy that it is an oversized part of their wallets (if not the only asset they own!). Successful real estate investors are often very similar in this respect. They know their asset class so well that diversifying into things like stocks and bonds can often be or feel riskier for them. This may largely explain their initial reaction against bitcoin. But those with an open mind, the time, and the energy to get the job done will find that bitcoin’s rabbit hole is full of things that attract and keep them in real estate. They may also conclude that it does a better job of storing value and building wealth. Similarly, many real estate investors are specialists within their asset class – whether it’s an institutional developer of logistics warehouses or family investors who repair and flip single-family homes. They stick to what they know best and it works for them. It sounds a lot like, for example, how Bitcoiners have done the work to conclude that trading other “cryptocurrencies” cannot compete with their strategy of simply holding bitcoin for the long term.
proof of work
Simply put, proof of work is hard data to produce but easy for others to verify. Bitcoin uses a proof-of-work system for block generation, where for a block to be accepted by network participants, miners must complete a proof-of-work that covers all data in the block. The probability of being the miner to complete this proof of work is extremely low. It’s also extremely difficult, with a lot of time and energy spent in the process. How this time and energy helps value and secure the Bitcoin network has been discussed at length elsewhere. The main takeaway for real estate investors is that there is significant tangible work being done in creating bitcoins and securing the network. Real estate investors attribute value to the fact that their asset is tangible, whether it is the ability to see, touch and smell the finished product or selecting a particular investment because of its physical characteristics and its quality. Since real estate investors value these attributes, they may also be able to see the value of the significant resources and time spent securing the Bitcoin network through proof of work.
Emotions, culture and community
Real estate is unquestionably an emotional asset class. Something that currently plays the dual role of investment and shelter inevitably will. The Australian film “The Castle” sums it up perfectly. With classic lines such as “It’s not a house, it’s a house…a man’s house is his castle”, the film shows that, for so many people, real estate is much more than an investment. Likewise, home ownership has been a cornerstone of the “American dream” for decades and marketing slogans such as “rent money is dead money” are considered by many to be the gospel of home ownership. ‘investment.
The culture of home ownership and real estate investing is something that most people have fully embraced and cherish. In many places it is not possible to have a dinner party without discussing house prices. People attach much of their identity and self-worth to their home (and often how much they paid for it), with some viewing it as a status symbol or using it as a deliberate display of wealth. Anyone who has spent time with a Bitcoiner will attest that once they start talking about the subject, it is nearly impossible to get them to stop. Their zealous passion for bitcoin cannot be hidden. Over time, bitcoin may become the new default conversation at dinner parties.
Those brave enough to take on Bitcoin Twitter will find a tight-knit online community that will intensely promote and defend bitcoin. Many Bitcoiners have transformed their lives and fortunes due to the low time preference behaviors bitcoin encourages. They are grateful for it, and for the hope and opportunity it can offer others once they find out about it properly. Real estate professionals will attest that much of what they do is about people, managing emotions and personalities, building networks, leveraging relationships to create opportunity. If they choose to engage, they will find a welcoming community that has grown entirely organically; one in which their human skills from real estate are well placed.
Convergence and opportunities
Many bitcoin adopters will gradually reduce their proportional exposure to other assets over time, either deliberately after concluding that there is no alternative, or accidentally due to bitcoin’s consistent outperformance. However, this does not mean that the decision has to be binary.
In fact, there are areas of convergence between bitcoin and real estate that present opportunities at both the individual and company level.
For the individual real estate owner, home bitcoin mining is increasingly achievable thanks to both readily available information and a range of vendors retailing equipment including ASICs (mining hardware) and accessories. to reduce noise and heat. Many real estate investors prioritize cash flow and yield; bitcoin mining can provide this.
For companies such as real estate developers, providing land, real estate and energy infrastructure solutions to bitcoin miners is an area of growing opportunity as more and more capital flows into the space. This can create exciting opportunities for real estate asset managers to create partnerships or new structures that allow miners to do what they do best: they can source cheap or stranded energy sources and plugging in as many ASICs as possible, while allowing real estate experts to develop and own the underlying real estate and earn a return on it in perpetuity, possibly in exchange for bitcoin rather than fiat currency, or by adopting a share-sharing model revenue in the same way that retail business owners generate revenue rents.
My previous article argued that bitcoin has the potential to extract significant value from real estate over time. In the process, a sub-sector of real estate could emerge: Bitcoin real estate. This sub-sector could ultimately not only be defensive in nature, as real estate has always been, but benefit from the growth of bitcoin. A potentially significant opportunity exists for pioneers to create a new real estate niche.
This is a guest post by James Santi. The opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.