Bitcoin is a cryptocurrency, meaning it is a decentralized digital currency without a central bank or a single administrator which can be sent from user to user on the peer-to-peer Bitcoin network. When Satoshi Nakamoto (an unknown person or group of people using that name) created Bitcoin, the idea of an electronic payment system was based on mathematical proof. On the other hand, real estate is property consisting of land and the buildings on it, along with its natural resources, or more generally buildings or housing in general. So, the first difference we notice between Bitcoin and real estate, is that the first one seems like something untouchable, while the second is pretty tangible.
However, there are more solid arguments you should consider in case you are about to make an investment. In 1934, a book Security Analysis was published, and its authors, Benjamin Graham and David Dodd explained investment, saying: “An investment operation is one which, upon thorough analysis promises safety of principal and adequate return. Operations not meeting these requirements are speculative.” So before you make any investment, do your homework, and make sure you are aware of the pros and cons of that specific investment. It all comes down to analyzing the risk versus the return, which isn’t always easy to calculate. Real estate has traditionally been one of the most desirable options for serious investors, but does it really perform that great compared to the latest assets like Bitcoin?
Bitcoin has recovered nicely from the dip from the beginning of 2018 and is seeing some very nice gains.
Real estate has also shown to be quite resilient. Investments in housing were forecast to drop considerably with Brexit looming ever closer, but those predictions don’t seem to have come to fruition. Though there were some dips, of course, it recovered nicely.
House price trends indicate that real estate prices in the U.S. are expected to continue rising by 3.6% in 2020. On the other hand, the overall cryptocurrency market is projected to reach $1.4 billion by 2024. Both assets seem to have bright future, so your investment decision won’t depend just on some facts, but more likely on your personal needs and preferences.
Though they both represent very different investment schemes, they do have some similarities. Those similarities aside, which one should be on your radar as to where you should park your money?
There are pros and cons to both whether you plan to buy Bitcoins or a house so here are some of them according to Paxful.com.
The first problem with Bitcoin is that it is not tied to anything tangible. It’s value rests in the fact that people want to use it. There are other factors in its value, of course, but the fact remains that there is no central bank that issues the coins. Being decentralized digital currency can be both good and bad. Since we are first considering the bad side, this can be problematic in case of frauds, because you have no one to file a complaint to, and the transactions can not be tracked. Bitcoin storage and recourse are definitely major issues.
The second issue some may have with Bitcoin is that it can be unstable. If you look at the last few years, it is worth several times more now than before, but it has had some wild fluctuations in between. It first hit a value of $1,000 early in January 2017. By the end of the year it was valued at $20,000. Then, it dropped all the way down to $3,500 in a matter of days. You can say that the whole market for bitcoin is based on trust in a system with many unknown variables.
The fact that there is no middleman between you and your coins is a very big positive. You can be anywhere in the world and have access to your investment without worrying about access. It is easy to sell, in case you need money urgently. Also, because of being decentralized, bitcoin is not susceptible to inflation via additional printing, something similar to gold.
Then there is the possibility of seeing huge gains and very quickly. If you had bought your Bitcoins in early 2017 and sold them by the end of the year, you would have seen a gain of 2,000%. There is no investment in real estate that would ever have that kind of upside.
Downsides of real estate
The high cost to buy in is something that turns a lot of prospective buyers off. It may take years to have enough for a down payment and in that time the market could change dramatically. Even aside from a hefty down payment, there are the costs of lawyers and fees to pay. Unlike cryptocurrencies, real estate demands maintenance, which can cost you a lot of money in the long-term perspective.
Then there is the issue of tenants if you don’t plan to live in the house. Renting requires a lot of patience and costs to deal with. You may only be making enough from the rent to pay the mortgage and maybe not even that. You will be relying on the market being good when you plan to sell. Real estate is safe, but it often takes a lot of time to sell your property.
Upside of real estate
The biggest upside of real estate over Bitcoin is that it is a tangible thing. You can see the thing that you bought and there are a number of factors in its value. People understand it and know how to value a home. The fact that it is tangible also suggests that you can actually use real estate, whether it is as your own home, or by renting it.
Stability is second and the biggest advantage. Even in a market downturn, you won’t risk losing your entire investment in the house. You may have to ride out an economic downturn here and there, but you almost always come out ahead when selling. In a way, it guarantees additional safety just in case something goes wrong with other assets.
It seems we have a draw. Which one is right for you depends on your personality and your aversion to risk. If you can afford it, the best solution would be to invest in both, because clever investors rarely stick to just one asset.