There is a new currency which is internet based, it’s called Bitcoin. The supply of the currency is limited to 21 million. I actually thought the whole thing was a joke and didn’t give it much attention, perhaps a passing fad at best; I mean how can you just invent a currency and put in on the internet and expect people to spend it? What’s not a joke is the price of this currency; for a single Bitcoin has increased from $20 earlier this year to $130, having risen as high as $240 in April. This online currency has been backed by Facebook founder Mark Zukerburg.
You can purchase real items with this currency, for example cupcake bakeries in New York will take your currency and a social networking site for nudists, amongst others, will accept this as a legitimate currency. Though the number of firms which will accept it is limited, so it’s an illiquid currency. There is even an ATM in San Diego.
It seems weird that you can invent a currency online and it becomes acceptable to firms and even increases in value.
But then is that not what our currency is? Once upon a time the currency was introduced into the system and people had to accept it had value and that it can be traded for goods. Only if enough people are willing to place value in it, and accept the idea, can it then become an acceptable currency.
Perhaps it can even be said it inevitably will be more valuable than our currency because there will always be a finite amount. The number in existence of the Bitcoin can never go beyond 21 million; unlike our currency which can be introduced into the system seemingly without limit.
Therefore it can increase in value as you are using something which can be created from thin air to value something finite for which there is demand. So perhaps the Bitcoin idea is not so crazy, perhaps it makes more sense than the money we use day to day.
You can argue Bitcoin is not backed up by anything, but is our currency backed by anything? It is not as surprising as this may seem.
How different is Bitcoin? Unlike fiat currencies, Bitcoins are predictable and limited in supply and not controlled by a central authority, and they aren’t debt-based.
Perhaps considering this what started as a ludicrous idea isn’ t that bad. It certainly seems anyone who invested in Bitcoin would have had a good return on their funds. It certainly has beaten the return you’re getting from the banks.
The point here is your wealth in the form of money is arguably not that far away from Bitcoin; perhaps it’s actually in a worse position than having your wealth in Bitcoins.
Think from this perspective how valuable it is to have wealth which exists in a real form such as gold and property. Over the last decade gold has emerged the winner with an increase of 379% compared to a growth of 124% for prime London. In its defence, property has a couple of advantages. One is it can be geared up; so although it has risen 124%, if you gear it up by a sensible 50%, in effect this means a 248% increase for your money. The other important benefit is it’s income producing. Furthermore the income, if managed properly, will be produced passively. Gold does not have this attribute, nor does Bitcoin.
One of the driving forces of the uplift in prime London property was the crisis around the world which has resulted in a flight to safety for funds.
The above explores your true position in having cash in the bank. You’re actually in a fragile place, skating on thin ice. In this environment, assets are the only real form of true wealth and protection.
When clients approach us and are concerned about investing, they are actually misguided. The question which they should be asking is where can I put my money to keep it safe? As it’s currently in a dangerous place. They will be moving their funds from a place of uncertainty to certainty.
Prime London property has come through the crash unscathed and it continues to command interest from buyers all around the world. International buyers account for over 52% of all sales of prime residential property over £2m in the 12 months leading up to April 2013, according to the recent Knight Frank survey.
Property is a simple asset class. Anyone can understand it. There are only two ways to make money from it; one from an income and the other from capital growth.
You can enhance these two returns by adding value to it, which means there is an element of the asset which is in your control, this is not the case with gold or Bitcoin. The value is driven by the market, purely by demand and supply.
Normally new clients want to ‘test’ investing in property. They seem to falsely think they are moving from a position of less risk to high risk, though investing in a real asset which has stood the test of time means your money will have a chance and means of keeping up, rather than eroding in the bank.
Savills predict that capital seeking a home in the world’s ultraprime safest properties could reach £8.4bn by 2013.
Even if we assume the worst property crash is looming around the corner – which most commentators do not, the property price will not go to zero, the price may dip for a temporary period, but inevitably it will again rise given time. What is termed as a property crash is a dip for a temporary period; unlike the crash of a stock market where your stock can actually disappear into thin air. A ‘crash’ may also serve to increase rental demand. Purchasers will be turned into renters, therefore there will be upward pressure on the income side.
Gold, prime London property and Bitcoin have many things in common. They derive their value from their limited supply. The world’s mined reserves of gold total around 171,300 tonnes. London prime property are constrained by a boundary. You can increase the supply in a limited way by digging a basement or increasing upwards, however this is restricted by tight planning rules.
Property has the added benefit of gearing and producing an income. Prime property is finite; the rush for keeping funds safe globally is not likely to dampen in the near future.
This is the reason we have not made any losses to date whilst trading property in Central London, indeed our returns have been well in excess of 40% per annum. This has been verified by DAC Beachfort who are a leading international law firm with more than 2,200 staff across the UK, Europe, Asia Pacific and Latin America.
Frognal Lane, Hampstead, London, NW3
Purchase Price: £850,000
- An attractive two double bedroom first floor flat, in this highly sought after residential area
- Long lease of 104 years
- Value after works expected to be £1.1m
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Sow & Reap
A Property Investment Company
!Tips of the Week
People moving abroad, getting divorced or going bankrupt will need a quick sale; this means if you can offer a quick deal with commitment you will be able to negotiate a better price.
When purchasing and developing always keep the buyer in mind, not your own preferences.