Crypto investors are making big bets on real estate this year as the cryptocurrency market continues to grow. New York Digital Investment Group (NYDIG) recently conducted a study that showed that 46 million Americans own bitcoin, accounting for 22% of all adults. Despite the optimism, some cryptocurrency investors have expressed concerns about the security, storage and volatility of digital assets.
For example, Nickel Digital Asset Management, a regulated European investment manager specializing in the cryptocurrency market, examined institutional investors and asset managers from the United States and Europe, who collectively manage $ 275 billion in assets. The results show that 76% of these people are concerned about the security of their digital assets. The same percentage said this about market size and liquidity, followed by 71% who see the regulatory environment for the crypto market as a major challenge.
With this in mind, many cryptocurrency holders have started investing in bitcoins (BTC) and other cryptocurrencies into less risky assets such as real estate. Ben Shaul, Managing Partner of Magnum Real Estate Group, told Cointelegraph that the company has been receiving more requests to sell real estate to cryptocurrency holders lately. According to Schaul, Magnum began conducting cryptocurrency real estate transactions about three years ago:
“We didn’t do this before, as most developers didn’t understand crypto payments. But we understood what this means and how the sale of cryptocurrency can be structured. With the help of our team of lawyers, we figured out how to conduct cryptocurrency transactions with the consent of the regulators. We first sold a few residential units, and then about three years ago we sold a condominium in New York for cryptocurrency. “
Eric Hedwat, COO of Jet Real Estate and Special Advisor for Magnum, further told Cointelegraph that given the explosive growth of today’s cryptocurrency market, BTC real estate payments are more important than ever before as they offer crypto investors the opportunity to grow with cash flow: “The cryptocurrency market has created a vast network of new wealth that wants to find traditional assets to invest in, such as real estate. There is also not a lot of commercial real estate that can be bought with bitcoin. “
In particular, Shaul noted that the income received from retail condominium building that Magnum sold for $ 15.3 million in bitcoin during 2019 all loans. “M&T bank has been the tenant of this building since its construction. This is a bank with a multi-billion dollar turnover ”. This is an important detail, as Shaul further commented that people who have created new wealth with cryptocurrency do not have the ability to monetize it or create a steady stream of income:
“This property has over a million dollars a year in free cash flow. This is a very attractive proposition for those sitting on the wealth they have created in cryptocurrency. This gives them the opportunity to monetize and effectively collect bonds in the future. “
This is especially true because of the interest rates in the United States. By comparison, a recent survey by the Financial Times and the University of Chicago Booth School of Business. found that higher inflation could force the Federal Reserve to raise U.S. interest rates at least twice by the end of 2023. “In an environment where interest rates are the same as now, you cannot monetize money into cash, leave your money in the bank and convert,” Shaul said, adding that as a result, Magnum has witnessed how much money moves like from cryptocurrency as well as from the stock market to hard assets such as real estate.
Piper Moretti, CEO and Founder of Crypto Realty Group, told Cointelegraph that cryptocurrency for real estate transactions is indeed becoming more prevalent. Moretti shared that her firm currently has real estate listings for bitcoin in Tulum, Uruguay, Puerto Rico, and Costa Rica.
While this is the case, Moretti mentioned that many buyers buying properties with cryptocurrencies take loans against their cryptocurrency… “Because of capital gains issues and the belief that Bitcoin’s price will hit $ 100,000 by the end of this year, people are taking out loans against their cryptocurrency. Thus, they will be able to keep their cryptocurrency and still monetize, ”she said.
Joseph Kelly, CEO of Unchained Capital, a financial services company in the bitcoin space, confirmed this, noting that the company observed about 30-40% of loans go to real estate.
But money is still king for sellers
While bitcoins and other cryptocurrencies are used to buy real estate, it is important to note that sellers often prefer cash to cryptocurrencies for these transactions. Moretti explained: “If a seller receives multiple offers, 99% of the time they will push money offers to the top of the stack, even if it is a cryptocurrency conversion, because most likely they will receive cash at the close. “
To put this in perspective, Sonny Singh, Chief Commercial Officer of BitPay, Bitcoin’s payment processor, told Cointelegraph that BitPay has contributed $ 100 million in real estate transactions over the past five years. Singh mentioned that cryptocurrency transactions can be easily converted to USD:
“The first thing that needs to happen is for the title company or escrow company to take part in this process. Sellers can also use companies that BitPay already works with. Buyers can then pay in bitcoins and we exchange them for cash. The escrow company now immediately receives bitcoins at the spot rate in cash. The entire process takes one day and a 1% commission is charged for initiating a transaction. “
While this is usually the case, Shaul shared that Magnum stores a percentage of the cryptocurrency generated from real estate transactions in the company’s treasury. “We are leaving some of this to maintain the same percentage of cryptocurrency that we have balanced over the past six to seven months.” To that end, Shaul shared that the firm is working with crypto investment firm Galaxy Digital to help manage cryptocurrency derived from real estate transactions.
Is Bitcoin Real Estate Payments Just Hype?
While it is certainly noteworthy that cryptocurrency holders are seeing more opportunities to buy real estate with digital assets, some industry experts believe this recent trend has become over-hyped.
For example, Natalya Karayaneva, CEO of Propy, a blockchain-based real estate transaction platform, told Cointelegraph that many media articles today focus on cryptocurrency payments for real estate, as if it were a new development. But according to Karayaeva, accepting cryptocurrency payments dates back to 2014, when BitPay helped promote sale of real estate on Lake Tahoe, sold for $ 1.6 million in bitcoins. In 2014, the tech entrepreneur also listed his Tiburon, California. $ 3.6 million house payable in bitcoin…
Karayaneva believes that blockchain technology used to facilitate transactions between cryptocurrencies will indeed change the rules of the game for the real estate industry. It is possible to completely close a bitcoin real estate transaction without any cash conversion. Karayaneva explained that such a transaction saves time for both the buyer and the seller:
“This saves up to 1% in exchange fees and blockchain crypto transactions are 100% transparent and immutable. They also allow the creation of smart contracts that allow the user to create, verify and authenticate documents from anywhere in the world in real time. This eliminates the need for intermediaries and minimizes the risk of any payment disputes as the transaction is completed only if all requirements are met. “
Karayaneva also noted that many escrow companies today still do not want to participate in cryptocurrency transactions, so the structure of smart contracts is a more attractive option.
Moretti, however, asks for disagreement, noting that using blockchain to conduct real estate transactions can be difficult as it does not go through the normal escrow process. “I know it can be done, but it’s awkward. California also has good fund laws that we adhere to, and it can be difficult to get regulators to do this. “
While it is too early to say if blockchain technology will become the missing link for real estate transactions, it is clear that more and more cryptocurrency holders are now using bitcoins to buy real estate. “People are trying to move unstable assets into stable ones. And what is more stable than real estate? Singh noticed.