06 June 2021

Renting and Buying Crypto is Better than Buying Real Estate

Many people say that they are investing in crypto in order to be able to afford a deposit or downpayment (usually 20%) on a property. However, based on my analysis, it would be better to keep renting and investing in crypto rather than buy a house or apartment.

Historic prices
Most people use historic or past prices as a guide to future returns, so e.g. in America or Australia house prices double approximately every 10 years. See https://www.brickx.com/properties/BRW01/returns to get an idea of typical house price growth.

If you check out the global crypto market cap chart, you'll see that it multiplies by 10 approximately every 4 years. See https://coinmarketcap.com/charts/ to get an idea of crypto price growth. This means that in ten years crypto should multiply by 500.

So the assumption here is that real estate doubles every ten years but crypto 500xs every ten years.


So let's say you have two people, a crypto investor and a property investor, and they want to live in a house that costs $1 million. In order to meet the downpayment or deposit requirements they would need to save up 20% or $200k.

So the property investors, after saving $200k, buys the house and now has $800k in debt and pays a mortgage. Assume this investor gets a 30 years loan. After 30 years, the debt is fully paid off. The house doubles every ten years, so that means after 30 years the house multiplies by 8 which means the property investor, after 30 years, has a net worth of $8 million.

However, the crypto investor, after saving $200k, rather than buy a house, continues to rent and puts the $200k into crypto. The crypto then 500xs every ten years, which means that after 10 years, the renter has $100 million net worth. After 20 years, the renter has $50 billion. After 30 years, the wealth is too much for my calculator to handle.

What this demonstrates is that it is better to rent and invest in crypto rather than buy a house.

Is it right to use historical futures to predict future returns?

Some may argue that you cannot take historic crypto prices and extrapolate them to the future, but this applies to property as well. If we cannot use historic prices as a guide for future returns then we cannot make any decision on renting vs buying. We need to make a decision, so imperfect information leading to a decision is better than no information leading to no decision.

Is property less risky than crypto?

Some argue that crypto is risky and volatile whereas property is not, but this is not true. With crypto, you can diversify easily. The $200k downpayment can be diversified across multiple coins, including stablecoins and gold-backed coins to reduce volatility. Furthermore, there is an option of dollar cost averaging that the renter has. The property investor has no such option. The property investor is all in one property in one location and is leveraged. There is also no option for dollar cost averaging. Furthermore, the price stability of property is not real. Crypto prices update every minute, which creates perceived volatility. However, if there is an auction on your property every single day, you will see price volatility. Only having an auction when you buy or sell a house and seeing only two price points and drawing a straight line between these two points is equivalalent to buying crypto ten years ago, never looking at the price, and then ten years later looking at the price.

I personally would feel safer owning BTC than real estate. You can own BTC with a seed phrase. However, when you own property, your name is on a register maintained by the government, and who knows what could happen to this register or your name on it. Furthermore, property is hard to divide. You can buy 0.0005 BTC but not 0.0005 of a house. This limits your ability to diversify or dollar cost average.

Of course, I do agree with you that crypto prices are volatile and more volatile than property. As I mentioned, crypto is expected to 500x in a decade whereas property is expected to 2x. This clearly has more volatility. However, volatility is the reason why you'd invest in property vs holding cash. Crypto is volatile, but property is also very volatile. It can double in ten years or it can halve in ten years. If you wanted no volatility, you wouldn't invest in crypto or property but rather keep your money in USD or whatever your local fiat currency is. The fact that crypto is highly divisible means you can diversify more easily and scale how much volatility you want. For example, just putting 1% of your net worth into bitcoin and the rest in cash would have outperformed the S&P500. You can scale your BTC or crypto exposure to achieve a level of volatility that suits how much risk or volatility you can stomach.

Could crypto prices go to zero?

I think if you diversify across many crypto, especially the larger cryptos (e.g. BTC, ETH, ADA, BNB, etc), it's highly unlikely it will go to zero. Diversifying across the top cryptos is a good strategy, in my opinion.

Property can go to zero. Your ownership of property comes from your name in a government register. The government could collapse or there may be a change of government, with malicious politicians coming in and seizing your property. There are many example of property disputes that resulted in people losing their home.

You can insure your house but you cannot insure cypto

Property insurance e.g. floor insurance or fire insurance, are pretty much contracts taht allow you to take a short position on property. So when there is a flood or a fire, the value of your property goes down, and the insurance company pays you to compensate. Basically, the insurance company pays you if the price goes down. The crypto equivalant is shorting the crypto or simply selling a portion of it. This reduces the degree to which you are long the asset.

Crypto as "online property"

Furthermore, crypto and property are somewhat similar. In my view, crypto is a type of "online property." You are buying online real estate when you buy crypto. The argument many give that crypto is speculation can apply to property as well. If you look for a good property that is in a good location close to a train station, etc then that is no differnet to if you look for a good crypto that has good developers, etc. It is all speculation, so you may as well make informed speculation.

Is real estate better because it is tangible?

Something being tangible doesn't make it safer or better.

A good example is if you compare property to USD. Property is tangible but USD is not, but property is a more volatile asset compared to USD.

One reason why I don't like tangible assets is because of the risk of theft. If you own a house or e.g. physical gold, someone could come and destroy your house, steal the title deed, or steal your gold. Properly stored crypto cannot be stolen. Mathematical law in cryptography ensures e.g. bitcoin cannot be stolen. However, the laws of physics enable physical gold or the title deed to property to be stolen.

Why I am bullish on crypto

When interest rates go down very low and bank interest rates go down to almost nothing (or negative) then why wouldn't someone go into crypto and earn higher interest via staking or defi? This should increase demand for crypto and increase prices.

I admit this is speculation, but this sort of speculation on supply and demand is no differnet to the speculation required when you buy property e.g. you predict how much demand there will be for the property based on its location, pedestrian traffic, etc.

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