Long-term crypto value
UNRIVALLED: BITCOIN’S DEFLATIONARY POWER OVER THE LAST 10 YEARS
A R1 million house today would cost just 1.6 BTC versus 1 517 in 2011.
It’s a fun but increasingly irrelevant historical fact to recount the most expensive pizza ever purchased: in 2010, programmer Laszlo Hanyecz completed the first documented commercial bitcoin (BTC) purchase when he paid 10 000 BTC for two Papa John’s pizzas, then worth just $41. In today’s terms, those two pizzas cost R6.3 billion.
In 2012, entrepreneur and author Andreas Antonopoulos reportedly paid five BTC for one pound (about 0.5kg) of coffee beans. That’s R3.14 million in today’s terms.
There are hundreds of stories of people who bought BTC early and cashed out when it doubled or trebled in price, missing out on the extraordinary gains that were to follow.
Bear in mind, in rand terms, one BTC could be purchased for R659 in 2011. So when the BTC price shot up to R10 000 in 2016 (this week it was trading at R628 000), those early investors couldn’t believe their luck and cashed out.
What about house prices?
As Moneyweb reported in 2020, a R1.4 million house could be purchased for six bitcoin. And in 2021, a house costing R1 million in 2011 could be purchased back then for the equivalent of 1 517 BTC. In today’s terms, that’s a pretty expensive house: 1 517 BTC is currently worth R960 million.
Today, a R1 million house would cost just 1.6 BTC, proving the deflationary power of bitcoin.
To make it more realistic, we took that R1 million house in 2011, inflated for average house price increases over the subsequent years, and ended up with a house now valued at R1.52 million. While house prices have climbed roughly 50% in a little over a decade, bitcoin is up nearly 950 times.
But there’s a catch: for the first time in a decade, SA house prices actually increased when measured in bitcoin. Not by much, but an increase nonetheless.
Our original R1 million house had appreciated in value to R1.46 million in 2021, the equivalent of 2.25 BTC back then. A year later, in March 2022, that same house is worth R1.52 million, the equivalent of 2.3 BTC.
Morgan Stanley ran a similar exercise for US house prices.
A US home costing 993 BTC in 2015 had dropped to 8.27 by February 2022.
To keep the time scales consistent, an average-sized home in SA worth, say, R1.16 million in 2015, would have cost 371 BTC then, falling to 2.3 BTC today, even allowing for house price inflation.
What’s worth noting is that the big price gains in BTC were achieved prior to 2017. Since then, the gains, while still impressive, are at a much slower rate.
House prices in Ethereum
The second-largest crypto by market cap is Ethereum (ETH), which has a much shorter history than BTC.
If we bought a R1 million house in 2017, it would have cost 242 ETH, which at the time could be purchased for a little over R4 000 per ETH.
Allowing for average house price escalations over the subsequent years, that house today would be worth about R1.17 million, or a little over 26 ETH (one ETH was trading at about R47 000 this week).
What’s worth noting is the volatility of ETH, which dropped 80% in price between 2018 and 2019, before reversing direction and clocking up a 2 200% gain by March 2022.
The message is clear: the deflationary power of ETH, measured in rands, has far outstripped that of BTC since 2019.