Bitcoin or Real Estate: Which is the Better Investment?

by | BiggerPockets.com

Are you jealous that you’ve missed out on bitcoin so far? Thinking about jumping in?

There’s some investment advice going around in circles of people half my age. And I admit that some of them are crushing it right now. That’s an understatement, actually.

“You’ve gotta buy bitcoin!”

I’ve had quite a few friends go down this path in the past year, and I’ve tried to ignore it. But when two of my friends decided to sink all of their time, talents, and treasures into cryptocurrencies, I had to take a look.

For the few of you who are not familiar with bitcoin and hundreds of other cryptocurrencies, here is a brief summary courtesy of Coindesk.

What is Bitcoin?

Bitcoin is a form of digital currency, created and held electronically. No one controls it. Bitcoins aren’t printed, like dollars or euros. They’re produced by people – and increasingly businesses – running computers all around the world, using software that solves mathematical problems.

It’s the first example of a growing category of money known as cryptocurrency.

What Makes it Different From Traditional Currencies?

Bitcoin can be used to buy things electronically. In that sense, they’re like conventional dollars, euros, or yen, which are also traded digitally.

However, bitcoin’s most important characteristic, and the thing that makes it different to conventional money, is that it is decentralized. No single institution controls the bitcoin network. This puts some people at ease, because it means that a large bank can’t control their money.

Who Created It?

A software developer called Satoshi Nakamoto proposed bitcoin, which was an electronic payment system based on mathematical proof. The idea was to produce a currency independent of any central authority, transferable electronically, more or less instantly, with very low transaction fees.

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 Who Prints It?

No one. This currency isn’t physically printed in the shadows by a central bank unaccountable to the population and making its own rules. Those banks can simply produce more money to cover the national debt, thus devaluing their currency.

Instead, bitcoin is created digitally, by a community of people that anyone can join. Bitcoins are mined using computing power in a distributed network.

This network also processes transactions made with the virtual currency, effectively making bitcoin its own payment network.

Note: There is much more I could say about cryptocurrencies, but that is not the purpose of this post.

One of my friends first heard about bitcoin in 2010.

“If I would have invested just $500 in it then, it would be worth well over a billion dollars today!”

This is certainly compelling. Check out this chart:

It’s honestly hard to not be jealous of those who caught this trend early on. And it is tempting to jump into this investment class.

But wait. Is this really an investment class? Or a speculative swing for the fences?

Related: Is This a Bitcoin Bubble? An In-Depth Look at the Bitcoin Phenomenon 

Sound Investment? Or Vegas Crap Shoot?

As someone who has been a serial entrepreneur and investor for decades, I’ve come to delineate investing and speculating a bit differently than some. Here’s my loose definition for the purpose of this discussion:

Investing: If you’ve done a thorough evaluation, and you’re reasonably sure your principal is safe… and you have a chance to make a profit… you are investing.

Speculating: If you are “investing” in an asset that has uncertain protection of principal… and you have a chance to make a profit… you are speculating.

This concept was clarified by Benjamin Graham and David Dodd in their 1934 book Security Analysis. I’ve discussed this in a previous article.

Though they were focused on stocks, their theories applied to all types of assets. Graham and Dodd said, “An investment operation is one which, upon thorough analysis promises safety of principal and an adequate return. Operations not meeting these requirements are speculative.”

Paul Samuelson, first American winner of Nobel Prize in economic sciences, said:

“Investing should be more like watching paint dry or watching grass grow. If you want excitement, take $800 and go to Las Vegas.”

It sounds like I’m being pretty hard on speculators. That’s actually not my intent. It’s fine to speculate. As long as you’re clear that that is what you are doing.

I interact with a lot of successful investors, however, and most of them avoid speculation like the plague. It’s one of their key criteria.

How Do I Know if this Investment is Investing or Speculating?

I’m glad you asked. It really comes down to analyzing the risk versus the return. Thankfully, someone has quantified that for us.

Nobel Prize winner William F. Sharpe came up with a formula to quantify the return versus the risk of an asset class in 1966. It was later called The Sharpe Ratio.

The Sharpe Ratio is the average return per unit of volatility: A numeric representation of the return divided by the risk.

An investor who can accurately foretell the future can ignore this ratio. He or she would be better off picking the next Snapchat or cryptocurrency, finishing off a few years in corporate America, then retiring to Maui.

Assuming you are not in this class of prophetic investors, you’d best be cognizant of both the risk and return of your investment.

So what does the Sharpe Ratio tell us about the various major asset classes? Take a look:

 

Sharpe Ratio Source: Calculated using property and private equity returns obtained from NCREIF property index. Stock returns obtained from Yahoo.com. Average one-year T-Bill obtained from FRED (Federal Reserve Economic Data)

I’m particularly passionate about multifamily real estate. So when I saw these figures, I wanted to know exactly how multifamily stacks up against the other asset classes in this chart. The numbers say that multifamily and retail are:

  • 3x better than the S&P 500
  • 1x better than the Dow Jones
  • 0x better than Office real estate
  • 9x better than NASDAQ
  • 4x better than private equity
  • 3x better than Industrial real estate

I also located the following graph to show how all commercial real estate compares with other asset classes. In keeping with our theme of low risk and high return, your goal here would be to be as high and far to the left as possible. Check this out:

 

This chart shows that core commercial real estate has by far the best risk-adjusted returns of the major asset classes. This analysis applies to all commercial core real estate (office, retail, industrial, and multifamily).

For those of you who invest in gold, silver, and other precious metals, check out the miserable showing by commodities.

I recall years ago, when I was “investing” in metals, I heard Dave Ramsey say that metals are not an investment. They are just insurance (or something to that effect). This made me mad, and I chose to ignore him. (I later saw the error of my ways.)

Maybe you’re investing in bitcoin now, and choosing to ignore me… I understand. I hope you’ll take a moment to yell at me in the comments section if so.

So where would bitcoin and other cryptocurrencies fall on this chart? If we charted bitcoin, it would be off the chart on the return side. And off the chart on the risk side as well.

Related: Cryptocurrency – A Good Investment or a Fad?

If You Could Plot the Return on the Lottery, it Would Probably Be Similar.

And if that’s what you want to invest in, go for it. Like I said, if you would have invested your pocket change back in 2010, you could be independently wealthy now.

I, for one, don’t like investing speculating that way. Been there, done that. (I have a podcast called How to Lose Money, after all.)

I just noticed that the bitcoin price dropped over 21% from Wednesday November 8th to Sunday November 12th. I checked the news to see what could cause such a precipitous drop.

It turns out that some anticipated plans to alter its underlying technology were scrapped. That’s all.

Wait… that caused a 21% drop in value?

Then the value, errr I mean the price, went up 40% the following week.

If you want to invest in an asset that is that volatile, be my guest. I am personally content to ride this one out. (I’ve missed out on lots of lottery winnings as well.)

Jordan Belfort, immortalized as The Wolf of Wall Street had some strong comments about cryptocurrency launches.

He told The Financial Times, “It’s the biggest scam ever, such a huge, gigantic scam that’s going to blow up in so many people’s faces. It’s far worse than anything I was ever doing.”

JP Morgan Chief Executive Jaimie Dimon said, “If we had a trader who traded bitcoin, I’d fire him in a second for two reasons,” he said. “One, it’s against our rules. Two, it’s stupid.”

He added that it was “a fraud” and “worse than tulip bulbs,” referring to the famous market bubble from the 1600s. “It won’t end well. Someone is going to get killed.”

Dimon’s comments came within a day after Britain’s city watchdog warned investors to only take part in cryptocurrency fundraisings if they were prepared to lose all of their invested capital.

Dimon’s remarks sparked a 23% drop in bitcoin price in the next 48 hours.

Money Myths and the Biggest Mistakes I’ve Made Raising Capital

Can you imagine any comment… by any person… causing your real estate portfolio to drop 23% in 48 hours?

I could blather on and on about this. And let’s be honest. I could find negative comments about investing in real estate as well. And Dimon and many others may have a dog in this fight – something to lose if bitcoin prospers.

But the question still goes back to risk versus return. The numbers don’t lie.

And there’s another important distinction between real estate and commoditized investments like bitcoin, stocks, bonds, metals, etc: You can often influence or even control many of the factors that will lead to the success of your real estate portfolio.

You’ve heard of forced appreciation, right?

It’s a way to make strategic changes to your commercial real estate to drive increased income and value. It’s real and it’s powerful. It’s a cornerstone of my firm’s commercial multifamily investing strategy.

Could you do this investing in bitcoin or other investments? Not a chance.

I was $2.5 million in debt when the real estate market turned against me in 2008. Not a happy place to be. But after a lot of prayer and hard work, I was debt-free thirteen months later.

I would not have had the opportunity to pull out of this hole if I had invested in most asset classes. Because my debt was tied to real estate, I was able to sell off my assets and my family survived financially.

So I guess you have to ask yourself… what is your investment strategy?

Are you rolling the dice and hoping for that once-in-a-lifetime grand slam? Or are you building your wealth with the advice of two of the greatest investors in world history?

Warren Buffett: “Only buy something you would be happy to own if the market shut down for 10 years.” And, “Our favorite holding period is forever.”

King Solomon: “Wealth gained hastily will dwindle, but whoever gathers little by little will increase it.”

I would argue that investing in real estate provides an ideal opportunity to fulfill the advice of these great sages. And I’m not alone. Multitudes of real estate investors feel the same.

How about you? Do you prefer bitcoin or real estate?

Let me know your thoughts on cryptocurrency in the comments below!

About Author

Paul Moore

Paul is author of The Perfect Investment - Create Enduring Wealth from the Historic Shift to Multifamily Housing, which you should probably get if you want to learn to invest in multifamily. He leads Wellings Capital, a multifamily investment firm, and hosts the How to Lose Money podcast. Paul was 2-time Finalist for MI Entrepreneur of the Year, has flipped 60 homes and 30 waterfront lots, developed a subdivision, and appeared on HGTV. Paul's firm invests heavily to fight human trafficking and rescue its victims.

68 Comments

  1. Erik Whiting

    Great article, thanks for posting. Yep, bitcoin is not an investment. I’m staying off this ride. No telling when it will crash. The value chart reminds me of Internet stocks pre-dot com bust….except all the “gains” have come in about 24 months vs. a decade long run up. There will be a point at which the price of bit coin stops going up, and then the question will be how long will the speculators hold on hoping for overnight gains of 1000% before selling and causing the price to tank?

    • Bitcoin has been \”running up\” for 9 years, not 24 months. There is a small number of people in this world that truely understand bitcoin and real estate investors are not in that small group. Most people buying into bitcoin currently are in fact speculators but that does define bitcoin as a bubble. Quoting con men such as Jaime Dimin and the Wolf of Wall St do not give your argument credibility but rather the exact opposite. Bitcoin is a an infrastructure in the same sense that the internet is an infrastructure. The worlds smartest cryptographers, programmers, and such have dedicated their lives to this infrastructure. Bitcoin is here to stay in one form or another. The dot com bubble did not stop the internet and speculators \”investing\” in bitcoin will not stop its progress. If you want to own bitcoin then great, understand for what purpose that bitcoin will serve. Bitcoin is a highly complicated subject matter and a layman trying to argue points on bitcoin is no different than a Chef giving legal advice. If you do not understand bitcoin, do not buy bitcoin and do not write articles giving investment advice on bitcoin. PLUR

  2. Good points Paul. I certainly consider Bitcoin and Ethereum as quite speculative. I am a conservative real estate investor, with very, very little leverage. So, such an investment/speculation is a radical departure for me.

    I do have a small cryptocurrency position (less than 1% net worth), and it has been recent, not a long term holding. I DO feel I am quite late… but what if I am actually early? IF this is a paradigm shift, I don’t want to be 100% on the sidelines. Currently less than 1% of investors are in cryptocurrency. Very few institutions are involved, and in the next two weeks crypto hits both the CME and CBOE. Crypto mutual funds are in the works as well.

    Smart guys like John Bogle, Jamie Dimon, and Warren Buffet do not believe in Cryptocurrency. Eccentric billionaire John McAfee (predicting $1m per coin in 2020) is a big proponent, the Winkelvoss twins are heavily invested, and even Mark Cuban does not believe it is a scam. Now, I fully understand the people on both sides of this spectrum HAVE A VESTED INTEREST in its success or failure.

    So, is risking a few thousand prudent? I really don’t know. The price could certainly collapse or the Gov’t could interfere, and those are just two of the primary risks, there are others. But I am along for the ride, at least for now…

    • Oh, and let me just add. My minimal “investment” that I am not afraid to lose and that will have no impact on my livelyhood could be considered less risky than holding $2.5M in real estate debt I could not cover if I had to. Fact is, for most of us it is darn hard to step outside our comfort zones. Remember back to the purchase process of that first investment property… I personally recall plenty of fear of the unknown.

  3. John C.

    Great article, Paul.

    I’ve seen a couple of my friends “invest” in crypto. They’ve also encouraged me to do so. Since our last chat a year ago, they’ve made 1000% in their money.

    However, they are also the type that “invests” in casinos on a regular basis.

    So, for my friends’ sake I hope that they are able to make some money off of this. But, I have a feeling it’s just another case of Beanie Babies.

    I’ll stick with the traditional “get Rich slow” methods.

  4. Ewa Reza

    Investing in cryptos is NOT investing. It is speculating. And there’s nothing wrong with speculating. If you have the means, buy real estate. No doubt about it. But if you don’t have enough for down payment or can’t get a loan etc, look into cryptos. This can be once in a lifetime opportunity and it would be a shame not to participate. I wouldn’t get stuck on bitcoin though. There are way more advanced and useful altcoins out there already.

  5. DJ Scruggs

    I bought Bitcoin 2.5 years ago and made over 1600%. I sold it all a couple months ago and put it in Ethereum. I also own some Litecoin. These are incredibly risky investments, but I think Ethereum has massively disruptive long term potential.

    I think Bitcoin will eventually come back to earth, but I also think the technology behind it is about where the Internet was in 1994.

    • I like that idea. I have been buying small amounts of ETH over the past month or so. I do wish I had been as early as you were, but I think that as crypto currency gains traction, many who enter the market will look to the BTC alternatives. The attention BTC has been getting, and will continue to get due to CME and CBOE listing, will likely lead more people to discover ETH as well.

      One of the things concerning me over ETH is that there is no hard cap on the number that can exist, as there is with BTC.

      It is very hard to make the mental leap that after such extraordinary gains, we may still be quite early in the process, with only 1% of investors in cryptos. No hype… if you can afford to lose it, please don’t do it.

      • Brent Coombs

        Steve, you meant to write: ” if you CAN’T afford to lose it, please don’t do it”, right? In keeping with this advice, I believe I will have a dabble now, even though I’d previously been thinking: the Bitcoin horse has already bolted.
        In a year’s time, let’s all regroup, to see who can say: I told you so! Cheers…

        • Ha, yes. Thanks for the correction Brent. An end of 2018 article would be quite interesting. Heres hoping John McAfee is more right than Jamie Dimon…

  6. Andrea Howard

    As long as you don’t bet the farm… I see no reason why you can invest in both. I totally believe in RE always – but I think these new currencies ARE the future – and at least a small play in them is certainly worth the risk. Diversification… isn’t that always the best advice?

    • Luis Galarce

      Wish I could give a thumbs up on this one. It baffles me how people don’t want to place their spare savings into this. What is going to happen is that in a few years time they are going to have wish they had listened to your post. Good luck on your investments!

  7. I speculated on alternate crypto a few years ago. I lost about 60% before cashing out and taking the loss. Had I kept, I would be up 1000%. But the amount I was willing to risk was so small that even if I had held, it wouldnt be nearly as great as real estate.

    Those who have kept their winnings in for the whole ride, maybe they’re at $500,000 now, I believe are very misguided. At every stage an investor should ask themself “would I put in this much money into this asset right now?”. If the answer is no (which it should be), selling is the prudent action.

  8. Gary Nelson

    Supposedly, crypto is a 350 billion dollar industry and if it goes up 10-fold again, that value is 3.5 trillion dollars… which would mean a massive loss for other currencies in terms of purchase power. So if it does reach 100k/coin, that transfer of wealth has to come from those who are not invested in crypto, right?

    Everyone is a genius in a bull market – if it’s a bubble being inflated by lots of hype instead of the real asset, I’ll be thankful not to have jumped on the bandwagon.

    But if it is going to be realized as “real” money someday, then worst case scenario is that I have to accept bitcoin for rent money. 😉

  9. Ahmed Hamza

    Excellent Read Paul.

    Cryptocurrencies cannot be compared to Stocks, ETFs or Mutual Funds, its more like trading Penny Stocks when it comes to risk and volatility. I do both, and I do blue-chip stocks and ETFs as well. So far over the last few months my Cryptocurrency portfolio which includes Bitcoin along with many other different altcoins is up more than 80% and I am a conservative swing trader, I don’t risk all my eggs at once.

    Even if its a bubble (Which I believe it is), why not make money out of it and scalp some profits before it bursts 😉 .. Then re allocate those profits back into RE.

  10. Nate T.

    I saw this article recently: https://grist.org/article/bitcoin-could-cost-us-our-clean-energy-future/

    Apparently bitcoin mining is using more electricity than the entire country of Denmark, and on track to surpass the USA (!?!).

    “By July 2019, the bitcoin network will require more electricity than the entire United States currently uses. By February 2020, it will use as much electricity as the entire world does today.”

    I’m guessing that will have some effect on its value if not figured out soon.

    • Kole K.

      How much energy is the legacy banking system using? How much wealth is that banking system siphoning from the populous?

      In fact, there are large mining outfits using the energy expelled for heating. The market will solve these concerns.

  11. Percy N.

    Paul, nice article and love your book (thanks for the signed copy)!

    I was at a Family Office summit this week and as you can imagine, cryptocurrencies was among the hottest topics, yet least understood topics.

    In 2017 alone, over 75 cryptocurrency focused private equity funds have been created.

    There is a lot of talk/speculation on the recent price inflation but there is just as much data to suggest it will go much higher.

    Personally, I believe in diversification and while I have investments in Blockchain companies, I am also looking to add a few leading digital currencies to my portfolio.

    Not all cryptocurrencies are equal. Especially if you look at ICOs, that’s a whole other matter and you should be really careful and understand what you are investing in.

    If you want to see how well a digital currency can be adopted, look at m-Pesa in Kenya and other emerging markets https://en.wikipedia.org/wiki/M-Pesa

  12. Ronald Rohde

    Another aspect to diversify the risk/investment is through mining. I sell mining opportunities which mitigate the downside with a corresponding tempering of the upside. This is a safe way to invest in crypto without the full crash risk.

  13. Mayumi Baehr

    Insightful article and I can see the reasoning behind your thinking, nevertheless I still took a risk and invested a small amount in crypto currencies, especifically bitcoins. Half of my investment is just sitting down in my Coinbase account, so far appreciating by the day. The other half I invested (or speculated as some may say) with another company that is getting me a very decent daily return, while also appreciating. I know is a risk but I am willing to risk it, instead of being left out of something that could potentially become hughe.

  14. Kris Wong

    I find it interesting to compare cryptocurrency with real estate. I don’t find the two things very related at all, for all the reasons you articulated in your article. Bitcoin is wild speculation and extreme volatility – I think we all accept that. However, there are many of us who can afford to speculate, because we can afford to lose all of our principle. There’s also no reason you can’t have money in both. I would be willing to bet that there will be many folks who making a killing in cryptocurrency, and many folks who get killed in cryptocurrency.

  15. Melissa Szanati

    Bitcoin is different than other investments. You can’t think about it like a stock or bond, it was created to free people from the corruption of the banks, so obviously people in the traditional banking world are going to discredit it and try and stomp it out.

    Think about it, technically the IRS cannot prove you have it or don’t, that is very anarchist stuff, so I don’t see this going away anytime soon. The more corrupt the government gets, the stronger the crypto world will get. This isn’t a fad investment, this is important technology that is going to change our future.

    Think about not just the internet’s perception when it was introduced but credit cards as well. It takes a while for a shift like that to take place, but once it’s in enough people’s minds it isn’t going away.

    Venezuela is looking to it to help with their failing economy and it allowed for people to get food. This isn’t something to be disregarded, this is something that will turn the current power structure on it’s head. Not just the money aspect, the blockchain in general allows for transparency of public figures… do your homework and understand these currencies.

    Message me if you want some resources to start with, my boyfriend is one of the original BitAngels and helped get the first Bitcoin ATM going in Austin.

    http://money.cnn.com/2017/12/04/news/economy/venezuela-cryptocurrency/index.html

    • Melissa Szanati

      Also, look into Bitcoin (legacy) and Bitcoin Cash – Bitcoin cash is how Bitcoin was supposed to be low transaction fees and the speed of processing transactions that Bitcoin Cash allows. Long term this is probably where the originators of Bitcoin will be moving their money. I tried putting a trade in this morning when it was at $1,500 and it shot to $1,900 but it still hadn’t been processed! The Bitcoin Cash side went through right away…Bitcoin legacy…not so much.

      Daniel’s is a big guy in the Bitcoin space, his videos are great because he is brilliant and he uses pop culture and literary figures to help understand these complicated concepts.

  16. I don’t think people realize just how revolutionary blockchain technology is. While I’m not going to comment on the current price direction of BTC, I will say this tech isn’t going anywhere and I fully believe it will be the future of money. I’m holding my bitcoins as well as other crypto-assets.

    I actually just started representing a crypto-asset hedge fund and I can tell you over the last few months, my mind has been blown with what is coming down the pipe. Decentralized, trustless exchanges are going to fundamentally disrupt a number of industries.

    If you want to go down the rabbit hole, listen to this 3 part podcast by renowned value investor Patrick O’Shaugnessy: http://investorfieldguide.com/hashpower/

    Much like the internet had a boom and busted, many of those early companies are still around today. I remember people calling retail on the internet a fad and bubble as well… Blockchain isn’t going anywhere.

    • Luis Galarce

      Exactly! People don’t realize that it is no longer just “Bitcoin”. There are extremely cheap cryptos out there with real-world use that people are disregarding. Either they think its a scam, a bubble, or just uninterested in it. Fact is, it is making great returns now. Why not invest some spare savings into your favorite cryptos? More money is entering the markets daily. Long-term goal is to take out the profits in the future to purchase real estate. 2009: Fool me once shame on you. 2017: Fool me twice…shame on me.

      Good luck on your investing everyone!

    • Jam Jackson

      Agree. Blockchain is what should be the focus not Bitcoin. The potential of blockchain to disrupt the RE industry is what I want to read about – how rents are paid/collected, how ownership/title are transferred, how sydndicated deals are arranged are all potential targets of this technology – let’s have a conversation about that and how we can put ourselves in a profitable position to ride the wave of innovation this techonology will spur

  17. Caleb Chou

    I agree with the comments on speculation vs investing, but I also think everyone here does not fundamentally understand why Bitcoin is skyrocketing right now. (By the way, I own plenty of real estate as well as stocks and other assets.)

    Bitcoin is essentially an alternative to the central banks, who have all been on a destructive money-printing tear the last coupe of decades to rip wealth away from the poor and middle class in favor of asset-rich folks. That’s nice for all of us who own real estate and equities, but it’s quite frankly immoral and invariably throughout human history has resulted in vast unintended consequences. Bitcoin is a new currency that cannot be manipulated in the same way that central bank currencies can. This, among many other factors, is the appeal of bitcoin to many people. There are plenty of downsides too, but in this money-printing environment, that’s a pretty big plus. Just ask anyone in Venezuela.

    Why is Bitcoin going up so fast right now? It’s essentially a step-function change from what it was (a play-thing for nerds and college students) to what it will become (a major currency in the global financial markets). Under the latter scenario, even very conservative estimates of what the 17 million or so bitcoins that currently exist ought to be worth put the value a lot higher than it is today. $100,000 easily. Like any liquid financial instrument, that value can be found quite quickly. Think about a stock that has an earnings report and jumps 30% overnight. Bitcoin is simply finding it’s new value as a major currency. At some point, it will find that equilibrium between supply and demand it will be more “stable” (still volatile, but not just going up in perpetuity like it is today. It’s makes complete sense when you understand it that way.

    Hope that helps!

  18. Wow. To make your point, you’ve taken an out-of-context soundbite from a convicted felon who was promoting a new book and the CEO of JP Morgan, whose own company now invests in Bitcoin. Great work.

    I’m a 46 year old real estate investor, a licensed Realtor, and a former mortgage company owner who has bought, rehabbed, flipped, held, and wholesaled real estate since I was 14.

    I understand how a new paradigm can make you feel uncertain/insecure about your own investment strategy…or left out.

    But, instead of copying and pasting headlines of people who have just stepped in the spotlight and don’t yet understand what bitcoin is, why not talk to the people who have been longterm investors, contributors and innovators. Many have a very deep knowledge and are very long term investors. And speaking to them would have greatly added to the value of your article.

    I find it unconscionable that you would write this article from an authoritative perspective with such an apparently superficial understanding of the asset.

    My sole consolation is that the internet is littered with articles just like yours that were written when bitcoin’s price was $100, $300, $1000, $2500, $5000, $10,000. I’ll add yours to the list.

    FYI: I bought 300k worth of Bitcoin a little over eight weeks ago, doubled my money, cashed out the original principle and will now enjoy watching my risk-free $400k worth of bitcoin profit shoot through the roof for the next many years.

  19. Great points Steve. Oh, and looking at the $500 initial INVESTMENT comment, turning into $1bil… there’s no logic that supports the following claims that BTC is a bad INVESTMENT. There is value in contributing to a cause greater than yourself, which is, voting with your “dollar” by choosing to condition society that governments are holes for security. This is the best video on cryptocurrency by the one who is most referred to as Satoshi Nakamoto. https://www.youtube.com/watch?v=3FA3UjA0igY

  20. Charles P.

    I feel the idea shouldn’t be bitcoin (cryptocurrency) vs real estate.. it should be bitcoin AND real estate. They both should be utilized to help one another. I invest in cryptocurrency and real estate. The passive income I make from real estate helps me invest in cryptocurrency. Any profit I make from cryptocurrency in the future, 3+ years.. will go straight into aiding my purchase in more rental properties. Let’s not look at it as one or the other, let’s take advantage of both to help us build wealth! 🙂

  21. John Last

    Thanks for the article Paul.

    I first got into bitcoin quite a number of years ago, and have had massive returns; certainly much more than the real estate I own. However, I try to make sure not to let that color my opinion about it. Real estate also has some amazing benefits, some of which you have mentioned (forced appreciation, tax benefits, and so on as I’m sure you’re aware)

    As some people have stated, very few realize the application space and game changing potential that blockchain technology such as Bitcoin has. I do agree that both the risk and reward is very high in the space. However, for people who wish to invest in Bitcoin or other types of cryptocurrency, I would highly recommend doing a LOT of research on the subject. The large majority of people I know have formed an opinion based on a few articles they’ve read on CNN, businessinsider, new york times, and other popular media. This is NOT research. Blockchain technology and the potential wide ranging applications are very very complex, and span a great many subjects. Deciding to invest should come after you come to (at the very very least) a basic understanding of the structure of blockchain technology, its applications and what it could mean for the world.

    I actually agree that there’s quite a bit of speculation and irrational exuberance built into the price right now. With futures markets opening around the corner from very well established exchanges in the US, there are likely many who do not want to miss out on the potential. But given what I understand of the technology, I think the long term potential is still quite large. In general, I believe that growth often happens in very bubble like steps in part due to people’s collective emotional responses. Take Amazon’s stock for instance. 1997-1999, there was a 7000% rise in price. 70x. Less than 2 years later, it dropped by 90%. That is most certainly a bubble. But now, all of that looks like a little blip on the graph, and few would argue Amazon has not had success. Of course, for every Amazon, you can find hundreds if not more companies that did not make it big.

    I also do want to comment on the quotes you’ve provided; just as we can find negative quotes from very well known successful individuals (Warren Buffet, Jamie Dimon, Peter Schiff, the list goes on), we can also very positive ones (Bill Gates, Mark Cuban, John McAfee, again the list goes on). Presenting just these negative quotes shows a bit of bias, though Bitcoin does tend to be a very polarizing subject. I’ve found that most people who argue for either side do not actually understand the technology and its implications. On the one hand, you’ll hear Warren Buffet tell you it’s a mirage. On the other hand, you’ll hear him say he doesn’t understand technology. Yes, he is a world class investor, but if he doesn’t understand it, he is absolutely not the right person to be asking about it.

    As you’ve stated, investing is about risk vs reward. If anyone is interested in cryptocurrency and blockchain technology, it’s very possible to invest with low risk; simply allocate a very small percentage (say, <<1%) of your net worth to try and learn about it. Something that would not hurt you at all to lose. But again, I'd really like to stress that the most important thing is to do some serious research into the topic first before any investments are made.

    Good luck!

  22. Sergio A.

    BTC or RE, which is “better” to invest in? The answer is both!

    Sorry @Paul and other BTC detractors, I have to whole-heartedly disagree with the premise of this post and some of the comments. You are obviously a big fan of real estate “investing,” which is fine, but when you write an article comparing classes of investments then you cannot be considered a true investor. What I mean by that is that all investment portfolios should consist of asset classes and types of investments that span anything and everything. Low and high risk, short term and long term gain, equities (401k, IRA, stocks, options, mutual funds, etc), real estate, currency, commodities, annuities, businesses, etc. I am a recent retiree of the central bank of the US (FRS), – not spelling out the name for search purposes – where I left as an IT Officer at the age of 41. Talk about safe, low risk, and high return, I had it all, but left because I just wanted to do more than deal in the day to day politics of it all – my RE portfolio certainly helped make the leap, BTW. I can tell you that working for the central bank and what I know about real estate in general, this post comes right in the middle of what might be the biggest bubble in RE history. You don’t have to look any further than all of the fix and flip shows, flippers, new development everywhere, rents skyrocketing AND the growth of Bigger Pockets. I would bet a good chunk of change that there are going to be many, many members on this site that lose their shirt or go bankrupt when the bubble bursts, which should be any month or year now.

    As for BTC, you are fool for not listening to your buddies and not “investing” even a few hundred dollars in it way back when – actually, even as I type this. You probably tried to convince them to invest in RE and got the same response, hence why playing a fan is harmful. I myself “bet” on not just BTC, but cryptocurrency and blockchain a while ago, and am having an awful good time thinking of what I can do with the $100k+ sitting in my “offline wallet” as it hits new and new highs because of the demand. It may go to a mill or may go to zero, but what I can tell you is that the promise is not a speculation to the folks in Venezuela or Zimbabwe, where their currency is worth close to zero now! If you think real estate and the dollar (fiat currency) you tie it to are invincible, see what the people in the countries mentioned are doing with their rental income. My recommendation to anyone and everyone is that the only true way to learn how to invest your money is to actually do it and not analyze investments you have not participated in, including Real Estate! You have to truly understand principles of investing and not pick favorites. Ask the many, many people that have gone bankrupt wearing blinders to those who play the whole field. If you’ve read this far the for your own sake, go open an account with Coinbase and buy $100 worth of BTC…you can’t cover a month of RE utility bills with that money, but could have turned it into $100k had you bought BTC way back when 😉

    • Kole K.

      Anyone holding significant value in bitcoin should also invest in running a full node, contributing hash power to the network, and refusing to use services such as coinable. Coinbase refuses to add segregated witness support, supported contentious hayforks with bad code, and work hand in hand with the gov’t concerning customer data. Bitcoin ecosystem is complex and involves an investment of your time more than your money. Many have bought bitcoin and lost it. If you do not understand how or why, you may find yourself in the same position as most bit coiners have over the years.

  23. Rotimi Shittu

    Thank for your insight just my sentiments too . However I need your advice : I plan setting up an auction platform that will operate on the ULB model to offer currencies like $ £€ on auctions including real estates at a latter date . Participants will pay a fees to participate in the bidding . The auction after receiving a required number of bids will end with the auction won by any individual that is the sole one bidding at the unique highest price for the item on auction ?
    I want to use the income generated from the platform to develop a real estate portfolio of commercial real estate .
    I do have plans to also develop real estate investments platform to source for funding to develop commercial real estate majorly developing Event Centers/Conference Centres across the world capitals .

  24. Patrick Huey

    Like others have mentioned here, the blockchain is something truly revolutionary that will be as huge as the Internet. Having said that, I do believe we’re in a bubble, but we’re not anywhere near the peak…yet. Now that bitcoin has passed the $10,000 level, institutional investors are now beginning to pour into cryptocurrencies, and more wealthy individuals and family offices will want to chase higher returns. We’ll know we are at the peak when bitcoin investments are talked about on the Today show, The View, and other mainstream TV shows, when infomercials suddenly spring up on how to get rich investing in cryptocurrency, and the latest hip-hop superstar has a hit single saying “my shawty’s panties dropped / when she how my bitcoin popped “. I don’t know whether bitcoin is the next Google or the next Netscape, but I do think Ethereum and some other cryptocurrencies will become massively huge after the bubble pops. But most of the cryptocurrencies currently out there will go the way of Pets.com and those other Internet companies that had no business model, and a lot of people will lose their shirts.

    • Kole K.

      ETH has proven numerous times to be a poorly managed and maintained protocol riddled with exploits and bugs. I would highly recommend to stay away from investing money in this troubled centralized ecosystem

  25. Al Molina

    I can understand the cautious approach regarding crypto coins. It’s a new thing unlike any of the traditional investments we’ve known for decades. However… this article is jumping the gun by calling it speculation.

    Crypto coins aren’t anything like Vegas. Make an effort to understand the basics and you can definitely make educated investment decisions. It’s a HUGE mistake to ignore this opportunity.

    Is it risky? Absolutely, like any investment with high potential for reward, it comes with high risk. If all the risk you can take is the stock market with it’s 10% long term return, or REI with ~18% returns including rent income and appreciation – that’s fine. Watch from the sidelines as others take a risk and make a fortune, or not.

    It is really hard to ignore the potential of crypto coins though. Take Bitcoin, for example, the most popular one. Its coins are finite, it’s market cap is a tiny fraction of traditional asset classes, and the upcoming validation as a formal asset class in the U.S. futures market.

    I’m no magician with a crystal ball, but I can see how 2018 will dwarf 2017 in performance for Bitcoin. Just look at its valuation in the past 30 days – exceeding a crazy 125% in ONE MONTH!

    I’d put in effort to understand an investment with those potential gains. Invest $1000, $10,000, $100,000, or $1M according to your risk tolerance. But don’t miss that boat. It’s very unlikely that you’ll see another opportunity like that in your life.

  26. Cindy Larsen

    Paul,

    Very interesting and well written article. I have so far invested almost no thought into bitcoin beyond recognizing it as highly speculative and risky, and therefore not for me. I love that you have more control over your risk with real estate, vs the stock market.

    Leaving bitcoin aside, I loved your charts about the risk vs rewards of various investments. Very nice to see some actual numbers there. Awesome validation of the strategy of investing in multifamily. Just to clarify, I think you mistakenly typed “right” instead of “left” in reference to where we want to be on the 20 year risk/return profile chart. Unless I misunderstand something, high return and low risk (Upper left) is the best spot to be. Multifamily wins again 🙂

  27. Ali Hashemi

    The lesson from your article is rather than commiserate missing out, take advantage of the dips. Wait for someone influential to make another negative comment and buy when it dips 20%. Sell when it spikes back up.

    While others are riding the waves, you’re in and out and well ahead.

  28. Nancy Roth

    Hi, thanks for this interesting exposition and for stirring an equally interesting response from readers. I’m surprised at the passion of some of the comments.

    My one question to the author is, at the amount of capital a beginning investment entails, why is this posed as a dangerous, speculative, and shaky venture? We are talking about a small amount of money, equal to less than most people drop on their car payments every month. If anyone cannot afford the sting of losing that amount, they probably shouldn’t be in real estate either.

    Last there is an important error in the text. It occurs in the statement on top of the “20-year risk return profile” graph, and it confused me for a minute or so. The statement is below and the correction is in brackets and caps.

    “I also located the following graph to show how all commercial real estate compares with other asset classes. In keeping with our theme of low risk and high return, your goal here would be to be as high and far to the right [LEFT] as possible.”

  29. Evan Cochran

    JP Morgan & Jamie Dimon gameplan:
    1. CEO Jamie Dimon calls bitcoin a fraud
    2. JPM fined $4 billion for actual fraud
    3. Dimon calls BTC a money laundering tool
    4. Swiss authority FINMA finds JPM guilty of money laundering
    5. December: JPM writes bitcoin to replace gold

    I don’t think someone running JPM can be so ill-informed– do you think that Jamie Dimon might have been trying to manipulate an unregulated market in order to lower his own entry price?

    Seeing crypto as a bubble in the traditional sense is incorrect– it’s not a stock or tulips or whatever, but instead is a new, disruptive technology quickly improving outdated financial methods and helping to usher in the Internet of Things age. In my opinion, bitcoin is becoming more of global reserve fund than a method of payment. I can see it replacing the Federal Reserve entirely as it can’t be quantitavely eased or manipulated by governments in the same way that the USD or other fiat currencies can be.

    Also, the 23% drop the author mentions had nothing to do with Jamie Dimon. Around the same time of Dimon’s comments, there was a rumor that China was going to ban cryptocurrency exchanges which caused the price to drop.

  30. Christian Carson

    Investing in cryptocurrency is akin to buying a TV broadcast license in 1930. At the time it was a long shot, and there wasn’t a solid case for their valuation, but so are most venture capital investments. Don’t put all your eggs in one basket and don’t hold all your funds in speculative long shots.

    It’s an exciting technology to follow, even if you’re not interested in investing. It’s a new paradigm for security, and it stands to revolutionize any transaction that requires trust by eliminating the need for trusted third parties. It’s huge.

  31. Andrew Force

    I have a question as a novice on bit-coin to those investing. From what I can gather the founder(s)/owner(s) of bitcoin is unknown and the process is decentralized. Is this not an ideal way for drug money and the black market to thrive/prosper? Also who is to say that this is being run by some really bright yet corrupt prison inmates?

  32. Crypto Currency is a great tool to partner with Real Estate. The best way to pair them is making sure you are partnering with actual crypto companies that are taking on REAL problems. The crypto currency world is a tech world full of Entrepreneurship. There’s always bad amongst any good but that’s life. Partnering with energy companies changing the way energy is regulated, partnering with escrow companies using smart contracts to change the way we buy property or a developer whose purpose is to make affordable and sustainable houses that are off the grid. It’s another way of funding new entrepreneurs and betting on their technology. Same way Uber started with fiat capital, crypto companies are using coins. This new decentralized movement doesn’t have to be one or the other. Frankly you’ll be forced to cross over in the future when your tenants tell you they want to pay with their Bitcoin instead of pay pal or visa. And if you’re not on board you’ll be pushing vacant houses throughout your portfolio. At the end of the day your argument is very intelligent. I believe you should look closer at the technology Warren Buffett fails to connect to this “bubble”. This is like Visa, Web & Entrepreneurship all in one marketplace. Look at the technology and the purpose of the crypto currency – This will reveal intrinsic value!

  33. Wow so much hate on Cryptos, why can’t you do both. I’ve tripled my investment it a few month and got every dollar I put into it back in my bank account. I wish I would have put more in. I too was one of the RE Investers saying this is a bubble I’ll never invest in that. Then I starting talking to my friends who were crushing it in Crypto’s. All you need is a mentor to teach you what you don’t know. Now I’m holding BTC, LTC, IOTA, and ETH. Dec 18th the price of BTC has a very good chance of doubling to 30K because Futures at the CME will begin. Also LTC and IOTA has been been doing way better then BTC. I say if you have some spare cash and I know most of us on here do, put some in to Crypto’s it’s not to late It’s only the beginning. Think about has easy it would be for our Tentents and us if they could just use Crypto Currency‘s to send us their rent.

  34. Devin Spencer

    This is an excellent article with a lot of good points. I’ve been studying cryptocurrencies for some time. And while I wouldn’t suggest purchasing Bitcoin at this point, there are many other cryptocurrencies that are truly undervalued. I plan on using cryptocurrencies to give me the capital I’ll need to seriously start purchasing/renovating real estate. Cryptocurrencies in some form or another are here to stay. Solutions are being created to solve their many drawbacks. CryptoBanks are being created to house cryptocurrencies. This is only the beginning.
    Now I don’t claim Bitcoin is going to keep some rising to some absurd amount. But many other altcoins will begin to rise as popularity and accessibility increases.

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