Last updated on December 1st, 2021 at 06:49 pm
With surging Bitcoin prices in recent years, cryptocurrencies have emerged as a popular investment avenue for many investors. However, when it comes to investment opportunities, two asset classes that have often been compared are real estate and cryptocurrencies, specifically the largest crypto of them all, Bitcoin. As a result, many investors have found it challenging to discern between them and decide where to invest.
This article will compare Bitcoin and Real Estate and also provide you with information about both investment opportunities that will help you decide which investment is best for you.
Let’s dive in!
Bitcoin – Is It A Good Investment?
One of the newest asset classes available to investors is Cryptocurrency, especially the most popular one, Bitcoin (BTC). Backed by blockchain technology, cryptocurrencies are digital or technological currencies that can provide different utilities such as; acting as a medium of exchange, store of value, granting token holders certain rights, etc.
For this article, we will focus on Bitcoin as an investment opportunity as it’s the safest bet when it comes to investing in crypto. This is because Bitcoin is the largest Cryptocurrency by market capitalization and has been around for more than a decade. Moreover, it has started gaining real-world acceptance, and its adoption by countries like El Salvador as a legal tender is a testament to that. Furthermore, given that Bitcoin has a fixed supply capped at 21 million Bitcoin, many people compare Bitcoin Vs Gold and refer to it as Digital Gold.
Fundamentals Of Bitcoin
Before we move on to the pros and cons of investing in Bitcoin, we must understand the fundamentals of the underlying asset in question. So let’s take a look:
- Decentralized – Bitcoin is not controlled or regulated by a central authority like a bank or a financial institution.
- No Jurisdiction – Since Bitcoin is a decentralized currency and has a blockchain network that anyone can become a part of, it does not come under any one country or a group of countries.
- Anonymous – Using the Bitcoin blockchain, users can make transactions without disclosing any personal information or getting KYC done.
- Transparent – Anyone can see the data on the Bitcoin blockchain as all the information is publicly available.
- Permissionless – As no one controls it, users from anywhere in the world, can access the Bitcoin blockchain.
- Open-source – The code of the Bitcoin blockchain is open-source and can be accessed by any developer.
Pros And Cons Of Investing In Bitcoin
The pros of investing in Bitcoin are as follows:
- Long-term returns – Since its launch in 2009, Bitcoin has provided incredible returns to its early investors. Even if you see the returns yearly or over the past five years, not many assets can boast of similar returns. Compared to its traditional store of value competitor, Gold, Bitcoin has outperformed Gold every year since 2011.
- Enhanced Liquidity – Bitcoin is very easy to buy and sell on exchanges worldwide. You can sell your Bitcoin and convert it to fiat currency on a crypto exchange within minutes.
- Hedge against inflation – Bitcoin is quickly gaining acceptance as the best investment for hedging against inflation, with some even arguing that it is a better hedge than Gold.
- Low barrier to entry – One can buy Bitcoin with as little as $10 as 1 BTC can be divided into smaller units called Satoshi or Sats, equivalent to 100 millionth of a bitcoin.
- Market Leader – Being the first cryptocurrency ever to exist, Bitcoin has the largest market capitalization among all cryptocurrencies and thus is considered to be relatively stable and a safer investment option.
- Fixed Supply – Given that Bitcoin has a fixed supply of 21 million Bitcoin, it is a scarce asset that will only become scarcer with time. Thus, if demand remains the same, one can expect the prices of Bitcoin to continue rising.
The cons of investing in Bitcoin are as follows:
- The volatility of the crypto market – Given that Bitcoin and cryptocurrencies, in general, is a relatively new asset class that has been around for slightly longer than a decade, the market is still immature and, thus, is highly volatile.
- Its intrinsic value is questionable (to some) – As Bitcoin derives value from users who believe in it and continue to use it, many believe it does not have any intrinsic value. However, one can say this about any asset, currency, or even fiat that the government controls. Thus, as long as people trust Bitcoin and continue to use it, there is no real reason to worry. But, the con here, in reality, is that you will come across many skeptics who will make you question whether Bitcoin has any value or not.
- Lack of security – While there is no central authority controlling the Bitcoin network is a pro of Bitcoin, it can also be a problem in case of fraud as there is no one you can complain to. Thus, it’s advisable to learn all you can about Bitcoin before you invest.
- Lack of regulatory clarity – Many countries and their governments are still unclear on how to treat Bitcoin and other cryptocurrencies from a regulatory point of view. This has led to many FUD among many, and there is a need for regularity clarity. However, while we wait for the governments to take a solid stance on Bitcoin, one will have to go through this period of uncertainty.
Understanding Real Estate Investment
The process of purchasing property to sell it to make a profit or renting it out is called real estate investment. Real estate is an asset class that is used by many mainly for diversification purposes. Over the years, with growing economies worldwide, real estate investment has helped many investors amass generational wealth.
Pros And Cons Of Investing In Real Estate
Let’s take a look at the pros and cons of investing in real estate.
Pros:
- Long-term stability – The real estate market is considered one of the most stable financial markets as it does not experience any sudden crashes or fluctuations. Thus, it is considered to be one of the less volatile investment opportunities.
- Tangibility – Real estate is a physical object you have complete control and ownership over as an investor.
- Usability – Given that real estate is a tangible asset, it can be used in the real world for renting out or even for personal use.
- Additional means of income – As real estate can be rented out, it can become a good alternative cash flow option for your monthly expense or just as a form of additional income
- Diversification – Many investors use real estate to diversify their portfolios and hedge their risk against more volatile assets like stocks.
- Tax benefits – To further promote the sale and purchase of real estate to boost the economy, the government in many countries, offer tax benefits to investors in real estate.
Cons:
- Low liquidity – The process of cashing in on your real estate investment can take several months or even years. As a real estate property stays longer for sale in the market, it becomes even more difficult to sell it. Moreover, it’s challenging to find a buyer for your property that agrees to purchase on your terms.
- High transaction costs – Buying a property has many hidden costs and fees. For example, real estate investors have to pay appraisal fees, registration fees, property taxes, insurances, etc.
- High maintenance costs – To sell your property for a profit, you have to ensure that it’s in top-notch condition, and thus, you have to maintain it while you own it, which can be expensive.
- A slow increase in value – While real estate investment is a good asset class for diversification purposes, it is not necessarily the best option if you’re looking to make a quick profit as real estate property prices increase very slowly.
A House Or One Bitcoin – Which Is The Smarter Investment?
Deciding whether to invest in Bitcoin or real estate largely depends on your investment objectives and your knowledge of the asset class.
Moreover, it’s essential to consider the risk Vs returns.
- Cryptocurrencies and Bitcoin are considered high-risk and high-reward investments at the same time.
- Real estate is considered riskier than traditional safe-haven investments like Gold but safer than asset classes like stocks and cryptocurrencies.
For instance, if you’re actively working in the cryptocurrency and FinTech niche and have some capital you can invest in slightly riskier asset classes, Bitcoin might be the best option. However, if you’re someone who does not understand cryptocurrencies and is looking for a more stable investment opportunity that can help you generate profits over a longer period, investing in real estate can be an option that you can consider.
Furthermore, when you’re making such a decision, it’s important to consult a financial advisor who can guide you through the process and help you analyze your options.
In Conclusion…
- Whether to invest in cryptocurrencies or real estate is a question that is troubling many. Unfortunately, there is no single answer that applies to everyone, and to decide which is better for you, you should learn more about both asset classes.
So, which asset class do you think is a better investment opportunity; cryptocurrencies or real estate? Where have you invested?
Comment below and let us know more!
If you would like to read more articles like this, follow DeFi Planet on Twitter and LinkedIn.
