Bitcoin vs Real Estate: Wealth Preservation with Liquid Hard Assets

May 12, 2024

In an economic environment characterized by volatility and a devaluing dollar, individuals and businesses are increasingly concerned about the erosion of their cash holdings. Historically, the best way to preserve wealth has been to invest in assets like stocks, bonds, precious metals, real estate, and more recently bitcoin. We’ll look at the two “hardest” assets on this list, bitcoin and real estate. Hard assets are scarce and harder to duplicate. During inflationary periods, they outperform assets that are easier to create. 

Understanding Bitcoin And Real Estate

Bitcoin is a decentralized digital currency with a fixed supply of 21 million coins. Unlike traditional fiat currencies, it operates independently of any central bank or government, making it resistant to inflation and manipulation. Its limited supply and decentralized nature position it as a potential hedge against economic instability.

Real estate investment, in contrast, involves purchasing physical properties. This tangible asset class has a long history of providing stable returns through rental income and property appreciation. Real estate is often seen as a safe, traditional investment due to its ability to generate passive income and its relative stability over time.

Benefits of Bitcoin's Fixed Supply

Bitcoin’s fixed supply is one of its most compelling features. It directly addresses inflationary risks by ensuring that the total number of coins will never exceed 21 million. This scarcity underpins its advantage as a store of value, relative to other assets like gold. By mitigating inflationary risks, Bitcoin can serve as a hedge against the devaluation of fiat currencies, making it a robust asset for preserving wealth.

 

The Benefits of Shifting Some Real Estate Investments into Bitcoin?

High Net Worth Individuals (HNWIs) with substantial investments in vacation or rental properties could benefit from holding bitcoin over real estate. While rental properties can provide passive cash flow it comes with costs in the form of property taxes, tax on rental income, maintenance costs, vacancies, etc. Bitcoin does not provide income but it is a much more efficient investment vehicle. You can tax loss harvest bitcoin to take advantage of downside volatility. When you own bitcoin you control your tax liability. You only pay taxes when you sell at a gain (and you could offset with the previously mentioned tax loss). You don’t have to worry about annual property taxes, taxable cash flow, or any potential special assessments by government authorities. And property can’t be moved whereas bitcoin is portable and can go with you anywhere. So,  unless the passive income is funding your living needs, selling a rental propert in favor of owning some bitcoin can provide benefits in the future.

This just one of example but the benefits extend to anyone looking to diversify their investment holdings. Bitcoin has exhibited a distinct price cycle in its short history. These cycles have been uncorrelated to real estate cycles which is where the benefit of diversification comes from. As the bitcoin price rises it can offset falling real estate prices and vice versa. Over long time horizons both assets appreciate in value but the fact that they can move in opposite directions for periods of time lowers the overall volatility of an investment portfolio.

Conclusion

As you can see, both Bitcoin and real estate present unique advantages for wealth preservation and growth. Bitcoin’s fixed supply and decentralized nature make it an excellent hedge against inflation, while real estate’s tangible benefits provide stable returns and income potential. HNWIs and others should consider these assets as complementary parts of a diversified investment portfolio.

For personalized investment advice tailored to your specific needs, consult with DAIM. Exploring the synergistic potential of Bitcoin and real estate could be the key to securing and growing your wealth in today’s dynamic economic environment.

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