I recently discovered a story of a group of landlords looking to sell their buy-to-let investment portfolio in favour of purchasing bitcoins. Interesting. I thought, why not flesh this idea out further, weighing out the pros and cons in each scenario, for any would be landlords mulling this idea over, or for those simply just enjoying the tea.
Before we get into it, I thought I’d explain what Bitcoin actually is for those who don’t know. And for those who do, feel free to skim past this bit.
What does Bitcoin actually do and what is it?
Bitcoin, is a virtual or digital currency, it’s a type of money that is completely virtual.
It’s like when you play a video game and your gaming character collects money for completing various missions. Except, there is no game, it’s actually real, and you can use it to buy real world stuff. Although not many stores accept Bitcoin and many countries have banned it altogether.
You can read more on what you can do with Bitcoins here on this helpful BBC article
If Bitcoin is digital money, why is it an investment option?
This is because it takes physical money such as dollars or pounds to buy bitcoin.
At the moment buying a coin costs £23,500. (at the time of writing)
If it costs more to buy a coin in the future, lets say £27,500 per coin, you’ve made a profit of £4,000.
Now that that’s out of the way, we can see why a property investor may be interested in switching to bitcoin. But is the grass really greener on the other side?
Let’s take a look.
CONS:
Bitcoins are highly volatile, I think they’re one of the very few things that are more volatile than Arsenal’s premier league performance, besides the British weather of course. For example, this isn’t the first-time bitcoin has seen a meteoric rise. In 2017, the price of one bitcoin reached $19,783 in December, and by April it had fallen by 65% to $7,000, eventually dropping all the way down to $3,000. It’s funny how Bitcoin seems to hit a major high around the December period, could Xmas investing actually be a thing? So if you decide to purchase bitcoin, just know that you’re in for a ride, don’t expect smooth sailing, as the journey is almost guaranteed to be bumpy! Whereas if you decided to invest in property, we never really see swings of more than 5%, and at that, over a much shorter time frame, usually notable price changes occur over a 12 month period.
Next in line, and a very present threat are the security issues. Yup, that’s right. Your online money is vulnerable to hack attacks. Don’t get me wrong the technology that underpins bitcoin is actually very secure (blockchain), but the risks comes from where you store your money. If you have online money, then you will need to have a place to keep it, with bitcoin this is either in your online wallet or your bitcoin exchange. These are the places that are most susceptible to being hacked. And the chances of getting your bitcoin back are almost next to zero. This is due to the anonymity that comes with buying a bitcoin. You see whenever you buy a bitcoin, there is no record that says you specifically own that coin. So, it will be very difficult to prove that the bitcoin that was stolen is actually yours. Although you can take steps to mitigate against this risk by certifying ownership through your Bitcoin cash address and digital signature. You can learn how to do so here I think it goes without saying that this is almost unheard of in the UK. Can you imagine? Someone breaks into your house and then says this is my house now and you can’t prove that you own it. Luckily, we’re protected by rigorous audit trails such as title deeds and registrars to prevent this from happening. Although it may take a few months to get your house back in the courts!
What is your exit strategy? – It’s not always straight forward to have an exit strategy with bitcoin. Even though, in everything, you gotta have an exit strategy. In property it’s easy. At some point you either pass the asset on to your kids or sell it for profit. But most people tend to hold on to bitcoin and either buy more, effectively making them bitcoin traders, or sell when the price plummets. What’s important is to ask yourself – Why are you investing and what are you looking to get out of this? As just purely holding bitcoins can be a very dangerous strategy.
WHAT ARE THE PROS?
At the moment Bitcoin prices are rising. And they are rising fast. There is now opportunity for speculators to make a serious level of return over a very short space of time. And real people are making real returns. For example, the Rambling Bumbler who made good on his Bitcoin investment – you can learn more on how he did this here And also this myriad of success stories of people who’ve found the pot of gold when it came to Bitcoin investing In comparison to property, yes whilst there is still an opportunity to make money, regulators have certainly made this much more difficult for regular landlords with a handful of properties. I was reading the diary of a secret landlord’s blog and he colourfully explains not to expect a Lamborghini in the drive from property investing, I would definitely recommend a read.
Liquidity. Not that your coins become water after holding them for a few months, rather they’re relatively easy to sell on. Which means if you do decide to invest, it’s unlikely you won’t be able to find someone that will buy your coins when you are looking to exit. This is always a plus for short term and long-term investors. Note, this mainly applies to mainstream coins such as Bitcoin and Ethereum, not the newer and less well known coins which seem to pop up almost out of nowhere every other weekend. Whereas in property investing, it’s very common for landlords to be stuck with a property they’ve been trying to sell for months. Recently, I’ve worked with a landlord who’s been trying to sell their 4-bedroom home for over 12 months, with having 3 offers fallen through over the year. Yikes!
WRAPPING IT UP
There are clear arguments for and against property and bitcoin investing. Without trying to sound like I’m giving you a lecture, I’d definitely advise seeking professional advice or reaching out to experienced traders/investors before making any serious jump to either asset class. I’ll be here wishing you all the best.
That’s it from me on this topic, I’d love to hear your thoughts in the comments section. What would you do? Would you sell up your property investments in favour of bitcoin? And if you don’t have any properties or bitcoin, it’s okay to dream a little, and let me know what you would do hypothetically below!
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