A R1 million house in SA nine years ago would have cost 1 517 bitcoin. Today, the same house would cost slightly more than six bitcoin, even allowing for house price increases since 2011.
Bitcoin was trading at R659 in April 2011, so 6.23 bitcoin – which is what you would pay today for a R1.4 million house – would have cost a little over R4 100 back then.
This demonstrates the deflationary effects of bitcoin as a store of value.
“In future, people will measure their wealth in bitcoin rather than rands or US dollars,” says Jason Carpenter, CEO of crypto company Etherbridge.
“If bitcoin is a more appropriate way to measure wealth than rands or US dollars, then all sorts of other goods have declined in price by a similar margin, from iPhones to airline tickets and automobiles.”
To compile the following graph, Moneyweb took R1 million as a good starting point for a house purchase in 2011, and then indexed that price to the average annual increase in residential prices since then.
That same house would have increased in value to R1.41 million over the last nine years. We then converted the rand price of that house each year to the prevailing bitcoin price.
If we take bitcoin as a stable unit of currency, it means house prices have declined 99.6% in nine years.
If we take the rand as a stable unit of currency, it means house prices have increased 41% over the same period.
What should also be mentioned is that the price of bitcoin has gone up from R659 to R227 000 over the last nine years – a 344-fold increase.
“It’s important when measuring your wealth to consider your unit of account,” says Carpenter.
“Above is the performance of the property market, measured in rands and bitcoin. Fiat money like the rand often results in poor price signals because their supply can increase at a greater rate than what they measure. Scarce assets like bitcoin and gold can serve as better units of account as their supply increases are low and predictable.”
What this says about inflation
Sean Sanders, CEO of crypto investment company Revix, says what this demonstrates is that inflation is a regressive, silent tax. “It’s the reason why you need to spend so much more today for goods and services than you did 10 or 20 years ago.
“Our current monetary system is designed to steadily devalue the purchasing power of a fiat currency. The reason for this lies in its debt-backed nature. Money is created as debt with interest on it. So, in order to have enough currency going around to service the interest payments, the banking system has to create ever-increasing amounts of debt.”
Because there is no cap on the amount of new money injected into the money system, inflation is certain to result.
Bitcoin’s supply is capped at 21 million coins, with 18 million currently in circulation. New coins are ‘mined’ at a decelerating rate that was built into the bitcoin protocol. That inflation rate is currently 1.56% today, and will decline every four years until it hits zero (at which point all 21 million coins are ‘minted’).
What this means in practical terms is that a new bitcoin is created roughly every 96 seconds. That doesn’t sound like a long time, but far more rands than bitcoin are injected into the system over the same period. This means demand for bitcoin should increase relative to rands.
“The problem with fiat currencies is that there’s an unlimited supply,” says Sanders. “Over the long term, a fiat currency [such as the rand or dollar] is almost certainly not going to act as a store of wealth.”