Oddbean

Bitcoin and Real Estate: How bitcoin is revolutionizing the world's largest asset class. 👇 I am thrilled by the positive feedback on my talk at @BTCPrague! 🌟 Find the slides in the thread below. A specialt hanks to @imkewedekind & Diarie (we'll get him on Nostr) who helped me build this presentation. Stay tuned for the video release. 🧵 1/19https://m.primal.net/IoPo.png (2/19) After learning about Bitcoin in University, I started working in the realestate industry, which allowed me to understand two things: 1. How broken our monetary system is 2. The potential of bitcoin as a superior store of value to real estate. https://m.primal.net/IoPq.png (3/19) Today, real estate is the number one store of value. Depending on your view on fiat money and debt, up to ⅓ - ⅔ of the world's wealth is stored in real estate. What created #realestate’s role as the world's number store of value ? https://m.primal.net/IoPs.png (4/19) This development coincided with the “Nixon shock” on August 15, 1971, when US President Richard Nixon announced that the US would end the convertibility of the dollar into gold at a fixed rate. This ushered in a new era of fiat-money, with no currency standard at all. Since then, monetary inflation rates have risen steadily. This has created the use of reale state as the most important inflation hedge (&SoV) in the market. https://m.primal.net/IoPu.png (5/19) The role of #realestate as an inflation hedge becomes clear when we compare the growth rates of the monetary supply and #realestate prices since 1971. M2 money supply, which broadly reflects the spectrum of funds available for saving, spending, and investment, has been growing exponentially, with a compound annual growth rate (CAGR) of approximately 6.8%. https://m.primal.net/IoPx.png (6/19) When we examine the development of the average price of a #home sold in the US, we observe a very similar pattern: the average sales price of #houses has risen at a compound annual growth rate (CAGR) of 5.7%, closely tracking the increase in the money supply. https://m.primal.net/IoQC.png (7/19) The same trend largely applies to commercial real estate, though its growth has not been as aggressive as that of residential properties, with a compound annual growth rate (CAGR) of around 4.4%. https://m.primal.net/IoQF.png (8/19) Laying all three graphs on top of each other reveals that real estate prices closely track the growth of the money supply. As new currency enters the market, people invest to protect their buying power. Real estate, with its scarcity and attractive financing options, became the preferred investment. Banks create new money as credit for mortgages, channeling it into real estate and inflating its nominal value. Its rise largely mirrors the debasement of fiat currency, emphasizing real estate's role as a store of value and its substantial monetary premium. https://m.primal.net/IoQI.png (9/19) In contrary to today, throughout history, the value of land and reale state has been largely tied to its utility—whether for agriculture, living, production, or generating rental income. This trend has spanned cultures and epochs for thousands of years. Historically, real estate symbolized prosperity, often linked to its agricultural productivity and the social status and political power that came with land ownership. The elite enhanced their estates to boost agricultural output and display their wealth. However, using real estate as a form of #money to store value is a relatively recent development. https://m.primal.net/IoQM.png (10/19) Many #realestate professionals mistakenly think real estate is a solid investment due to its intrinsic value from utility or cash flow. But this is a flawed concept— value is ultimately subjective. https://m.primal.net/IoQO.png (11/19) #CarlMenger, a pioneer of the Austrian School of Economics and arguably an inspiration for the Cypherpunks' creation of #Bitcoin, demonstrated already in the 19th century that value is subjective. Consider a Rolex watch: its worth is not primarily a reflection of the materials or craftsmanship, but rather what someone is willing to pay for it. Similarly, real estate's high value often stems not from its utility but its use as a speculative inflation vehicle to preserve buying power against inflation. https://m.primal.net/IoQQ.png (12/19) Comparing real estate and bitcoin shows bitcoin's clear advantages as a store of value: limited supply, high liquidity, divisibility, and ease of movement—crucial in a world with increasing conflicts. In contrast, real estate, or 'Immobile' in German (meaning immobile), creates local dependencies and is vulnerable to taxes, confiscation, or destruction. While #realestate generates cash flow, often used to service debt, it does not necessarily prove its reliability as a store of value. Instead, its rising nominal value is more a reflection of the debasement of fiat currency. Banks profit greatly by creating money, lending it, and charging interest. https://m.primal.net/IoQS.png (13/19) In 2016, the average US home cost about 1000 bitcoin; now, it's just 10. Real estate is losing value fast compared to bitcoin. To stay competitive in real estate or any field, consider changing your unit of account to bitcoin—it's repricing the world. Like many Bitcoiners, I assess #realestate based on its utility value, and it's likely the market will soon align with this perspective. https://m.primal.net/IoQW.png (14/19) Bitcoin, a near-perfect digital store of value, is disrupting the real estate sector, traditionally valued for its role as a store of value. By introducing digital scarcity, Bitcoin mirrors the disruptive impact of e-commerce on retail in 1995. Both real estate and bitcoin capitalize on scarcity, but bitcoin extends this concept into the digital realm, enabling exponential growth similar to how email surpassed postal services. Its digital nature allows for faster scaling and increased efficiency. Bitcoin preserves value like real estate but without its drawbacks and liabilities, positioning it as the superior store of value for the digital age. https://m.primal.net/IoQa.png (15/19) The role of real estate as a trusted store of value and inflation hedge is slowly diminishing. Digital disruption by bitcoin is reshaping the investment landscape, as people can now default to saving in bitcoin rather than having to invest in real estate, which will push property values down to their utility value. Additionally, higher interest rates and surging construction costs have made real estate development and ownership increasingly unprofitable. Coupled with rising maintenance costs due to ESG requirements and the financial exclusion of younger generations like Millennials, Gen Z, and Gen Alpha, the real estate market is facing profound structural challenges. As digital natives, these generations are more likely to gravitate towards bitcoin as their preferred (digital) store of value, further destabilizing traditional real estate investments. https://m.primal.net/IoQc.png (16/19) What happens as bitcoin absorbs the monetary premium from real estate? Housing becomes more affordable, benefiting individuals and families with access to reasonably priced living spaces. But this poses a challenge: How will developers survive? While using real estate as a speculative investment has its drawbacks, the role of the private sector in constructing housing remains important. https://m.primal.net/IoQe.png (17/19) Real estate investors face a dual challenge from rising interest rates: debts inflate, bloating the liability side of their balance sheet, while higher borrowing costs reduce affordability, depress property values, and shrink the asset side, compounding their financial strain and the challenges in the real estate market. https://m.primal.net/IoQg.png (18/19) If you're a real estate investors, you can bring bitcoin onto the asset side of your balance sheet to hedge against the shift of the monetary premium from real estate to bitcoin, and create a more resilient business structure. Bitcoin is not just disrupting the real estate sector; it represents a significant business opportunity. IMO, it's not about choosing one asset over the other, but using both strategically in proper sequence to build wealth and a resilient portfolio over time. Even on a Bitcoin standard, the utility value of housing remains vital—people still need places to live and conduct business, making real estate a crucial service to the market that generates rental income. https://m.primal.net/IoQi.png (19/19) Explore these effective bitcoin strategies I've developed to enhance #realestate investment: Maintenance Reserves: Safeguard cash flow by potentially taking/converting rent in BTC. Buy to Hedge: Diversify by converting real estate profits into bitcoin. Refinance: As speculation shifts from real estate to bitcoin, secure your profits and future by refinancing to buy bitcoin. Note: Be cautious of high interest rates. Utilize Bitcoin: Bitcoin is pristine collateral for lending and the accumulation of bitcoin, for example through rental income or through the sale of real estate to buy bitcoin, provides a company with a new novel capital base to finance operations or further investments. Incorporate Bitcoin in Financing: Boost creditworthiness and hedge against defaults by using #bitcoin as collateral in #realestate development. Managing bitcoin custody properly is crucial—consider multisignature setups or multi-custodial solutions to ensure security ('not your keys, not your coins'). https://m.primal.net/IoQm.png I would like to thank you for your attention and @BTCPrague for the invitation. What a great event! Well done. My publications on Bitcoin and Real estate can be found in my bio.