Bitcoin Real Estate Loans
Its 2024…and the Real Estate market is denominated in BTC!
Wouldn’t that be the dream?
Perhaps it could be, but in this concise blog post we will go over some of my assumptions when it came to buying a home or property with Bitcoin collateral and what the market could develop into. Let’s dive right in.
Current Market (2022):
Bitcoin collateral is currently denominated in USD or your local fiat currency* (resources on what a currency is below). You have a few options in the current market.
Option 1: Sell your Bitcoin and receive USD.
There are a few things less than ideal with this option. If you sell your BTC, then you are triggering a taxable event. Once triggered you have a few options, tax loss harvesting or capital gains tax, and you shouldn’t be happy with selling your BTC. Once you have a the big lump sum of cash, then you can use that as a down-payment or payoff the property.
Option 2: Bitcoin backed USD loan.
In this situation, you can go to a Ledn type company and post up your BTC and still have control over your keys. Companies that use Proof of Reserves systems are ideal for this option because you can make sure that your Bitcoin is safe and not loaned out to anyone else. (Rehypothecation).
Option 3: Fully collateralized Bitcoin Mortgage loan.
The mortgage company only looks at your Bitcoin posted up as collateral. No other information is needed, unlike the traditional system, with background checks or credit score history. Usually, this loan is a 1:1 ratio of BTC, meaning that the BTC is pegged to a USD denominated property and when Bitcoin fluctuates in price against the Dollar, then you are forced to post up more BTC as collateral to keep the ratio 1:1 or give more USD to keep it balanced. Currently Bitcoin is too volatile for this model to be effective in the short-term and this option is the biggest disappointment, in my opinion.
Let’s dive into option 3 a bit more in the next few sections, as this option is the most interesting as we look ahead into the future.
Future Market:
Option 3 above is the most interesting because what if your property, real estate, stocks, equity, cars, bonds, etc… were all denominated in BTC! Surely, we would all grow in wealth, except depreciating assets, that cars are normally. If bitcoin were to go down in price and your house is denominated in BTC, then you still have a home to live in, HODL HODL! If bitcoin goes up in price, then you just gained more equity my friend because your home would be resold for more BTCs!
In the end, I am optimistic about the future of bitcoin lending, specifically in Real Estate.
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