Bitcoin and buy-to-let are about as different as two investments could be. Like chalk and cheese, they begin with the same letter – and that’s it!
B team
Bitcoin is a virtual currency that doesn’t exist in the real world. Buy-to-let is all about bricks and mortar, which certainly does. Bitcoin has been magicked out of thin air, buy-to-let properties have to be built, brick by brick.
Bitcoin can be traded quickly online, buy-to-let is an illiquid investment, which means it can take months to buy or sell a property. I could go on, but instead I’ll note one thing they do have in common. Both have generated huge excitement, which is now rapidly subsiding.
Going down
It is almost a year since Bitcoin nudged $20,000, its all-time high. At time of writing it trades at $4,327, having lost nearly three-quarters of its ‘value’. Sentiment has drained away as the crypto currency market has increasingly resemble the wild west, with cyber theft, money laundering and other criminal activity.
Cryptos will have made some people brilliantly rich, but otherwise they have unleashed a torrent of fear, greed, paranoia and self-pity (if you don’t believe me, just read the comments on trading sites). Just like every other bubble.
Fingers burned
Even now, its advocates are calling the next surge and quoting fanciful future prices ranging from $40,000 to $250,000. Old school sceptics such as Warren Buffett, Jamie Dimon and Nouriel Roubini (who called it the mother of all scams) haven’t bothered to say ‘I told you so’. Some claim it could soon be worth just $10.
Bitcoin’s trajectory could have been foretold by ska and reggae singer Jimmy Cliff who sang The harder they come, the harder they fall. Classicists will point to Icarus. It just flew too high.
Taxing time
No investment climbs forever, although for a while it seemed buy-to-let might. Investors enjoyed 20 years of rising rental yields and higher house prices, but the glory days are over and the pop singer who called it right was The Beatles’ George Harrison when he wrote Taxman. It has crashed under a concerted attack by the Treasury, designed to level the playing field between amateur landlords and first-time buyers.
Investors now pay a 3% stamp duty surcharge adding thousands of pounds to the purchase price, get reduced wear and tear allowances, and cannot even claim 40% tax relief on their mortgage interest, even if they are 40% taxpayers.
On top of that there is the growing danger that the next great housing crash could hammer buy-to-let investors. No wonder private investors are fleeing in droves.
Long-term play
Stocks and shares are hardly having a good time of it either, with the benchmark FTSE 100 down almost 10% year-to-date. However, I do not expect share prices to lose three-quarters of their value from here, like Bitcoin has, or crash to extinction, like it still might.
When you buy stocks you are investing in real-world companies but with none of the effort and tax disadvantages of buy-to-let. If you want to get brilliantly rich, shares are still the way to do it, I believe.