This article is a follow-up to 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 bottom line, it doesn’t have to be binary. There are a number of reasons why they are ideal for investing in Bitcoin as well, which will be outlined in this short article.
Low time preference
Bitcoin’s absolute scarcity and well-known deflationary supply schedule means that holders are maximizing benefits by having a low time preference – meaning they are willing to forego immediate benefits for the potential of higher returns in the future. The opposite of this is a high time preference — a focus on immediate well-being or quick returns — often at the expense of long-termism (or at least with limited appreciation). Real estate investors also generally have a low time preference: institutions model 10-year cash flows as the market standard, and most private homebuyers take out multi-decade mortgages, or at least acknowledge the downsides of buying and selling too often (e.g., significant transaction costs). This mindset lends itself well to holding Bitcoin, where returns have historically been maximized by enduring one or more four-year halving cycles and a high time preference. Short-term trading is incredibly risky due to Bitcoin’s volatility.
specialists
Those who have a significant portion of their wealth in Bitcoin have generally spent hundreds and often thousands of hours working on the subject – the rabbit hole is endless. This helps build an unshakeable belief that endures despite being constantly tested by external forces and volatility. Bitcoiners know what they own and rejoice that it’s an outsize chunk of their portfolio (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 to them. It may explain much of their initial pushback against bitcoin. But those with an open mind, time, and energy to get the job done will find that the Bitcoin rabbit hole is full of things that both draw them in and keep them in the real estate business. You may also come to the conclusion that it is better at storing value and increasing wealth. Similarly, many real estate investors are specialists in their asset class — whether it’s an institutional logistics warehouse developer or a private investor repairing and renovating single-family homes. They stick with what they do best and it works for them. For example, this is 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
A proof of work is simply a piece of data that is difficult to create but easy for others to verify. Bitcoin uses a proof-of-work system for block generation, which requires miners to provide proof of work covering all the data in the block in order for a block to be accepted by network participants. The likelihood of being the miner completing this Proof of Work is extremely low. It is also extremely difficult as much time and energy is expended in the process. How this time and energy goes into elevating and securing the Bitcoin network has been discussed at length elsewhere. The key takeaway for real estate investors is that there is significant concrete work being done in creating Bitcoin and securing the network. Real estate investors value having their asset tangible, whether it’s the ability to see, touch and feel the finished product or the selection of a particular investment for its physical attributes and quality. As real estate investors value these attributes, they may also be able to see the value in the significant resources and time that go into securing the Bitcoin network via proof of work.
Emotions, culture and community
Real estate is undoubtedly an emotional asset class. Something that currently serves the dual role of an investment and a shelter will inevitably be. The Australian film The Castle sums it up perfectly. With classic phrases like “It’s not a house, it’s a home… a man’s home is his castle,” the film shows that for so many people, real estate is so much more than an investment. Similarly, homeownership has been a cornerstone of “The American Dream” for decades, and marketing slogans like “rent money is dead money” are treated by many as investment gospel.
The culture of home ownership and real estate investing is something that most people have fully embraced and appreciate. In many places, it’s not possible to host a dinner party without discussing house prices. People associate much of their identity and self-esteem with their home (and often with how much they paid for it), with some viewing it as a status symbol or using it as a conscious display of wealth. Anyone who has spent time with a bitcoiner will attest that it is almost impossible to get them to stop once they start talking about the topic. Her avid passion for Bitcoin cannot be concealed. Over time, bitcoin could become the new standard of conversation at dinner parties.
Those brave enough to jump on Bitcoin Twitter will find a tight-knit online community intensely promoting and defending Bitcoin. Many bitcoiners have transformed their lives and fortunes due to the low time preference behavior promoted by bitcoin. They are grateful for it, as well as for the hope and opportunity it can offer to others if they discover it properly. Real estate professionals will attest that their jobs are primarily about people, managing emotions and personalities, building networks and using relationships to create opportunity. If they choose to get involved, they will find a welcoming community that has grown entirely organically; one in which their people skills from the real estate industry are well positioned.
convergence and opportunities
Many Bitcoin adopters will gradually decrease their proportional exposure to other assets over time, either intentionally after concluding that there is no alternative, or inadvertently due to Bitcoin’s consistent outperformance. However, that doesn’t mean 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 corporate levels.
For the individual property owner, bitcoin mining at home is increasingly feasible thanks to readily available information and a range of vendors offering equipment such as ASICs (mining hardware) and accessories to reduce noise and heat in retail settings. Many real estate investors prioritize cash flow and yield; Bitcoin mining can offer this.
For companies like real estate developers, providing land, buildings, and energy infrastructure solutions to bitcoin miners is an area of increasing opportunity as more capital flows into the space. This could create some interesting opportunities for real estate asset managers to set up partnerships or new structures that allow miners to do what they do best: They can source cheap or untapped power sources and plug in as many ASICs as possible while they enable real estate professionals to develop and own the underlying properties and earn a return on them over time, perhaps in exchange for bitcoin instead of fiat currency, or by adopting a revenue-sharing model in the same way retail landlords earn turnover rents.
My previous article argued that Bitcoin has the potential to extract significant value from real estate over time. This could create a sub-sector of real estate: bitcoin real estate. This sub-sector could ultimately not only be defensive, as real estate has always been, but also benefit by benefiting from Bitcoin’s growth. There is a potentially significant opportunity for early risers to create a new real estate niche.
This is a guest post by James Santi. The opinions expressed are solely their own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.
source https://www.bisayanews.com/2022/01/20/why-real-estate-investors-should-love-bitcoin/
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