For past generations, owning real estate was the average person’s golden opportunity to accrue generational wealth.
But for Generation Z, there’s an entirely new touchstone that will separate the “haves and have-nots” in their retirement years: bitcoin.
Here are 3 ways that bitcoin functions like digital real estate, and why it will likely eat away at its analog counterpart over time.
1. Universal Desirability
Bitcoin is a global, uncensorable, neutral reserve asset with no counterparty risk. As long as there is demand in the world for safe value storage, there will be demand for bitcoin.
Likewise, real estate will be in demand for as long as human beings need space to live and do business. Both bitcoin and real estate will always be in style with almost anyone in the world, making them ideal assets to accumulate with a low risk of long-term value collapse.
“A Bitcoin is a city block in cyberspace,” said MicroStrategy founder Michael Saylor during an interview on the Funky Crypto podcast in 2020. “If I told you a billion people are coming to that city, and you own the right property, why don’t you keep it in the family for a hundred years?”
2. Reliable Scarcity
Currencies can be printed, and stocks can be diluted through issuance. Consumer products like phones and cars can be reproduced to meet consumer demand.
Real estate is a different story, however. While more buildings can technically be constructed, it is a difficult and slow process to build more homes, especially in high-demand city centers that are already densely populated like New York, London, and Tokyo.
Due to factors like geography, climate, economic activity, and zoning laws, it grows more difficult to find locations to build homes and businesses that are actually desirable. Meanwhile, as the local population and currency supply rise in tandem, demand for land in these areas increases, driving up costs over time.
Bitcoin is likely to experience similar price appreciation to real estate over time since the asset is also reliably scarce. With a hard-coded supply cap of just 21 million units, bitcoin has repeatedly proven to appreciate faster when US interest rates are low. Both real estate and Bitcoin make for excellent long-term stores of value, and powerful hedges against inflation.
3. Yield Generation
Bitcoin’s loudest critics have long contested that it lacks real value because it is a non-productive asset with no intrinsic yield. “Apartments are going to produce rental, and farms are going to produce food,” said Berkshire Hathaway CEO Warren Buffet at the Woodstock for Capitalists annual meeting in 2022. [Bitcoin] isn’t going to do anything.“
But this difference is changing fast. Earlier this year, the launch of bitcoin spot exchange-traded funds in the United States gave bitcoin access to the financial rails and tooling of other investment products.
What’s more, BlackRock has now received approval from the Securities and Exchange Commission to list options for its bitcoin ETF. This will let bitcoin owners begin earning interest by selling call options to traders, turning bitcoin into an asset with cash flows. New technology is also boosting bitcoin’s productivity. Projects like Babylon are now working on bringing “staking” to bitcoin – a feature that lets you earn a yield on your BTC by locking it away to secure other blockchain networks.
This feature is already available for cryptocurrencies like ethereum, where stakers currently earn 3.2% APR.
Where Bitcoin Beats Real Estate
Not only does bitcoin share the core properties of real estate that make it a superb store of value, but its digital nature radically improves those aspects.
Real estate is landlocked by definition. Any particular piece of land is therefore at the total mercy of local regulations and tax laws, which can radically affect the value of a particular land investment over time.
By contrast, bitcoin is a fully fungible and global asset. Efforts to heavily tax bitcoin ownership will likely drive wealthy bitcoin owners overseas to regions that will treat them and their digital possessions most kindly.
Unlike real estate, bitcoin is also hyper-divisible – down to a fraction of a cent. This lets small buyers acquire bitcoin in small amounts and lets existing owners cash out of it in small pieces at their own discretion.
Real estate, however, has a barrier to entry. Young people in metropolitan areas must burden themselves with a hefty down payment and tremendous debt to own a home and enter the market.
Given bitcoin’s greater accessibility and superior returns to land over the past decade, it is no wonder why the asset is especially popular among young people. A survey from PolicyGenius in early April showed that 20% of Gen Z respondents in the U.S. owned crypto, versus just 5% of baby boomers. Compared to other investments, only 18% of Gen Z owned stocks, and 13% owned real estate.
With digital currency now a mainstay financial instrument, the life formula for financial success is being rewritten. For boomers, it was to go to college. For Gen X and early millennials, it was to buy a home.
For youth today, it might just be to HODL their bitcoin.
