Cold War 2.0: From Real Estate to Digital Property.
With $638 trillion, the real estate sector has been the quintessential collateral of our civilization. In a cold war scenario, nobody trusts government bonds...
With $638 trillion, the real estate sector has been the quintessential collateral of our civilization. In a cold war scenario, nobody trusts government bonds. Stocks and commodities become the true havens. And a new promise arises with crypto assets: the idea of owning digital property. The universal collateral of our civilization has been bricks; however, we are entering an era where this pillar may be built with bits.
In our previous article, we explored the paradigms of wealth creation in humanity. We discussed that the first paradigm was Conquest, with wealth centered around territory. The second was Trade, involving the exchange of goods and services to avoid conflicts but requiring a high level of trust among different entities. The third was Technology, emerging with the industrial revolution and focusing on productivity.
Today we are witnessing the emergence of a new paradigm: the era of Creation, driven by digital property that facilitates the exchange and processing of information on a large scale. This is transforming our production model, shifting from traditional commodities like oil, steel, wheat, soy, and meat to new frontiers like proteins, nanomaterials, photons, quanta, electrons, and bits.
Each paradigm of our civilization is reflected in an asset class. The Conquest is best represented by the real estate sector, where most wealth is currently stored, with over $638 trillion in real estate assets.
The Trade paradigm is reflected in bonds and fixed-income instruments, representing the necessary trust for trade. Currently, our civilization stores around $133 trillion in these assets. Of these, $51 trillion are in the United States, while China holds $20.9 trillion and Japan around $11 trillion.
The Technology paradigm is reflected in two asset classes: commodities, necessary for the world's productive machinery, and the stock market, which totals approximately $109 trillion in market capitalization. The commodities market, valued at $24 trillion, is dominated by energy at 55%, followed by agriculture at 30%. On the other hand, the United States represents 42.5% of the global stock market, with just 7 technology companies like Apple, Amazon, and Microsoft accounting for 30% of the S&P 500's market capitalization.
The final paradigm, Creation, is characterized by digital boundaries and digital property. Blockchains are defining how far and how artificial intelligence can enter a community's digital property. The best representation of this is the cryptocurrency market, with a market capitalization of around $2.3 trillion, where Bitcoin represents 53.5%.
The universal collateral of our civilization has been bricks; however, we are entering an era where this pillar may be built with bits.
How this framework helps us understand investing in the present
My argument is that we are in the midst of a new cold war, where the United States and China compete for geopolitical projection, supply chains, technology, and strategic raw materials. The tension between these two giants creates power vacuums that trigger conflicts among other regional geopolitical actors, such as Russia vs Europe, Iran vs Israel, and Saudi Arabia.
This clear geopolitical hierarchy affects the trading mindset and, therefore, also the confidence in government bonds worldwide. The following graph shows drawdowns in government bonds (Drawdown measures the current pullback in the prices of an asset compared to the previous high).
BONDS
There have only been two periods in recent history of this magnitude: between 1915 and 1920, and between 1940 and 1981. The first period covers World War I and the Bolshevik Revolution, while the second comprises World War II followed by the Cold War between the United States and the Soviet Union. Our base scenario suggests that we are living in a period very similar to the Cold War, although there is also a considerable probability of other scenarios, such as a world war in a multipolar world. What stands out most about the Cold War scenario is the almost 40-year decline in bond prices.
REAL ESTATE
Between 1942 and 1952, the real estate price index rose by 68%, equivalent to an annual appreciation of almost 5.35%.
Case-Shiller Home Price Index. Source: https://www.longtermtrends.net/
EQUITY
Between 1942 and 1952, the stock index rose by 272%, equivalent to an annual increase of around 13.5%. If this pattern continues beyond August 2025, the S&P would have already surpassed the record of 6300.
Comparison S&P 500 Cold War 1.0 Vs 2.0
Forecast SPY S&P500 ETF
COMMODITIES
Between 1942 and 1962, both stocks and commodities were superior assets to bonds. However, stocks outperformed commodities until the 1970s, when inflation became the dominant narrative, and commodities became the best-performing asset.
Source: https://www.longtermtrends.net/
CRYPTO
Cryptocurrencies may be the most fascinating asset class. The real estate sector has been the most important pillar of our civilization, now represented by a value of $638 trillion. If the main foundation of our society shifts from real estate to digital property, cryptocurrencies have a huge space to expand from their current $2.2 trillion. They could aspire to at least the size of commodities, valued at $25 trillion. From this perspective, a Bitcoin priced at $600,000 over the next decade does not seem unreasonable.
Thanks for reading,
Guillermo Valencia A
Co-founder of Macrowise
May 5th, Medellín Colombia.