This is an editorial by Leon Wankom, a real estate and venture capital expert with a master’s degree in financial economics.
On August 15, 1971, US President Richard Nixon announced that the United States would do so Ending the possibility of converting US dollars into gold. Since then, central banks around the world have started operating a A monetary system based on fiat currencies With floating exchange rates and no currency standards whatsoever. Since then, the money supply has increased steadily. This forced market participants to look for ways to invest their money to protect against this inflation, and one of the most popular investment assets was real estate.
In the past, people owned real estate for its utility value, which is characterized by the fact that you can live on it or use it in production. Nowadays, however, it serves the world as a primary store-of-value asset. About 67% of global wealth ($330 trillion) is stored in real estate. This has resulted in real estate prices skyrocketing, and thus the cost of housing and the cost of living.
Home value change vs. income change
the Schedule The following shows the increase in wages in the United States from 1965 to 2021 compared to the increase in home prices. It appears that real estate prices have gone up excessively.
As a result, most people can no longer afford their own homes. In addition, regulation and inflation have made construction significantly more expensive, for example, due to Increased building requirements due to the so-called “ESG” guidelines and the Increase in raw material prices. The landlords pass this price increase on to the tenants in the form of Rent increase.
From benefit to speculation
Real estate has become a speculative investment subject because it is used as a store of value, a former function of money that is no longer possible due to decades of monetary inflation that decimated people’s purchasing power.
The exorbitant increase in housing costs is one of the biggest problems of the stock-based financial system because it has caused many secondary problems. As the world’s first store of value, real estate, becomes increasingly expensive, and therefore inaccessible, people can no longer save and plan for the future. When housing and rent prices become increasingly expensive while money loses purchasing power, people can no longer afford decent housing, leading to a decline in living standards.
In addition, apart from its use as store of value, real estate is the most widely used form of collateral in the traditional banking system. It is frequently used by the borrower to secure the repayment of the loan to the lender. Banks lend to people and institutions that own real estate. This led to the creation of an exclusive financial system in which real estate became very expensive. In an inflationary environment where money loses value over time, it is problematic if most cannot borrow because saving is not an effective means of capital accumulation. Religion becomes necessary to be productive.
These developments, which can be observed all over the world, are among the main drivers of wealth inequality.
From speculation to profit
Real estate must be reduced to its utility value as a dwelling or place of production, rather than to its use as a proxy store of value if we ever hope to solve the growing wealth inequality gap. Because bitcoin is almost a store of value, it provides a direct solution to the housing crisis.
The characteristics associated with bitcoin make it an ideal store of value. Supply is limited. It’s portable, divisible, durable, replaceable, censor-proof and non-custodial. Real estate cannot compete with Bitcoin as a store of value. Bitcoin is scarce, more liquid, easier to transfer, harder to confiscate, and cheaper to maintain. You don’t have to worry about daily maintenance, rent or repairs. Easy to access and cheap to store.
You can buy any large or small quantity. You can keep bitcoins. All you need to store it securely is a basic computer without an internet connection and a BIP39 key generator – or a $50 hardware wallet.
People can buy bitcoins to store value instead of doing so with a home or rental property. As a result, real estate prices will drop and will allow people to afford to buy a home for its utility value.
Bitcoin offers a solution
As described in a The last episode of “The Hard Money Show”, Real estate has become a store of value in a world where fiat currencies are losing ground, with many negative effects on society. But Bitcoin offers a solution.
As Bitcoin adoption increases, money that could have been invested in real estate, and some of the money already invested in real estate, will flow into Bitcoin. As we indicated above, this will make housing affordable.
By acting as a physical store of value, bitcoin will absorb the cash premium that has accumulated in real estate over the past decades due to the broken monetary system. According to the Bitcoin standard, housing will eventually collapse to its utility value. Easy access to Bitcoin would create a much more accessible financial system than it is today.
Unfortunately, this will not solve the problem of rising rents in the short term. This is a structural problem for the Fiat system. Because of the increased supply of money, it loses purchasing power over time and prices rise. However, as our financial system adapts to the Bitcoin standard, deflation will lead to lower prices.
It should also lead to a more decentralized and less regulated form of governance, with governments increasingly becoming service providers.
This is a guest post by Leon Wankom. The opinions expressed are entirely their own and do not necessarily reflect the opinions of BTC Inc or Bitcoin Magazine.
