Bitcoin or property? Darcy Ungaro discusses how to choose the right investment for your personal situation.
Bitcoin or property? Darcy Ungaro discusses how to choose the right investment for your personal situation.
Opinion by Darcy Ungaro
Darcy Ungaro is an authorised financial adviser and the host of the NZ Everyday Investor podcast.
THE FACTS
Property has long been a popular investment for building wealth, offering leverage and potential tax-free gains.
Bitcoin, despite its volatility, provides digital scarcity and can be part of a savings strategy.
Investors should consider their goals, risk tolerance and investment horizon when choosing between property and Bitcoin.
Remember when a property was just a home? Reminiscing idealistically through rose-tinted glasses, I recall a time when a home wasn’t an “asset”– it was shelter, and a container for families.
Fast-forward a generation, and property is the investment of choice for Kiwis, including me, to buildwealth with.
Property investors provide a long-term accommodation service to those who can’t afford to own a home.
Despite its volatility, Bitcoin offers digital scarcity and can serve as a component of a broader savings strategy. Image / Getty Images
Isn’t that a scam?
I first heard about Bitcoin in 2012 when it was worth around $1. Initially, I wrote it off as “fake internet money”, and then I wrote it off as a scam, a failed experiment, and finally only something only criminals used.
“I’m smarter than that,” I thought, but one Bitcoin is worth more than US$100,000 ($164,700) today, so apparently not! After a bit more research, I concluded there’s far more crime committed at the end of a rolled-up $20 bill than there is with Bitcoin.
If you’re buying something dodgy, cash is way better than a public blockchain that displays your transactions 24/7.
A bit more research later, I reluctantly realised this was engineered digital scarcity, money that could exist outside a bank and beyond national state control.
Could this become a type of money useful for a digital world?
I went on to discover that most cryptocurrencies are more like digital start-ups, each trying to solve different problems, but Bitcoin was different.
It was born amid the fallout of the Global Financial Crisis and it carried with it a mission: “Fix the money, to fix the world.” I’ll have a bit of that, thank you very much.
Property v Bitcoin: which is the ‘better’ investment?
Everyone takes their own sweet time, but eventually, the question pops up: “Which is better?”
I have to be honest: the real question shouldn’t be about the investment, it should be about the investor.
How long are you willing to invest? How much volatility can you stomach? Are you chasing capital gains or cashflow? Once you know what you’re building, only then should you choose the tools.
Property has traditionally been a go-to investment for building wealth, thanks to leverage and possible tax-free gains. Photo / 123RF
Some of us should consider Bitcoin, some should consider property and some should do both. If you’re able to save a deposit, property’s still a great way to take a pile of money and watch it grow. Banks have a great business model here.
They provide leverage, tenants help with cashflow and, for now, your capital gains might even be tax-free. What’s not to like?
Well ... the Sunday call about a rat infestation that turns out to be three-week-old raw chicken in the pantry? The stained carpets, the missed rent, rising interest rates, and council taxes? Meanwhile, Bitcoin just sits there.
No cashflow – just cryptographically secured digital scarcity. That’s it.
The dirty secret
Property’s tough to beat on a good day, don’t get me wrong, but there’s a secret bank economists dare not declare: New Zealand’s housing market thrives because of inflation … of the money supply.
Every time the Government, businesses and everyday people need to borrow, banks create new money from nothing and inflate the economy with more units of currency. More money chases the same amount of stuff for sale, and prices naturally climb.
Yes, immigration, a tight labour market and limited supply all play a part in growing house prices, but it’s nothing compared to the truth. Property wealth is the side effect of exploiting the “credit creation process”.
Choosing between property and Bitcoin comes down to how you want to grow and protect your money. Photo / 123rf
Wonder why a duplex can double in value every decade? Consider the rate at which new currency floods the system. New Zealand is a housing market with an economy bolted on.
Banking is what props our economy up. As long as this sounds like kooky conspiracy stuff, property investment will continue to work well.
At some point, however, the vibe can shift. What would happen if there’s no longer a generation willing to buy the houses of the one that went before them?
How much Bitcoin should you buy?
Property investment works because banks create infinite money that we can use to buy physical scarcity. Bitcoin works because you can take your own money right now, and trade it for digital scarcity.
So, how much? As a general guide, take everything you own, subtract the value of your home, then subtract everything you owe, then multiply what’s left by between 1% and 10%. If you see Bitcoin as an “investment”, that’s your range.
Buy well, not blindly—how much? Start with what you truly own, subtract what you owe, and invest wisely within your means. Photo / 123RF
This is not financial advice, of course! There’s another way to look at it, however. Unlike shares, bonds or property, Bitcoin is a form of money that, despite its volatility, can be considered part of a savings strategy.
Unlike cash, which loses roughly half its purchasing power every 25 years, Bitcoin can rise in value as infinite money finds a home in it.
So, to increase your purchasing power over time, saving Bitcoin, instead of speculating with it, could be the way to go. If you feel you really understand it, you may consider holding more and might even sell investment properties to get more of it.
Stick to property or try Bitcoin?
If you’re okay with extreme price swings, you’re investing for at least 10 years, and there’s already some wealth behind you, Bitcoin could be an option for how you want to grow and protect your money.
If you want the stability and options property gives you, stick with the asset you can live in.
Personally, I use both. For me, it’s not about the tools; it’s what I’m trying to build.
Make your own decision, but I can’t help but suggest maybe buying a little, just in case it catches on.
