The Role of Real Estate and Its Utility Value on a Bitcoin Standard
The Bitcoin Newsletter 22
Welcome to the 22nd edition of The Bitcoin Newsletter,
June marked one of Europe's largest Bitcoin conferences, BTC Prague, where I had the privilege of sharing my views with the community and beyond. I am thrilled to reflect on the positive feedback I received on my keynote, “Bitcoin and Real Estate: How bitcoin is revolutionizing the largest asset class in the world.”
This presentation was the culmination of years of work, and I look forward to giving you an even deeper insight into the topics of my keynote by sharing the process of writing my book, Digital Real Estate. This book will take an in-depth look at the paradigm shift Bitcoin brings to the real estate sector and provide strategies for successfully navigating these changes.
In this 22nd issue of The Bitcoin Newsletter, I will explore the utility value of real estate on a Bitcoin standard. This exploration has been critical in developing practical strategies to address the changes brought about by bitcoin, which, as a near-perfect digital store of value, represents digital disruption for an industry, like real estate, traditionally used to store wealth.
Best regards,
Leon
DEEP DIVE
The Role of Real Estate and Its Utility Value on a Bitcoin Standard
To fully grasp the role of real estate in the market’s pricing structure, one must examine its historical significance. Throughout history, land and real estate have consistently served as fundamental assets in most economies. This role was clearly evident, for example, in ancient Rome, where a significant portion of wealth was tied to land ownership. However, this wealth was not quantified in the same way we understand real estate investment today. Instead, land ownership was a primary indicator of political and social status. It was a requirement for certain political positions, tying political power directly to landholding.
Land ownership was also a sign of prosperity. The elite, including senators and equestrians, invested heavily in land as a means of wealth generation through agriculture and leasing. But, the concept of "investing in real estate" in the modern sense would not apply to the Roman context. Rather, wealth acquisition and preservation through land ownership were more about maintaining and expanding privately held agricultural estates, villas, and urban properties.
The value of real estate was mainly understood in terms of its productive capacity (e.g., agricultural output), it was priced based on its utility value, rather than as an investment class for solely hedging against currency devaluation.
It wasn't until the decline of the Roman Empire, particularly during the widespread devaluation of its gold currency, the Aureus, in the 2nd and 3rd centuries AD, that the value of land as a stable asset in the face of depreciating currency became more pronounced.
While real estate was central to status and wealth in the Roman Empire and appreciated in the face of monetary inflation, it played a different role in the economy than it does today.
This difference stems primarily from the modern fiat system, in which banks can create money through lending practices. Banks are incentivized to do so because the interest charged on money lent serves as a significant source of revenue. This dynamic has had a profound impact on debt-intensive sectors like real estate, increasing its economic importance and nominal value.
The historical role of real estate as a cornerstone of wealth and power is a theme that recurs across different cultures and epochs, dating back for more than 3000 years. By examining this history, we can understand how real estate will be valued in the future.
Its high valuation today, driven by its use as an inflation hedge on a fiat standard, is a historical abnormality. However, the enduring connection between land ownership and wealth across various cultures and epochs highlights the significance of real estate in shaping the economy, as well as social and political structures.
This relationship is evident in numerous historical contexts, where land served as a key determinant of power, wealth and status. Notable examples include:
In the Zhou dynasty in China (1046 BC until 256 BC), land was distributed according to the feudal principle of fiefs;
In the Byzantine Empire (330 AD until 1453), large estates supported a complex system of vassalage that underpinned both the economy and the state structure;
In the shogunate system in Japan (1192 AD until 1868 AD), land was controlled by powerful samurai lords;
In Europe during both the feudal period (5th to 15th century) and the subsequent era of monarchy, the manorial system and later royal land grants ensured that land ownership was central to power and wealth;
In colonial Latin America (1492 AD until 1824 AD), encomiendas and haciendas were granted to Spanish settlers, giving them control over large tracts of land and the indigenous population; and
In the Mughal Empire in India (1526 AD until 1857 AD), land revenue was a significant source of state income and social status.
Given the great historical significance of real estate, we can expect it to also play an important role on a Bitcoin standard, a hypothetical reality in which bitcoin is the world's main store of value and unit of account. However, since we can expect real estate to return to its utility value, it is crucial for real estate developers to manage this paradigm shift correctly. If this paradigm shift is managed correctly by integrating bitcoin into real estate structures, real estate will remain an attractive and valuable asset, linked to wealth, though not as excessively as it is today.
In that scenario, unlike today, real estate would no longer function as the primary store of value. However, properties that generate income or are desirable due to their location or architecture will continue to represent good businesses or investment opportunities because they provide tangible benefits.
Income-generating properties offer a steady cash flow, while properties in prime locations or with unique architectural features can attract higher demand and maintain their value due to their desirability.
On a Bitcoin standard, the utility value of land would be less quantified by its agricultural capacity and more by renting it out for living, production, or manufacturing purposes, much like in today's highly digitalized world where agriculture plays a less significant role. The utility value of some land might even be quantified by its ability to host Bitcoin miners. Land close to cheap energy sources like hydro will likely increase in value due to its suitability for Bitcoin mining.
We can already see this trend playing out today, with land near low-priced energy sources increasingly being utilized for hosting Bitcoin mining operations.
Since real estate cannot compete with bitcoin in its function as a store of value, its monetary premium is likely to gradually shift to bitcoin. Given this anticipated shift, developers must consider how to navigate this transition to ensure continued prosperity.
As mentioned during my keynote at BTC Prague, I have developed practical strategies to address the changes brought about by bitcoin, an almost perfect digital store of value, for the real estate sector, which derives most of its value from being used to store wealth.
These strategies aim to prepare real estate developers for a potential shift towards a Bitcoin standard, where real estate may no longer dominate, while reaping the benefits of both asset classes: bitcoin’s price appreciation and real estate's cash flow.
Bitcoin, as an absolutely scarce and decentralized asset that exists outside the inflationary fiat system, offers resilience, acts as a hedge against inflation, and strengthens the market from within.
This can enable the real estate sector to thrive despite losing its monetary premium to bitcoin. By directly integrating bitcoin as a complementary store of value, real estate can still prosper. This integration will also help the sector thrive amidst harsh inflationary conditions and become more independent of the state.
Greater independence from the state means companies are less affected by questionable decisions made by central banks and governments, which often lead to inflation and overregulation, ultimately destroying productivity.
WORTH TO KNOW
Podcast and publications
Bitcoin and Real Estate (BTC Prague 2024 Keynote)
At this year's BTC Prague, Europe's largest Bitcoin conference with around 10,000 participants, I gave a keynote on the topic “Bitcoin and Real Estate: How bitcoin is revolutionizing the world's largest asset class”. This was my first keynote and I am particularly pleased with the positive feedback. I will continue to share strategies and ideas around Bitcoin and real estate with you and focus on finishing my book with the working title Digital Real Estate, which should be ready early next year. WATCH
Investment in Over Regulated Environment (BTC Prague 2024 Panel)
While I believe regulation, especially when it comes to Bitcoin, is questionable, I recently participated in a very interesting conversation on Bitcoin and regulation.
During this discussion, I shared some ideas on how using bitcoin as a digital store of value that cannot be inflated or manipulated at will can make real estate investors less dependent on regulation. WATCH
IDEAS OF INTEREST
BTC Prague – My favorite videos:
Tuur Demeester — Bitcoin: Europeans' Mithril WATCH
Rahim Taghizadegan — Investing and Venture Capital in the Age of Bitcoin WATCH
Immortal Money: Michael Saylor on why Bitcoin is Perfect Capital WATCH
If you want to support me. Feel free. You can send me some satoshi/bitcoin.
Lightning: law@getalby.com
On-chain: bc1qyc9q89wjzmvaw729tj3wsrsfhft53mjycrjxdk
Nostr PubKey
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Resources
Mises Institute - It Didn’t Begin with FDR: Currency Devaluation in the Third Century Roman Empire
Leon Wankum - Real estate vs. Bitcoin: Dismantling The Cash-Flow Narrative
Leon Wankum - Bitcoin vs Real Estate: What is the Superior Store of Value?
Leon Wankum - The Role of the Monetary Premium in Real Estate
Photo Credit: Grand Central Station, NY; 1934. (Photo by Hal Morey/Getty Images)
Disclaimer: the content is for informational purposes only, you should not construe any such information or other material as legal, tax, investment, financial, or other advice. Make sure you do your own research before making any investment and be aware of your own risk tolerance. If you like to build on my thoughts, feel free, but please cite me as the source. 2024 - Leon A. Wankum.
Editing and content creation by Clemens Haidinger.
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Another good read. Thanks Leon.