Why Bitcoin (Crypto) is a Better Investment than Real Estate

“Bitcoin is the most difficult asset to hold in the twenty-first century…”

“I can accomplish the same thing with Bitcoin as I can with a piece of real estate…”

“Bitcoin provides all of the benefits of real estate without any of the drawbacks…”

The above are a couple of quotes from a close friend who I’ve always regarded as a real estate guru. He’s been determined to become the most successful real estate investor for as long as I’ve known him. He is always modifying his firm to market conditions and is always one step ahead of the competition.

So I was taken aback when he approached me after seeing some of my bitcoin videos. But I wasn’t shocked when I texted him when Bitcoin dropped last fall and received his response. He offered so much useful information on cryptocurrencies and Bitcoin that it changed the way I thought about it. I was already delighted about the crypto world, but his viewpoints heightened my enthusiasm even further. What piqued my interest was how he viewed Bitcoin as having all of the benefits of real estate without all of the drawbacks. That’s what I’d want to talk about in this article: Which is a better investment: Bitcoin or Real Estate?

Why Is Bitcoin a Better Bet Than Real Estate?

The easiest approach to demonstrate this idea is to compare Bitcoin and real estate side by side, examining their benefits and drawbacks.

The Argument For Bitcoin – Benefits

In the next two parts, I’ll discuss the benefits and drawbacks of both Bitcoin and real estate. But, in the end, I feel that the benefits of Bitcoin outweigh and even surpass those of real estate.

1. Let’s start with the return on investment.

This is the first benefit I’m listing because it’s the most evident. Since 2010, the return on Bitcoin has been nothing short of incredible. Bitcoin has had a total return of 66.9 million percent between August 10, 2010, and December 31, 2021, according to estimates done on dqydj.com. This equates to over 325 percent every year. No other investment or asset class has even come close in such a short period of time.

2. Bitcoin is both money and an asset.

Bitcoin’s biggest appeal over the last decade has undoubtedly been its financial potential. It’s tough to dispute with figures like the ones above. Bitcoin, on the other hand, is a currency. It may be used to purchase and sell goods and services from both businesses and individuals. Bitcoin is divisible, despite the fact that the price of a single coin is much too costly for most transactions. Smaller denominations, known as Satoshi, are available.

One Bitcoin has 100 million Satoshi. In terms of currency, 10 Satoshi equals one penny, and 1000 Satoshi equals one dollar. Bitcoin may be prohibitively pricey for regular transactions, but Satoshi may be ideal. Meanwhile, the number of businesses that take Bitcoin and other cryptocurrencies is gradually increasing. According to a recent post on Inc.com, one-third of small companies in the United States already accept cryptocurrency as payment.

3. Inflation protection due to limited supply

We’ll get a bit more into this topic later in this post, based on my podcast conversation with a buddy I’ll refer to as The Crypto Guy. However, this is a crucial characteristic since it explains why Bitcoin is such an effective inflation hedge. Bitcoin was designed with a total limit of 21 million coins when it was originally released. As a result, there is a finite supply, and while the limit has not yet been reached, the price may continue to rise until it is.

In comparison, the Federal Reserve may print a limitless number of dollars in the United States. That printing power is the cause of inflation, which has been amplified by the coronavirus outbreak. Dollars can be manufactured indefinitely, but the total number of Bitcoins will never surpass 21 million. That means Bitcoin will continue to outperform inflation.

4. Bitcoin may be taken everywhere.

This is yet an additional attribute that qualifies it as money. It does, however, have the edge over real estate. Real estate is not transportable in the least. If you decide to relocate to a different state or nation, you’ll need to sell your real estate assets first. You won’t be able to bring it with you. Bitcoin functions similarly to electronic money. You may relocate to a different state or even a different nation, and still, have access to your cryptocurrency.

5. Bitcoin is 100 percent liquid.

This is yet an additional feature that qualifies it for use as money. Bitcoin may be quickly liquidated in a matter of minutes. It may be used to buy products and services, converted into another cryptocurrency, or even fiat currencies such as the dollar or the euro.  It’s also simple to speculate on price fluctuations as a result of this. You can swiftly and simply sell out of a Bitcoin investment just as readily as you can purchase it. With real estate, you can’t do any of that.

6. Bitcoin requires little upkeep.

Unlike actual land, it does not require time, effort, or money to maintain. You’ll never get a call from an irate renter in the middle of the night.

7. Bitcoin appears to be the currency of the future.

The majority of people feel that money is a finite resource. It’s not the case. It’s been changing for millennia. People mostly utilized barter to do commerce until a few hundred years ago. Mostly, this entailed commodity trade. It’s possible that two farmers exchanged 10 bushels of wheat for 20 gallons of milk.

Gold and silver have been used as money for thousands of years because they are valuable, scarce, and universally acknowledged. However, in the early twentieth century, gold and silver lost their way to paper money, which has now been mostly superseded by electronic transfers and plastic cards.

Bitcoin is the leading cryptocurrency, and it is quickly being viewed as the next generation of money. If that’s the case, it’ll only be a matter of time before crypto replaces the money we’ve used our entire lives. Everything in the world is affected by technological advancements. That includes money, which may be undergoing a historic shift right in front of our eyes.

The Argument Against Bitcoin – Drawbacks

As a crypto investor, I’ll be the first to confess that there are certain drawbacks. However, we must keep in mind that cryptocurrency is a new and developing technology. It’s extremely probable that some, if not all, of these flaws, will be fixed.

1. Price fluctuation

Crypto’s core function, which is to operate as a medium of exchange—money, might be undone by the same price volatility that is making crypto billionaires. Volatility, in my opinion, has more to do with the novelty of crypto than anything else. Investors are flocking to crypto, particularly Bitcoin, as a new asset class emerges.

That should eventually calm down. As cryptocurrency becomes more widely accepted as a form of payment, its price swings are expected to become more predictable. Even if it does, catastrophic events such as economic booms and busts, war, political instability, pandemics, and energy/commodity shortages will likely cause large price changes.

2. A general lack of acceptance

Despite the fact that cryptocurrency is quickly gaining acceptability among businesses and consumers, it is still illegal in many parts of the world. You still can’t use bitcoin to do business at your bank, for example. You can’t pay your taxes, buy gasoline, or buy food either. Furthermore, no insurance firms nor utility companies accept cryptocurrency payments.

That said, I believe this is a problem that is already being resolved right in front of our eyes.

3. The possibility of a government shutdown or regulation

This has been a source of anxiety for cryptocurrency investors since the outset. Despite China’s prohibition last year, I believe the possibility of a crypto shutdown is improbable. And it turns out that regulation isn’t always a bad thing.

In December, Forbes blogger Jason Brett said, “As 2021 draws to a close, the 117th Congress has submitted 35 measures in 2021 focusing on cryptocurrency and blockchain policy.” “As the Infrastructure Investment and Jobs Act (H.R. 3684) made news for included language on crypto tax reporting that is now law, the crypto lobby’s stunning reaction demonstrated that this business is here to stay.”

The final statement was emphasized because it shows that the crypto business recognizes that regulation is unavoidable. But that isn’t always a negative thing. After all, the stock market and real estate are both regulated, yet it hasn’t stopped investors from generating money in both asset types for years.

4. Threats to security

The cryptosystem, like all other financial networks, including the banking system, is vulnerable to a variety of dangers. Hacking is a possibility, and there’s always the risk of a mechanical breakdown. Individuals are also vulnerable to security concerns. Cryptocurrency investors, for example, have been known to misplace their security codes or digital wallets.

However, like with any new system or network, the majority of these flaws will very certainly be ironed out. They will not be fully eradicated, just as previous systems have not been. However, the dangers are likely to be decreased to such a low degree that they are no longer regarded as a hazard to the entire system.

5. Inadequate remedy or insurance coverage

This might be the single largest reason why more people aren’t investing in cryptocurrency. FDIC insurance protects bank assets, whereas SIPC safeguards brokerage accounts. There are presently no such blanket safeguards accessible to crypto investors. All of that, though, may alter if crypto gains traction and becomes a popular asset. Governments will surely throw up some type of safety net if enough people invest in any asset.

On this front, there is already evidence of improvement. Gemini, a prominent crypto exchange, is both licensed by the New York State Department of Financial Services and provides private insurance coverage for cryptocurrency held on the platform. Other cryptocurrency exchanges are likely to follow suit if only to gain a competitive advantage.

6. Widespread usage in nefarious and deceptive dealings

Who hasn’t received one of those mysterious emails requesting bitcoin payment? This is most likely due to the fact that cryptocurrency is unregulated and has a reputation for being fully untraceable. We may also assume that whenever a valuable asset becomes a target for criminal conduct, it becomes a top target for criminal activity. However, the anonymity element could be exaggerated. The FBI was able to collect $2.3 million in Bitcoin from a ransomware extortion plot in June. They achieved it by following the money, which is an established and tried strategy.

Finally, cryptocurrency may not be the haven for unlawful behavior that many believe it to be.

7. Glitches in the system

From the outset, there has been apprehension about system failures. Perhaps an unanticipated technological issue brings the entire system down, wiping away billions of dollars in cryptocurrency.

Over the past 13 years, there have been a few such hiccups, but they have all been handled. What’s more astonishing is that we have yet to witness a cryptosystem collapse, despite the fact that crypto is still in its infancy and hence most vulnerable to such events.

The Argument for Real Estate – Benefits

As you may expect, I’m a crypto enthusiast. However, this does not imply that I believe real estate is a poor investment. On the contrary, it’s a fantastic investment. In reality, real estate investments have accounted for the bulk of millionaires’ fortunes. Real estate is responsible for 90 percent of all millionaires.

I simply do not feel it is as good as crypto, and I believe this will remain true in the future.

1. Real estate is an excellent long-term investment.

Because there are so many various methods to invest in real estate, determining investment returns will be difficult. You have the option of investing in residential rental property, commercial property, fix-and-flip transactions, or simply owning your own house. The average yearly return on all forms of real estate has been 11.51 percent over the previous 40 years, according to the National Association of Real Estate Investment Trusts (NAREIT) (through June 2021). That’s extremely close to the stock market’s average yearly rate of return. Real estate has shown to be one of the finest long-term, all-weather assets with such high returns.

With such a high average return, a $25,000 real estate investment today may increase to $220,910 in 20 years. That’s nearly a tenfold return on your investment. It doesn’t come close to matching Bitcoin’s performance over the previous decade, but it looks well in comparison to all other investments.

2. Real estate is an inflation hedge.

Given that inflation has been at 3% each year for the previous 30 years, the 11.51 percent average return on real estate puts investors ahead of the curve.

3. Real estate has the ability to produce positive cash flow.

Of course, I’m talking about rental property. Rental income may provide a positive cash flow whether you invest in residential or commercial real estate. Real estate investment trusts (REITs) provide net rental revenue to investors on a quarterly basis. Real estate may generate a consistent income as its value rises, resulting in a windfall on sale.

4. It’s one of the most tax-advantaged investments accessible

As a real estate investor, you’ll be able to deduct depreciation from your profits. Because depreciation is a purely paper expenditure, your net rental income will be tax-deferred to some extent. Meanwhile, when you sell your home after several years, you will benefit from a lower long-term capital gains tax rate. This will reduce your profit-on-sale tax rate to somewhere between 0% and 20%. And that’s a lot less than the regular income tax rates, which vary from 10% to 37 percent.

5. Investing in real estate may be done in a variety of ways.

You may invest in real estate by buying your own house, renting it out, or launching a fix-and-flip business, as I mentioned previously. Real estate investment trusts and real estate crowdfunding platforms, on the other hand, are more passive ways to invest in real estate that may be held in an investment portfolio.

REITs, or real estate investment trusts, are mutual funds that invest in commercial real estate rather than equities or bonds. Just like a mutual fund or an exchange-traded fund, you’ll acquire shares in a fund on major stock exchanges. Dividends paid by REITs might comprise both net rental revenue and capital gains. Platforms for real estate crowdfunding are more specialized methods to become involved in real estate investing. Fundrise, for example, can provide investments centered on income, growth, or a mix of the two.

6. Real estate may be used as a source of capital.

I’ll keep this advantage for last since it may also be a drawback, but you can buy a primary property for yourself with as little as 3% down. In a $300,000 home, that’s a $9,000 investment. A bigger down payment, often 20%, is required for investment property. You may still put $60,000 down on a $300,000 investment property and borrow the rest. Your investment returns will be much larger based on your $60,000 investment since they will be based on the $300,000 purchase price.

Let’s assume you sell the property for $400,000 after five years. You’ll have made a $100,000 profit on your $60,000 investment after the sale. In five years, that’s a 167 percent return.

However, there is a downside to leverage. Leverage operates in the reverse direction if property prices fall, as they did during the last recession. People owing more to their houses than they were worth contributed to the wave of foreclosures that occurred during the crisis.

Read Also: The Most Common Forms Of Mortgages That Every Buyer Should Be Familiar With

The Argument Against Real Estate – Drawbacks

1. It necessitates a significant initial expenditure.

Most crypto exchanges and investment brokers allow you to invest in Bitcoin for as little as $100 (or less). A big down payment is required in real estate, especially if you are purchasing an investment property. The substantial initial expenditure necessary to acquire a single home might make diversification across many properties challenging.

2. An investing time horizon of years is required.

While you may potentially make a lot of money on Bitcoin in a matter of days, investment real estate usually takes at least five years to pay off. This will allow you the time you need to gradually raise rents as the value of the property rises.

3. Real estate isn’t a liquid asset.

Even in the most buoyant real estate markets, selling a home can take months. Because each business property is different, it might be an even more significant issue. In the meanwhile, borrowing against real estate is the only option to get cash out of it. You can only borrow a certain amount of money, and while you’ll acquire the money you need, you’ll also be taking on long-term debt.

4. Exorbitant transaction fees

Selling a residential house can cost up to 10% of the property’s sale price in real estate fees, transfer taxes, seller-paid closing costs, and other charges. For commercial property, the proportion might be substantially greater. This will eat into your profit margin and hinder your capacity to sell the home swiftly.

5. Investing in real estate is not a passive activity.

Real estate investing is not passive, despite all the get-rich-quick-in-real-estate-without-doing-anything books and seminars (except for REITs and real estate crowdfunding). When you own investment property, whether it’s residential or commercial, you’ll have to locate tenants, collect rents, replace renters when they leave, make repairs as needed, renovate on a regular basis, and pay for lawn upkeep, snow removal, and even some utility bills.

Many of the same expenses apply to your main home. Bitcoin, on the other hand, has no such ongoing maintenance costs.

6. Real estate equity can be a capital trap if not managed properly.

This is due to a big down payment needed and the length of time it will take to make a profit. In the meanwhile, you won’t be able to use your money for anything else. Other investments, such as purchasing more properties or diversifying into different asset classes, fall under this category.

7. There have been extended downturns in the real estate market.

There’s no denying that real estate appreciates in value over time. There have been moments, though, when property prices have fallen. The Great Recession of a few years ago was the most recent example. Property values plummeted, real estate became illiquid, and millions of individuals were forced to leave their homes due to foreclosure.

This is similar to the massive price declines seen in cryptocurrency. However, although cryptocurrency crashes may be reversed in a matter of weeks, real estate falls can endure for years.

“Markets may stay irrational longer than you can stay solvent,” as the adage goes. Real estate has a worse difficulty with this than other assets.

8. Regulatory and legal issues

With investment real estate, this might be a concern. If someone is hurt on your property, they will seek compensation from you. Even if you have property insurance, it might not be enough to pay the whole cost of a claim. The claim might potentially be related to an occurrence that isn’t covered by your insurance coverage. Either case might result in a lawsuit being filed against you.

Local governments have the power to enact rules that impact landlords. One example is rent regulation. During the COVID-19 epidemic, however, we experienced a more widespread occurrence in which thousands of localities announced moratoriums. These allowed renters to stop paying rent while the landlords continued to be accountable for the property’s costs.

A former real estate investor puts all of his eggs in the Bitcoin basket.

This is a good time for me to admit that I was not an early cryptocurrency adopter. It would be more accurate to say that I was a crypto skeptic from the beginning. That has changed, and I am now fully committed.

A podcast interview I had with a former real estate investor who turned to crypto during the COVID outbreak in 2020 was a big part of my enlightenment. GFC S2 Ep. 102 – Real Estate Investor Sells 90% of His Business to Do Crypto – Why? You can listen to the audio at GFC S2 Ep. 102 – Real Estate Investor Sells 90% of His Business to Do Crypto – Why? I had been dabbling with crypto before the interview. But, well, let’s just say the light finally came on.

The Crypto Guy, as I’ve come to know him, was a real estate agent I met while I was selling my first house in 2008. He completely astounded me with his real estate expertise. He wasn’t only a real estate agent; he was also an investor. He mostly did property flipping and short-term rentals. Every year, we’re talking about 40 flips!

The Crypto Guy was riding down the easy street in real estate, working only two days a week. Until the epidemic struck, that is. He reevaluated his real estate empire and began shifting his holdings when the pandemic shutdown seized the economy. Most of his properties were sold as a result of this.

Crypto Guy was having issues that only those involved in the fix-and-flip side of real estate face. This includes rapidly growing material costs and a persistent contractor scarcity, both of which are vital to this sort of investment. Then there was the problem of the eviction prohibition for tenants. It’s understandable that he felt compelled to reassess the industry in which he had become so successful.

Why Did The Crypto Guy Switch to Bitcoin?

A crisis has a weird way of making you reconsider everything you thought you understood. That’s precisely what happened to The Crypto Guy. He did a lot of research on cryptocurrency. He decided what he would do next after spending around 50 hours examining the digital asset. You may listen to the podcast to hear Crypto Guy’s entire list of reasons for switching to crypto, but here’s a quick rundown of the highlights:

• Both real estate and equities, he believed, were in a bubble.
• Recognized that inflation was not a passing fad and required a long-term investment solution.
• Bitcoin has been the most successful investment in recent years.
• Bitcoin, like real estate, maybe leveraged, but it’s also quicker to liquidate—it can be sold with a single click.
• Crypto earns money at a rate of above 6% each year. That was a lot better than the 0.0-something the banks were paying in cash.

“Bitcoin is a brand-new asset that is extremely volatile,” The Crypto Guy explained. “The profit is in price volatility.” When the price reduces, I’m thrilled because it means I can buy more.”

Is Cryptocurrency a Passing Fad?

Despite the fact that I was already a crypto investor, I had to pose the question that many crypto investors are asking: Is crypto a fad?

Crypto Guy isn’t convinced. “The world’s major currencies are ‘fiat money,’ and none of the 700 or so that have existed throughout history have ever lasted.” One of the most recent iterations is the United States dollar. But it’s just backed by the government’s word and nothing else.”

“Crypto is transforming into a new type of currency, and its acceptance is growing. Meanwhile, on the money supply, the Federal Reserve has painted itself into a corner. They are unable to stop creating money, lowering its worth. Inflation occurs when there is too much money in the economy and not enough places for it to go. The CPI is quoted as 6%, but I believe it is closer to 14%–15%.”

Crypto Guy further mentioned that Bitcoin has been around for 13 years and is still going strong despite China’s prohibition. Because Bitcoin is restricted to just 21 million coins, Crypto Guy believes it will always outrun inflation, whereas the Federal Reserve can produce a limitless amount of dollars. He sees Bitcoin as Gold 2.0, and as a transformation that will revolutionize the way people do business in the long run.

Crypto Guy explained, “Everything is getting digital.” “Think, for example, of music, maps, and payment systems. Because millennials spend so much of their time on their phones, this is a natural transaction for them. When your parents went on a lengthy journey, they brought along the most recent Rand McNally Road Atlas. The majority of individuals nowadays rely on their smartphones.”

On the road map point, he had me. And, like everyone else, I’ve seen what Bitcoin and other cryptos have yielded in terms of financial returns.

I believe it was during this interview that I went from crypto dabbler to crypto investor.