Choosing between the best investments can be very confusing. The uncertainty brought about by the coronavirus pandemic makes this choice even tougher. If you make the right move, you could enjoy a great return on investment for years to come. On the other hand, you could lose everything if you invest in the wrong place.
For a long time, real estate has been one of the best ways of making money globally. Andrew Carnegie once said that 90% of all millionaires become so through real estate. Though real estate lost 42.3% of its value in the US housing market crash of 2008, it has experienced consistent growth ever since. According to the S&P 500 Real Estate Index, the returns from real estate grew by 29% in 2019.
Bitcoin is the most hyped asset class in the market right now. With its exponential rise in value over the last decade, Bitcoin has captured the attention of individual and institutional investors all over the world.
The question on the minds of many people is, ‘Real estate vs Bitcoin: Which is the better investment?’
Before we talk about which is the winner, real estate vs Bitcoin, it is important to understand what Bitcoin is and how it works.
So, What Exactly Is Bitcoin?
Created in 2009 by an individual or group under the pseudonym Satoshi Nakamoto, Bitcoin is a form of digital currency or cryptocurrency. Just like any other currency, Bitcoin can be used to buy goods and services from merchants that accept Bitcoin payments. One Bitcoin can be subdivided into smaller units called satoshis, with one satoshi being 0.00000001 of a Bitcoin.
Bitcoins are created using a process called ‘mining’ which involves solving complex math puzzles. They are then stored in a digital wallet which could be in the cloud or on a user’s smartphone or computer. Users can save money, pay for goods, or send/receive Bitcoin from their wallets.
Here are some of the main characteristics of Bitcoin:
- Decentralized – Conventional currencies like Yen, Dollar, and Euro are controlled and regulated by central banks. Bitcoin, on the other hand, is not controlled by any single institution.
- Anonymous – Financial institutions know almost everything about their customers; phone numbers, credit history, spending habits, etc. With Bitcoin, people can transact without revealing their identity.
- Transparent – All Bitcoin transactions are stored permanently in the Blockchain which is visible to the public.
Is Bitcoin a Good Investment?
Investing in Bitcoin is getting popular due to several reasons:
- Low barrier to entry – As mentioned earlier, one Bitcoin can be subdivided into smaller units. This means that you can start buying Bitcoin with as little as $100.
- Rising prices – With the increasing interest in Bitcoin, more individual and institutional investors are rushing to get a piece of the pie. It is projected that the price of one Bitcoin will surpass $100,000 in a few years.
- Stability – Being the first cryptocurrency, Bitcoin has proven to be a reliable and secure asset.
Real Estate vs Bitcoin
- It could be a bubble – An asset can be referred to as a bubble when its price is far above its intrinsic value. The sharp spike in the price of Bitcoin over the past years is based mainly on speculation, rather than fundamentals.
- Security issues – Since Bitcoin is stored digitally, it is at risk from malware, hackers, and operational glitches. If a hacker gets access to a Bitcoin investor’s private encryption keys, they can easily transfer the Bitcoins to a different account. Hackers also target Bitcoin exchanges with thousands of Bitcoin accounts. The biggest hacking incident happened in 2014 when about $460 million worth of Bitcoin was stolen from Mt. Gox.
- Extreme volatility – Due to its extreme volatility in value, Bitcoin is a very risky investment. For example, in 2017, Bitcoin value rose from about $1,000 to a high of $19,783 in December. By April 2018, the value had plummeted to below $7,000.
- Government regulations – Bitcoin is often viewed as a rival to the conventional government currency. In addition, this digital currency has been used for money laundering, tax evasion, black market transactions, and other illegal activities. As a result, governments are likely to find a way to restrict, regulate, or ban the sale and use of Bitcoins. Watch out for regulations from bodies like the IRS, the Commodities and Futures Trading Commission (CFTC), the Securities and Exchange Commission (SEC), the Financial and Crimes Enforcement Network (FinCEN), and the Office of the Comptroller of the Currency (OCC).
- Backed by tangible asset value – Real estate investments are backed by physical structures or land.
- Source of cash flow – Investing in rental properties (traditional or Airbnb) allows you to enjoy cash flow through monthly income. However, be sure to use tools like Mashvisor’s Investment Property Calculator to analyze the performance of property before buying.
- Hedge against inflation – Housing values and rents typically increase in direct proportion to inflation.
- Tax benefits – Real estate investors are eligible for tax deductions such as depreciation, taxes, insurance, repairs, commissions, and utilities.
- Low mortgage rates – Due to COVID-19, mortgage rates have dropped to historic lows in 2020. This means that you can venture into the US housing market 2021 without having to pay much for an income property.
Real estate vs Bitcoin: Which is the best option?
Bitcoin is a highly speculative asset with incredible rewards and risks. If you choose to venture into it, do so with utmost caution. But at the end of the day, real estate is generally the better investment.
If you are thinking of buying a rental property, you can find traditional and Airbnb investment property using Mashvisor’s Property Finder. Off market properties like foreclosures and short sales can be found on the Mashvisor Property Marketplace. Start your search now.