Introduction
We live in a highly digitalized world, but most of humanity still uses physical goods to store value. The most used store of value in the world is real estate. It is estimated that approximately 67% of the world's wealth is found in property.. However, recently, macroeconomic and geopolitical headwinds have highlighted the weaknesses of real estate as a physical store of value. What to do if a war breaks out? What happens if a house that was used as a store of value is destroyed?
In German, real estate translates as “Property”, which literally means “to be motionless”. Owning real estate creates a local dependency that can pose a problem in a world of increasing conflict and radicalization. In the event of war, real estate cannot be taken and can easily be destroyed.
This may seem like a dystopia, but I believe that if one is serious about long-term wealth management, one should consider the worst-case scenario and the possible global impact.
War and destruction of wealth
Since the beginning of the 21st century, War has never cost humanity so much.. More than 238,000 people died in conflicts last year. Syria, Sudan, Ukraine, Palestine, Israel, Lebanon: the global sources of conflict are increasing. Some of these areas have already suffered massive destruction. There are no more properties there and the value stored in them has literally evaporated. It is difficult to imagine the financial setbacks that people have had to endure, apart from the suffering and grief that war brings.
Real estate is used as a store of value throughout the world, although there are some exceptions, such as Japan. With the growing threat of destruction, the fruits of the labor of millions, possibly billions, of people are at stake. Along with inflation and taxes, the destruction of physical wealth has historically been one of the greatest threats to overall prosperity. Already in ancient times, The armies relentlessly plundered the cities. and destroyed residents' belongings.
Physical versus digital store of value
Fortunately, with bitcoin there is a solution to the threat of destruction of wealth stored in physical assets. As a digital and near-perfect mobile store of value, it is difficult to destroy and easy to move.
The introduction of bitcoin in 2009 challenged real estate's role as humanity's preferred store of value, as it represents a better alternative that allows 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 bitcoin) for as little as ≈ $0.0002616 (as of 02/12/2024). All you need to store it securely is a basic computer without Internet access and a BIP39 key generator, or simply buy a hardware wallet for $50. In case you need to move, you can memorize 12 words, the backup (seed phrase) for your wallet and “take” your bitcoin with you.
Digitization
Digitalization optimizes almost all value preservation functions. bitcoin is rarer, more accessible, cheaper to hold, 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 over the entire world, I believe it is better to keep wealth in a digital asset like bitcoin than in physical assets like real estate, gold or art, which can be easily taxed, destroyed or confiscated.
Property confiscation
Looking at history, it is clear that physical stores of value have left people vulnerable to government overreach. A historical example is expropriation of Jews in Nazi Germany. Unfortunately, these repressions were not an isolated case in history. Happens all the time. Many lost their properties in Cuba when Fidel Castro took poweras Michael Saylor likes to point out.
These painful lessons from history underscore the importance of safeguarding wealth in a digital asset like bitcoin, which is difficult to confiscate, tax or destroy and easy to move.
Macroeconomic changes
Additionally, changes in the macroeconomic outlook can quickly devalue real estate. Typically, real estate is purchased with a loan. Therefore, high interest rates translate into lower affordability of financing, resulting in lower demand and subsequently lower property prices. We can see this scenario playing out globally right now, The combination of rising interest rates and declining demand is contributing to falling property values around the world.
bitcoin versus real estate
bitcoin is less affected by the problems of the traditional fiat financial system than the real estate sector. Since it operates independently of the system. Variables such as interest rates, central bank decisions, and arbitrary government actions have limited influence on bitcoin. The price is predominantly determined by its supply, issuance schedule and adoption rate.
bitcoin follows a disinflationary model that involves a gradual reduction in its supply over time until reaching a hard limit in 2140. Approximately every four years, the bitcoins awarded to miners for successfully ordering transactions (every 10 minutes) are reduced to half.
The next halving, scheduled for Friday, April 19, 2024, is expected to halve the block reward from 6.25 bitcoins to 3.125, translating into a daily issuance of 450 bitcoins instead of 900.
Currently, bitcoin has an annual inflation rate of around 1.8%, which is expected to fall to 0.9% after the next halving. After that, the inflation rate will be almost negligible. Furthermore, a large number of bitcoins were lost and we can expect many to be lost in the future. The continued decline in finite supply increases deflationary pressure on the bitcoin network. As bitcoin-market”>more and more people (ai–crypto-money-payments/”>and machines)bitcoin-market”> they are using bitcoinsincreasing demand is offset by decreasing supply.
This extremely strong deflationary movement is not observed in the real estate sector. Although the real estate sector is also scarce due to the limited supply of building land, there is no strict limit. New buildable land can be developed and zoning laws can allow, for example, the construction of higher floors.
Absolute shortage
For most, it is difficult to imagine the impact of a fixed supply on the price of an asset. Before bitcoin, there was no concept of an inherently scarce good. Even gold has an elastic supply. Increased demand prompts more intensive mining efforts, a flexibility that does not apply to bitcoin.
Consequently, with each halving event, meaning a reduction in supply, the price of bitcoin rises and continues to do so perpetually. This permanent increase persists as long as there is a corresponding demand, a probability attributed to the exceptional monetary properties of bitcoin.
This dynamic is expected to continue even in the midst of a global economic crisis. The supply of bitcoin will continue to decrease and the price will most likely continue to increase. Due to the expected continuity of demand in times of crisis, as they explain. Even inflation can have a positive impact on the price of bitcoin as it leads to greater availability of fiat currencies that can be invested in bitcoin.
Conclusion
In a world marked by increasing radicalization and a financial system undergoing deep crisis, bitcoin emerges as a superior option for storing value, especially during periods of macroeconomic fluctuations. bitcoin's importance is predicted to rise during these turbulent times, potentially overtaking real estate as humanity's preferred store of value in the distant future.
The aspiration is that an increasing number of people recognize the advantages of bitcoin, not only for wealth preservation but, in extreme circumstances, for securing their livelihood.
0A79 E94F A590 C7C3 3769 3689 ACC0 14EF 663C C80B
This is a guest post by Leon Wankum. The opinions expressed are entirely their own and do not necessarily reflect those of btc Inc or bitcoin Magazine.
