Bitcoin’s Role as Collateral in Real Estate Development

In August 2024, I had the honor to speak at Baltic Honeybadger in Riga. My keynote focused on Bitcoin’s Role as Collateral in Real Estate Development and how investors should think about the two asset classes.

Below you can read and download the transcript of the keynote or watch the video recording. I’ve also linked the slides of the presentation for your convenience.

I hope you enjoy it. 

See Keynote Slides

Watch Full Keynote

Below you can rewatch the full recording of the Baltic Honey Badger conference. My talk starts at minute 3:15:39.

Keynote Transcript

On the Twitter thread below, you can see all the slides of the talk.

Introduction

Thank you, Ricky, for the introduction and for the invite to speak today. I’ll be discussing Bitcoin’s role in collateral and real estate development. I believe that beyond its use as money—which includes being a medium of exchange, a store of value, and a unit of account—Bitcoin’s role as collateral during the transition to a Bitcoin standard is fascinating, especially as long as fiat interest rates rise slower than Bitcoin’s purchasing power. This is something that Max and his team at HODL HODL and DEFI have understood well.

Early Encounter with Bitcoin

When I first heard about Bitcoin, I was studying philosophy and ethics at university. I vividly remember the day. I was standing behind a friend who was sending money across the globe. While I didn’t fully understand what was happening, I realized I had witnessed something significant that could change humanity. Shortly after, I wrote my master’s thesis on Bitcoin, studying its potential as money. After joining the real estate industry, I began to understand the problems of our monetary system and the potential of Bitcoin.

The Relevance of Housing and Bitcoin’s Role

The relevance of housing is glaring, as seen in the search for affordable housing trends in the US and worldwide. People need affordable housing, but one of the biggest issues with the fiat system is that it drives people to use real estate as a scarce and speculative investment vehicle to hedge against inflation. This drives up housing and living costs significantly. Bitcoin, as a deflationary force, has the potential to provide affordable housing for three key reasons, two of which I’ll mention now and one later in the presentation.

Bitcoin’s Deflationary Nature

For those who hold Bitcoin, everything becomes cheaper over time because Bitcoin is a disinflationary currency, absolutely scarce, and engineered to increase in value over time while fiat is designed to be debased. Since Bitcoin is a superior store of value compared to real estate, people can save in Bitcoin by default, eliminating the need to invest in real estate to outperform inflation. This should lead to less drastic price increases in real estate, and prices will be recalibrated closer to their utility value.

Since 1971, when US President Richard Nixon announced the end of the gold standard, housing has grown exponentially in value. The rise in real estate prices reflects the debasement of fiat currency. The M2 monetary supply has grown at a compound annual growth rate (CAGR) of around 6.8%, closely followed by residential real estate at 5.7% and commercial real estate at 4.4%. This shows that real estate has accrued a substantial monetary premium, reflecting its use as a store of value. McKinsey estimated in 2019 that around 67% of the world’s wealth is stored in real estate, with bitcoiners often referring to a graph by Jesse Meers suggesting around $330 trillion is stored in real estate.

The Superiority of Bitcoin

Bitcoin’s superiority becomes clear when looking at the average home price in the US, which was around 1,000 BTC in 2016 but now is about 10 BTC. While real estate has been a good preservative of wealth in the fiat system, it is actually a poor store of value—being inaccessible, illiquid, easy to destroy, easy to tax, and immobile. In contrast, Bitcoin is purpose-built money for the digital age—absolutely scarce, permissionless, programmable, liquid, and highly mobile. Therefore, people will likely prefer saving in Bitcoin, leading real estate to be valued more for its utility.

Implications for Real Estate Development

This shift is beneficial for the market, especially for consumers and tenants who have faced increasing living expenses. However, it poses challenges for real estate development, as the increase in nominal real estate value has represented the profit margin for developers. As speculation in real estate moves to Bitcoin, real estate development will become a service-oriented business again, needing innovative production methods like 3D printing and pre-manufactured housing parts to drive down construction costs. Utilizing Bitcoin as a store of value will also be essential.

Including Bitcoin in Financing

Imagine a bank issuing a $10 million loan to a real estate developer. Instead of $10 million, the bank issues $11 million, with $1 million directed towards buying Bitcoin. This means 9% of the loan goes to Bitcoin and 91% to real estate development. Using Bitcoin as a store of value makes landlords and developers less dependent on raising rents to counterbalance inflation, as the increasing purchasing power of Bitcoin acts as a natural inflation hedge. This also protects against scenarios where monetary premiums in real estate flow into Bitcoin, and helps offset increased maintenance and construction costs.

Enhancing Creditworthiness with Bitcoin

Including Bitcoin on the balance sheet of real estate developers introduces a novel form of capital that increases over time. Bitcoin’s resilience and antifragility provide protection against hyperinflation and property confiscation. Multiple signature solutions like DEFI and multi-institutional custodians like Onre offer geopolitical arbitrage.

Default Protection and Real-Life Example

From a lender’s perspective, including Bitcoin in a loan hedges against borrower default by ensuring that even if the business goes bankrupt, Bitcoin will likely increase in purchasing power. Bitcoin trades 24/7, 365 days a year, making it easier to liquidate. A friend of mine used this strategy effectively by buying a furniture company in Germany with a $350,000 loan, investing part of it in Bitcoin to hedge against potential business failure.

Practical Example

We analyzed a $10 million residential real estate project, comparing it to a $10 million investment project with $9 million directed towards real estate and $1 million towards Bitcoin. Over six years, the Bitcoin-inclusive project grew significantly more than the real estate-only investment. By the end of the sixth year, the project with Bitcoin was worth $20.4 million compared to just $13 million for the real estate project alone.

Conclusion

Embracing Bitcoin-based credit products can help businesses become more independent of the inflationary fiat system, providing better, more affordable market products. In the event of societal collapse, holding Bitcoin can provide a hedge, allowing businesses and entrepreneurs to continue offering services.

Staying Connected and Future Writing

If you’d like to keep up with my writing, I provided a QR code you can scan. You can find me on Nostra at Leon Vanum and my newsletter at leon.substack.com. I am currently writing a book titled “Digital Real Estate,” which will explain why Bitcoin is a superior store of value and collateral, its implications for the real estate industry, interest rates, investment landscape, housing market, and society as a whole.

Q&A Session

Question on Excess Leverage

Q: Do you see banks being able to use excess leverage, such as loaning 110% of the property’s value, or will you need an equity component in that transaction?

A: You probably need both. Banks are starting to realize the potential of including Bitcoin in loans, but they need to over-collateralize and include an equity component because they still perceive Bitcoin as carrying risk.

Question on Structuring Businesses with Bitcoin

Q: Why not increase the Bitcoin collateral for a higher ROI, and are there other ways you’ve analyzed for structuring businesses with Bitcoin for higher ROI?

A: It’s a simplified example to help people and banks understand the potential of integrating Bitcoin in financing. The way forward would be generating cash flow connected with Bitcoin or a business that generates cash flow in Bitcoin. Asking tenants to pay rent in Bitcoin is challenging, but possible.

Question on Tokenizing Real Estate

Q: Do you think we will be able to trade real estate on the blockchain in the next five years?

A: Technically possible, but I’d personally buy Bitcoin over tokenized assets due to third-party risk. While tokenization makes sense for institutions like BlackRock, from an investor’s perspective, buying Bitcoin directly is preferable.

Thank you so much for listening.