Bitcoin mining stock photo

The Bitcoin Primer

Why Does Bitcoin Exist?

Bitcoin was created to remove centralized banks and governments from the currency equation. Setting a known quantity of a digital entity as a currency allows for the elimination of artificial price fluctuations based on supply. No entity can just create Bitcoin out of thin air to increase their own buying power before the price fluctuates, as the US Federal Reserve can. This means that initial holders of Bitcoin are the people that mined for it, and are securing the legitimacy of the currency to begin with. This equitable allocation of “new” currency reduces unfair market practices, putting everyone on an even playing field. Government overuse of inflationary monetary policy is obsolete in this system. Since Bitcoin has a fixed supply of coins and it runs on a decentralized open protocol (which is known and understood), it lives outside the rules that govern other non-commodity-backed currencies.

Why Do Bitcoin Prices Fluctuate So Much?

Because it is relatively new and not widely understood by the layperson. Often, Bitcoin will make the news for a price change, and the word of that price change will influence a more wild price change. The more attention that the novelty of Bitcoin gets, the more the price fluctuates. If a new island was discovered in the Pacific, the value of real estate on that land would fluctuate massively too, as investors and prospectors gambled on its value. Eventually, that price would level. When the novelty of Bitcoin wears off, as it inevitably will, the price of Bitcoin will be determined based solely on it’s buying power. Bitcoin has unforgeable costliness, because it costs a lot of electricity to produce new bitcoins. Producing bitcoins cannot be easily faked. Because there is a fixed amount of Bitcoin, it will not always be affected by market whim and word of mouth. Because of this fluctuation, now is the time to invest in Bitcoin.

How Does Bitcoin Have A Fixed Inventory?

Bitcoin is the first scarce digital object the world has ever seen, it is scarce like silver & gold, and can be sent over the internet, radio, satellite etc. It’s scarce by design. Only 21 million full Bitcoins can be mined. Once all 21 million are mined, no more can be created. How do we guarantee this? If I have an mp3, I can simply copy that and send it to as many people as I want. What prevents people from doing the same with Bitcoins? The blockchain. The blockchain is a public ledger of all the transactions a fraction of a Bitcoin goes through. Each chit in the ledger is verified and solidified by the following chit, making the record unmodifiable without modifying every single transaction following. The blockchain functions like a land deed. The transactions are authenticated by mass collaboration powered by collective self-interests. Each user of Bitcoin is motivated to ensure that the previous users of Bitcoin have obtained their “Satoshis” honestly. A Satoshi, named after the inventor of Bitcoin, is the smallest unit of a Bitcoin, which can be divided out into 10^-8 units. So 21 million Bitcoins is actually 2,100,000,000,000,000 Satoshis. Blockchain technology guarantees that that is only how many Satoshis there will ever be. More on blockchain.

Why Use Bitcoin Instead Of Another Cryptocurrency?

People use Bitcoin. It is a proven commodity. The more people that use it, the stronger the network effect of Bitcoin. Theoretically, because the protocol of Bitcoin is decentralized and open source, anyone could start their own cryptocurrency that emulates Bitcoin, but it wouldn’t be as effective because nobody will have used it. Take the popular open source browser Firefox as an example. You could take the code of Firefox, put your own logo on it, and launch “IceWeasel” tomorrow. But without the user base of Firefox, it would not succeed. Market and user momentum are what keep people on proven open source protocols. Bitcoin, and Firefox, are known and trusted commodities.

Isn’t Bitcoin Against Government Interests?

This was a major concern in the early years of Bitcoin growth, when users fretted about Bitcoin being dismantled by an injured national government. That never happened, and as time passes, Bitcoin is seen more as a tool to help the consumer than hurt a tax base. Countries like South Korea, Australia, and Germany have actually passed laws cementing Bitcoin status as a decentralized currency, and acknowledging ownership rights of its holders. This legitimizes Bitcoin on the global scale, marking those early concerns as moot.

Why People Are Wild About Bitcoin

“They ain’t making any more of it.” That’s the joke real estate agents recount when explaining why land is expensive. The supply of Bitcoin is limited. While we have not yet mined all the Bitcoin that will be mined, there will come a point when no more can be harvested. That forced scarcity is both why it is prized, and why it is a stable currency. There will always be a market for Bitcoin, just as there is always a market for land. The market will only fluctuate based on who is willing to sell that Bitcoin. If people hold on to it, that will drive up the price for people desperate to get in the Bitcoin business. People that recognize these ebbs and flows are the ones that will make money exchanging Bitcoin. The same is true of the real estate market.

The consequences of all this 2020 stimulus money being printed has a direct correlation with inflation. One of Bitcoin’s benefits is that it is a hedge against inflation. Inflation matters a great deal for commercial and industrial real estate, because it is a huge driver of Federal Reserve policy on the interest rate.

Alex’s Final Words

Now that you understand why Bitcoin is hot, let’s turn our attention to real estate. As mentioned, they’re not making any more of it. The current industrial real estate market is experiencing very high prices and record low inventories, which makes this a critical time to consider selling or leasing property you might be holding on to. Like Bitcoin, if your neighbor decides to sell before you do, they might be the ones to reap the benefits of the sellers market.

The iron is hot, and if you’re interested in striking now, give me a call at (818) 482-3830.

MIG Commercial Real Estate Services Inc. and Alex Matevosian do not provide legal, tax or investment advice. Any published articles, blog posts, resources or other related material located on this website are for information purposes only. Please seek the advice of an attorney, tax professional, and/or financial advisor for legal, tax or financial advice.