Bitcoin vs Real Estate: Which Is a Better Hedge During Crises?
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Bitcoin vs Real Estate: Which Is a Better Hedge During Crises?
During times of crisis, Bitcoin can better protect your wealth.
Navigating Web3 tides with focused insightsAuthor: LEON WANKUM
Translation: Block unicorn
Introduction
We live in a highly digital world, yet most people still use physical goods to store value. The most common form of value storage worldwide is real estate. 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 happens if war breaks out? What if the house used for preservation is destroyed?
In German, real estate translates to "Immobilie," literally meaning "immovable." Owning real estate creates local dependency, which could become problematic in an increasingly conflict-prone and polarized world. You can't take real estate with you during war, and it's easily destroyed.
This may sound dystopian, but I believe that if you take long-term wealth management seriously, you should consider worst-case scenarios and their potential global impacts.
War and Wealth Destruction
Since entering the 21st century, human losses due to war have never been greater. Last year alone, over 238,000 people died in conflicts. Syria, Sudan, Ukraine, Palestine, Israel, Lebanon—global conflict hotspots are increasing. Some regions have already suffered massive destruction. There is no property left there; the value stored within has effectively evaporated. Beyond the pain and sorrow caused by war, it's hard to imagine how much further economic hardship people must endure.
With some exceptions such as Japan, real estate is used globally as a means of value storage. As threats of destruction grow, the fruits of labor for millions or even billions of people are at risk. Alongside inflation and taxation, the destruction of physical wealth has historically been one of the greatest threats to overall prosperity. Since ancient times, armies have ruthlessly looted cities and destroyed civilians' possessions.
Physical vs. Digital Value Storage
Luckily, Bitcoin offers a solution to the threat of wealth destruction inherent in physical assets. As a digital and nearly perfectly mobile store of value, it is extremely difficult to destroy and easy to transport.
Bitcoin's introduction in 2009 challenged real estate’s role as humanity’s primary store of value by offering a better alternative—one that allows people around the world to protect their wealth relatively easily.
You can buy very small denominations of Bitcoin, down to one satoshi (1/100,000,000 of a Bitcoin), priced at approximately $0.0002616 as of February 12, 2024. To securely store it, all you need is an offline computer with a BIP39 key generator, or simply spend $50 on a hardware wallet. If you need to relocate, you can memorize 12 words—the wallet backup (mnemonic phrase)—and “carry” your Bitcoin with you.
Digitization
Digitization optimizes almost every function of value preservation. Bitcoin is rarer, more accessible, cheaper to maintain, more liquid, and most importantly, enables you to transfer your wealth during crises.
Bitcoin represents truly yours-to-own wealth. With war threats looming across the globe, I believe holding wealth in digital assets like Bitcoin is preferable to physical assets such as real estate, gold, or art, which are vulnerable to taxation, destruction, or confiscation.
Property Confiscation
Looking back at history, it's clear that physical stores of value leave individuals vulnerable to excessive government intervention. A historical example is Nazi Germany’s expropriation of Jews. Unfortunately, such oppression is not an isolated incident. It happens frequently. As Michael Saylor often points out, many people lost their property in Cuba after Fidel Castro came to power.
These painful historical lessons underscore the importance of protecting wealth in digital assets like Bitcoin—proven to be challenging to confiscate, tax, or destroy, while also being easily transferable.
Macroeconomic Shifts
Additionally, shifts in the macroeconomic landscape may lead to rapid devaluation of real estate. Typically, real estate is purchased via loans. Rising interest rates reduce affordability, decreasing demand and thus lowering property prices. We’re witnessing this unfold globally, where rising interest rates and declining demand are driving down real estate values worldwide.
Bitcoin vs. Real Estate
Compared to real estate, Bitcoin is less affected by problems in traditional fiat financial systems because it operates independently. Variables such as interest rates, central bank decisions, and arbitrary government actions have limited impact on Bitcoin; its price is primarily driven by supply, issuance schedule, and adoption rate.
Bitcoin follows a deflationary model, meaning its supply gradually decreases over time until reaching a hard cap in 2140. Every four years, the Bitcoin block reward halves (Block unicorn note: for instance, if miners currently receive 10 units per block, after halving they will only get 5).
The upcoming halving, expected on Friday, April 19, 2024, will reduce the block reward from 6.25 BTC to 3.125 BTC—meaning 450 BTC issued daily instead of 900.
Currently, Bitcoin’s annual inflation rate is about 1.8%, projected to drop to 0.9% after the next halving. After that, inflation becomes negligible. Moreover, a significant amount of Bitcoin has already been lost, and we can expect even more to be lost in the future. The ongoing decline in available supply increases deflationary pressure on the Bitcoin network. Growing demand—from both people and machines—is counterbalanced by shrinking supply.
Such intense deflationary dynamics are unobservable in real estate. While land scarcity makes real estate rare, there is no hard cap. For example, new construction land can be developed, and zoning laws can allow taller buildings.
Absolute Scarcity
For most people, it's difficult to grasp the impact of fixed supply on asset prices. Before Bitcoin, there was no concept of intrinsically scarce commodities. Even gold has elastic supply—increased demand leads to intensified mining efforts. This flexibility does not apply to Bitcoin.
Therefore, each halving event signifies reduced supply, leading to rising Bitcoin prices—and this trend continues. So long as corresponding demand exists, this permanent growth persists, likely attributable to Bitcoin’s unique monetary properties.
This dynamic is expected to persist even during global economic crises. Bitcoin’s supply will continue to shrink, and prices are likely to keep rising—as previously explained, due to sustained demand anticipated during crisis periods. Even inflation could positively affect Bitcoin’s price by increasing the supply of fiat currency available for investment into Bitcoin.
Conclusion
In a world marked by increasing polarization and profound systemic crises, Bitcoin emerges as the optimal choice for storing value—especially during macroeconomic volatility. In these turbulent times, Bitcoin’s significance is expected to rise, potentially replacing real estate as humanity’s preferred store of value in the distant future.
We hope more people recognize Bitcoin’s advantages—not just for preserving wealth, but also for securing livelihoods in extreme circumstances.
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