Introduction
We live in a highly digitalized world, but most of humanity still uses physical goods to store value. The most used store of value in the world is real estate. It is estimated that approximately 67% of global wealth is held in property. Recently, however, macroeconomic and geopolitical headwinds have highlighted the weaknesses of real estate as a physical store of value. What to do if a war breaks out? What happens if a home that was used as a store of value is destroyed?
War And Destruction Of Wealth
Since the beginning of the 21st century, war has never cost humanity so much. Over 238,000 people were killed in conflict last year. Syria, Sudan, Ukraine, Palestine, Israel, Lebanon – the global sources of conflict are increasing. Some of these areas have already suffered massive destruction. There are no more properties there and the value stored in them has literally evaporated. It's hard to imagine the financial setbacks people have had to endure, apart from the suffering and grief that war brings.
Real estate is used as a store of value around the world, although there are some exceptions, such as Japan. With the threat of destruction increasing, the fruits of the labour of millions, possibly billions, of people are at stake. Alongside inflation and taxation, physical wealth destruction has historically been one of the greatest threats to overall prosperity. Already in ancient times, armies ruthlessly plundered cities and destroyed the residents' belongings.
Physical vs. Digital Store Of Value
Fortunately, with Bitcoin there is a solution to the threat of destruction of wealth stored in physical assets. As a digital, near-perfect mobile store of value, it is difficult to destroy and easy to move.
The introduction of Bitcoin in 2009 challenged the role of real estate as humanity's preferred store of value, as it represents a better alternative that allows people worldwide to protect their wealth with relative ease.
Digitalization
Digitization optimizes almost all value-preserving functions. Bitcoin is rarer, more accessible, cheaper to maintain, more liquid and most importantly, it allows you to move your wealth in times of crisis.
Bitcoin is wealth that truly belongs to you. With the threat of war looming around the world, I believe it is better to hold wealth in a digital asset like bitcoin than in physical assets like real estate, gold or art, which can easily be taxed, destroyed or confiscated.
Property Confiscation
If we look at history, it is clear that physical stores of value have left people vulnerable to government overreach. A historical example is the expropriation of Jews in Nazi Germany. Unfortunately, these repressions were not an isolated case in history. It happens all the time. Many lost their property in Cuba when Fidel Castro took over, as Michael Saylor likes to point out.
These painful history lessons underscore the significance of safeguarding wealth in a digital asset such as bitcoin, which proves challenging to confiscate, tax or destroy and easy to move.
Macroeconomic Changes
Additionally, shifts in the macroeconomic landscape can swiftly devalue real estate. Typically, real estate is purchased through a loan. Therefore, elevated interest rates translate to diminished affordability for financing, resulting in a decreased demand and subsequently lowering property prices. We can see this scenario playing out globally right now, the conjunction of increased interest rates and reduced demand is contributing to the decline in property values around the globe.
Bitcoin vs. Real Estate
Bitcoin is less affected by the problems of the traditional fiat financial system than real estate. Since it operates independently of the system. Variables such as interest rates, central bank decisions, and arbitrary governmental actions have limited influence on bitcoin. The price is predominantly determined by its supply, issuance schedule and adoption rate.
Bitcoin follows a disinflationary model that implies a gradual reduction in its supply over time until a hard limit is reached in 2140. Approximately every four years, the bitcoin awarded to miners for successfully ordering transactions (every 10 minutes) are halved.
The upcoming halving, set for Friday, April 19, 2024, is expected to halve the block reward from 6.25 bitcoin to 3.125, which translates to a daily issuance of 450 bitcoin instead of 900.
Currently, bitcoin has an annual inflation rate of around 1.8%, which is expected to drop to 0.9% after the upcoming halving. After that, the inflation rate will be almost negligible. In addition, a large number of bitcoin were lost and we can expect that many will be lost in the future. The continuous decline in finite supply increases the deflationary pressure of the Bitcoin network. As more and more people (and machines) are using bitcoin, increasing demand is countered by decreasing supply.
This extremely strong deflationary movement cannot be observed in real estate. Although real estate is also scarce due to the limited supply of building land, there is no hard cap. New building land can be developed and zoning laws can, for example, enable the construction of higher floors.
Absolute Scarcity
For most, it is difficult to imagine the impact of a fixed supply on the price of an asset. Prior to Bitcoin, there was no concept of an inherently scarce commodity. Even gold possesses an elastic supply. Increased demand prompts more intensive mining efforts, a flexibility not applicable to bitcoin.
Consequently, with each halving event, signifying a reduction in supply, the price of bitcoin ascends and continues to do so perpetually. This permanent increase persists as long as there is a corresponding demand, a likelihood attributed to bitcoin's exceptional monetary properties.
This dynamic is expected to continue even in the midst of a global economic crisis. The supply of bitcoin will continue to decrease and the price will most likely continue to rise. Due to the expected continued demand in times of crisis, as explained. Even inflation can have a positive impact on the price of bitcoin as it leads to increased availability of fiat currencies that can be invested in Bitcoin.
Conclusion
In a world marked by growing radicalization and a financial system undergoing a profound crisis, bitcoin emerges as a superior choice for storing value, especially during periods of macroeconomic fluctuations. The significance of bitcoin is anticipated to rise during these turbulent times, potentially overtaking real estate as humanity's preferred store of value in the distant future.
The aspiration is that an increasing number of individuals will recognize the advantages of Bitcoin, not only for wealth preservation but, in extreme circumstances, for securing their livelihood.
This is a guest post by Leon Wankum. Opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.
Frequently Asked Questions
Is buying gold a good option for retirement planning?
Buying gold as an investment may not seem very appealing at first glance, but when you consider how much people spend on average on gold per year worldwide, it becomes worth considering.
The most popular form of investing in gold is through physical bullion bars. There are other ways to invest gold. It is best to research all options and make informed decisions based on your goals.
If you don’t have the funds to invest in safe places, such as a safe deposit box or mining equipment companies, buying shares of these companies might be a better investment. Owning gold stocks should work well if you need cash flow from your investment.
ETFs are an exchange-traded investment that allows you to gain exposure to the market for gold. You hold gold-related securities and not actual gold. These ETFs often include stocks of gold miners, precious metals refiners, and commodity trading companies.
Can I buy or sell gold from my self-directed IRA
Although you can buy gold using your self-directed IRA account, you will need to open an account at a brokerage like TD Ameritrade. If you already have a retirement account, funds can be transferred to it.
Individuals can contribute as much as $5,500 per year ($6,500 if married filing jointly) to a traditional IRA. Individuals can contribute as much as $1,000 per year ($2,000 if married filing jointly) to a Roth IRA.
You should consider buying physical gold bullion if you decide to invest in it. Futures contracts are financial instruments that are based on gold's price. You can speculate on future prices, but not own the metal. You can only hold physical bullion, which is real silver and gold bars.
What does gold do as an investment?
The supply and the demand for gold determine how much gold is worth. Interest rates can also affect the gold price.
Due to the limited supply of gold, prices for gold are highly volatile. In addition, there is a risk associated with owning physical gold because you have to store it somewhere.
How much money should I put into my Roth IRA?
Roth IRAs allow you to deposit your money tax-free. You can't withdraw money from these accounts before you reach the age of 59 1/2. However, if you do decide to take out some of your contributions before then, there are specific rules you must follow. First, your principal (the deposit amount originally made) is not transferable. You cannot withdraw more than the original amount you contributed. If you are able to take out more that what you have initially contributed, you must pay taxes.
The second rule is that you cannot withdraw your earnings without paying income taxes. Withdrawing your earnings will result in you paying taxes. Let's suppose that you contribute $5,000 annually to your Roth IRA. In addition, let's assume you earn $10,000 per year after contributing. You would owe $3,500 in federal income taxes on the earnings. That leaves you with only $6,500 left. Because you can only withdraw what you have initially contributed, this is all you can take out.
You would still owe tax on $1,500 if you took out $4,000 of your earnings. You would also lose half of your earnings because they are subject to another 50% tax (half off 40%). You only got back $4,000. Even though you were able to withdraw $7,000 from your Roth IRA,
Two types of Roth IRAs are available: Roth and traditional. Traditional IRAs allow for pre-tax deductions from your taxable earnings. To withdraw your retirement contribution balance plus interest, your traditional IRA is available to you. You have the option to withdraw any amount from a traditional IRA.
Roth IRAs are not allowed to allow you deductions for contributions. Once you are retired, however, you may withdraw all of your contributions plus accrued interest. There is no minimum withdrawal amount, unlike traditional IRAs. You don’t have to wait for your turn 70 1/2 years before you can withdraw your contributions.
Can I own a gold ETF inside a Roth IRA
Although a 401k plan might not provide this option, you should still consider other options like an Individual Retirement Account (IRA).
A traditional IRA allows for contributions from both employer and employee. Another way to invest in publicly traded companies is through an Employee Stock Ownership Plan.
An ESOP offers tax benefits because employees can share in the company stock and any profits that it generates. The money you invest in the ESOP will be taxed at a lower rate than if it were directly held by the employee.
A Individual Retirement Annuity is also possible. You can make regular payments to your IRA throughout your life, and you will also receive income when you retire. Contributions made to IRAs are not taxable.
What precious metal is best for investing?
The answer to this question depends on how much risk you are willing to take and what type of return you want. Although gold has traditionally been considered a safe investment choice, it may not be the most profitable. For example, if your goal is to make quick money, gold may not suit you. You should invest in silver if you have the patience and time.
If you don’t want to be rich fast, gold might be the right choice. However, silver might be a better option if you're looking for an investment that provides steady returns over long periods.
Statistics
- If you accidentally make an improper transaction, the IRS will disallow it and count it as a withdrawal, so you would owe income tax on the item's value and, if you are younger than 59 ½, an additional 10% early withdrawal penalty. (forbes.com)
- Indeed, several financial advisers interviewed for this article suggest you invest 5 to 15 percent of your portfolio in gold, just in case. (aarp.org)
- This is a 15% margin that has shown no stable direction of growth but fluctuates seemingly at random. (smartasset.com)
- The price of gold jumped 131 percent from late 2007 to September 2011, when it hit a high of $1,921 an ounce, according to the World Gold Council. (aarp.org)
- Instead, the economy improved, stocks rebounded, and gold plunged, losing 28 percent of its value in 2013. (aarp.org)
External Links
bbb.org
forbes.com
- Gold IRA, Add Sparkle to Your Retirement Nest egg
- Understanding China's Evergrande Crisis – Forbes Advisor
cftc.gov
wsj.com
- Saddam Hussein's Invasion Helped Uncage a Bear In 1990 – WSJ
- Want to Keep Gold in Your IRA at Home? It's Not Exactly Legal – WSJ
How To
The growing trend of gold IRAs
Investors seek diversification and protection against inflation by using gold IRAs.
The gold IRA allows owners to invest in physical gold bullion and bars. It can be used as a tax-free way to grow and it is an alternative investment option for people who are not comfortable with stocks or bonds.
A gold IRA allows investors to manage their assets without worrying about market volatility. Investors can use the gold IRA for protection against inflation and potential problems.
Investors also get the unique benefits of owning physical Gold, including its durability, portability, flexibility, and divisibility.
Additional benefits of the gold IRA include the ability to quickly pass ownership to heirs. Additionally, the IRS does not consider gold a money or a commodity.
Investors looking for financial security are increasingly turning to the gold IRA.
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By: Leon Wankum
Title: Bitcoin vs. Real Estate: Which Is The Better Store Of Value In Times Of Conflict?
Sourced From: bitcoinmagazine.com/markets/bitcoin-vs-real-estate-which-is-the-better-store-of-value-in-times-of-conflict-
Published Date: Mon, 12 Feb 2024 17:33:26 GMT
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