Bitcoin is poised to revolutionize the real estate market and interest rates, according to an article titled “Bitcoin Will Completely Change Real Estate Markets And Interest Rates.” In the past, people owned real estate for its practical use, like living or producing goods. However, with the introduction of Bitcoin in 2009, real estate has become a primary asset for storing value, replacing the former function of money that has been eroded by decades of monetary inflation. With its finite supply and superior properties, Bitcoin is expected to absorb the monetary premium that real estate has accumulated, causing housing prices to collapse to their utility value. This shift will have far-reaching consequences for the global financial system, including changes in lending practices, interest rates, and the cost of housing. Overall, a Bitcoin standard could significantly improve the quality of life by increasing productivity and efficiency.
You used to own real estate because of its utility value. It provided you with a place to live or use for production. However, in recent years, real estate has become a primary asset for storing value due to monetary inflation. This shift coincided with the end of the gold standard and the advent of fiat-based monetary systems. As a result, real estate has become a popular choice for protecting wealth from inflation, with around 67% of global wealth stored in this asset class. But with the introduction of Bitcoin, a new form of sound money, the dynamics of housing, interest rates, and lending are set to change significantly.
Housing, Interest Rates, and Lending
Housing plays a crucial role in the economy, serving as collateral for loans and influencing interest rates. Under a Bitcoin standard, however, real estate is likely to be replaced by Bitcoin as collateral due to its unique properties. Bitcoin offers secure and cheaper custody, easier accessibility, and serves as pristine collateral. As a result, we can expect Bitcoin to become one of the elementary assets in the global financial system, fundamentally changing the cost of housing, lending, and interest rates.
Utility Value of Housing Under a Bitcoin Standard
In a free market under a Bitcoin standard, the utility value of housing will be determined by supply and demand. The cost of housing will be based on the highest utility individuals derive from the money they give up to have a place to live. Factors such as location, personal preferences, and financialization will influence housing prices. However, with the availability of sound money like Bitcoin, the proportion of financialization is likely to be significantly lower, resulting in cheaper housing costs over time due to deflation.
Building Under a Bitcoin Standard
Under a Bitcoin standard, deflation would lead to lower construction costs, making it more affordable for people to build their own homes. Entrepreneurs could earn interest by taking risks and investing their time and capital into building houses to rent out. Building a house would depend on factors such as the cost of materials, labor, reasonable profit margins, and land availability. Specialization and division of labor would also play a role in the construction industry.
Buying Under a Bitcoin Standard
Real estate prices under a Bitcoin standard would depend on supply and demand, with deviations from the average being natural market forces. While regulations may still exist, they are unlikely to be as restrictive as they are today. Considering the lower proportion of financialization in housing under a Bitcoin standard, buying a house would be cheaper since the opportunity cost of owning a house to live in is the inability to rent it out for additional income.
Renting Under a Bitcoin Standard
The average cost of rent in a given area under a Bitcoin standard would be influenced by the average disposable income of households. Rent prices would emerge naturally from the market, reflecting the risk of investing in rental properties and adjusted for market forces. Renting provides individuals with the flexibility to allocate surplus money towards other important expenses, such as financing a business or saving.
Interest Rates Under a Bitcoin Standard
In a free market under sound money like Bitcoin, the interest rate depends on various factors, particularly the supply and demand for capital. The risk-free interest rate would reflect the general time preference of individuals in the economy. Under a Bitcoin standard, the risk-free interest rate would be related to the risk of loss of Bitcoin in self-custody. The risk of not participating in the increment in the value of Bitcoin (deflation) adds a risk premium to the interest rate on loans.
Lending Under a Bitcoin Standard
With Bitcoin as a finite form of money, there is no need to generate additional returns to offset inflationary losses. Bitcoin’s value would be related to economic output, and interest rates would reflect the risk of loss due to deflation. Lenders would require sufficient collateral to protect against the risk of default, and borrowers would consider the interest to be paid and the difficulty of repayment due to the risk of deflation. This environment would likely lead to a healthier market and innovation, with fewer companies relying on cheap money.
Bitcoin as Collateral
Under a Bitcoin standard, borrowing to keep up with rising prices would not be necessary, as prices would be expected to decrease due to deflation. However, lending would still be useful for situations where quick access to capital is needed, such as starting a business or buying a house. Bitcoin as collateral would make credit more attainable, potentially leading to greater productivity and efficiency in the global economy.
Implications for the Global Financial System
A Bitcoin standard would lead to significant changes in the global financial system. Real estate, interest rates, and lending would be influenced by Bitcoin’s unique properties and finite supply. The cost of housing would be based on utility value rather than financialization, leading to cheaper housing over time. Interest rates would reflect the risk of loss due to deflation, and lending would require adequate collateral to protect against default. This shift in the financial system would likely result in a healthier market environment and higher standards of living.
Challenges and Concerns
While a Bitcoin standard presents numerous benefits, there are also challenges and concerns to consider. The transition from the current financial system to a Bitcoin standard could be complex and face resistance from existing financial institutions and governments. Additionally, the volatility of Bitcoin’s price could pose risks for borrowers and lenders. Ensuring proper regulation and safeguards to protect against fraud and theft would also be essential. However, with careful planning and adaptation, these challenges can be addressed, and the benefits of a Bitcoin standard can be realized.
In conclusion, a Bitcoin standard has the potential to completely change the dynamics of housing, interest rates, and lending. With Bitcoin as a sound and finite form of money, the utility value of housing would be the primary consideration, resulting in cheaper housing costs. Interest rates and lending would be influenced by the risk of loss due to deflation, leading to a healthier market environment. While challenges exist, a Bitcoin standard offers the opportunity for a more efficient and prosperous global financial system.