Crypto investors are betting big on real estate this year as the cryptocurrency market continues to grow. The New York Digital Investment Group (NYDIG) recently conducted a survey which found that 46 million Americans own Bitcoin, or 22% of all adults. While optimistic, some cryptocurrency investors have expressed concerns about the security, custody and volatility of digital assets.
For example, Nickel Digital Asset Management, a regulated European investment manager dedicated to the crypto market, interrogates institutional investors and wealth managers in the United States and Europe who collectively have $ 275 billion in assets under management. The results show that 76% of these people are concerned about the security of their digital assets. The same percentage said that about market size and liquidity, followed by 71% who see the regulatory environment for the crypto market as a major issue.
With this in mind, many crypto holders have started investing Bitcoin (BTC) and other cryptocurrencies in less risky assets such as real estate. Ben Shaoul, managing partner of Magnum Real Estate Group, told Cointelegraph that the company has recently received more requests to sell real estate to cryptocurrency holders. According to Shaoul, Magnum started practicing cryptography for real estate transactions about three years ago:
“We hadn’t addressed this issue before because most real estate developers didn’t understand crypto payments. But we figured out what that meant and how we could structure a cryptocurrency sale. With the help of our legal team, we figured out how to conduct crypto transactions with the consent of regulators. We first sold a few residential units, and then we sold a commercial condominium in New York about three years ago for cryptocurrency.
Eric Hedvat, COO of Jet Real Estate and special consultant for Magnum, further told Cointelegraph that given the rapid growth of today’s crypto market, BTC payments for real estate are more important than ever because they offer crypto investors an opportunity. grow with cash flow: “The cryptocurrency market has created a vast network of new wealth who want to find traditional assets to invest in, like real estate. There are also not many commercial properties for sale to buy with Bitcoin.
Specifically, Shaoul noted that the income generated from the retail condominium that Magnum sold for $ 15.3 million in BTC in 2019 is all on credit. “M&T Bank has been a tenant of this building since its construction. It is a multi-billion dollar bank. This is an important detail, as Shaoul added that people who have created new wealth with cryptocurrency have no way of monetizing it or creating a steady stream of income:
“This property has over a million dollars a year in free cash flow. This is a very attractive offer for someone sitting on the wealth they have created in cryptocurrency. This gives them the ability to effectively monetize and collect a bond in the future. “
This has become the case in particular because of interest rates in the United States. To put this into perspective, a recent survey conducted by the Financial Times and the University of Chicago’s Booth School of Business find that high inflation could cause the Federal Reserve to hike U.S. interest rates at least twice by the end of 2023. “Shaoul said, adding that as a result, Magnum has seen a lot of money coming out from crypto and equity markets to sustainable assets such as real estate.
Piper Moretti, CEO and founder of The Crypto Realty Group, told Cointelegraph that crypto for real estate transactions is indeed increasingly common. Moretti said his company currently has real estate listings available for Bitcoin in Tulum, Uruguay, Puerto Rico and Costa Rica.
While this is the case, Moretti mentioned that many buyers who buy real estate with crypto take out loans against their cryptocurrency. “Due to the capital gain issues and the belief that the price of Bitcoin will hit $ 100,000 by the end of this year, people are taking loans against their crypto. That way, they can hold onto their crypto and continue to monetize, ”she noted.
Joseph Kelly, CEO of Unchained Capital – a Bitcoin financial services company – confirmed this, noting that the company has seen around 30% to 40% of its loan issuance going to real estate.
But money is still king for sellers
While Bitcoin and other cryptocurrencies are used to purchase real estate, it is important to note that often sellers prefer cash to crypto when processing these transactions. Moretti explained, “If a seller receives multiple offers, 99% of the time they’re going to push the cash offers up the stack, even if it’s a crypto conversion, because it’s more likely that ‘unlikely that they will receive the money at closing. “
To put this in perspective, Sonny Singh, chief commercial officer of BitPay – a Bitcoin payment processor – told Cointelegraph that BitPay has facilitated $ 100 million in real estate transactions over the past five years. Singh mentioned that crypto transactions can easily be converted to US dollars:
“The first thing that needs to happen is for the title or escrow company to be involved in this process. Sellers can also use companies that BitPay already works with. Buyers can then pay in Bitcoin, and we exchange that for cash. The escrow company now immediately obtains the Bitcoin at a spot rate. The whole process takes a day and there is a 1% fee charged to initiate the transaction. “
While this is generally the case, Shaoul said Magnum keeps a percentage of the cryptocurrency obtained through real estate transactions in the company’s treasury. “We are keeping some of it to maintain the same percentage of crypto that we have balanced over the past six to seven months.” To do this, Shaoul explained that the company is working with crypto investment firm Galaxy Digital to help manage cryptocurrency from real estate transactions.
Are Bitcoin payments for real estate just hype?
While it’s certainly notable that crypto holders have seen more opportunities to purchase real estate with digital assets, some industry experts believe this recent trend has become overblown.
For example, Natalia Karayaneva, CEO of Propy – a real estate transaction platform powered by blockchain technology – told Cointelegraph that many articles in the media today focus on crypto payments for real estate like s’ it was a new development. But at Karayaneva’s point, the acceptance of crypto payments dates back to 2014, when BitPay helped facilitate the sale of a Lake Tahoe property that sold for $ 1.6 million in BTC. In 2014, a tech entrepreneur also listed his Tiburon, California home for $ 3.6 million, payable in Bitcoin.
Karayaneva believes the blockchain technology used to facilitate crypto-to-crypto transactions will be a real game-changer for the real estate industry. It is possible to close a real estate transaction entirely in Bitcoin, without any conversion to cash. Karayaneva explained that doing transactions in this way saves both buyer and seller time:
“This saves up to 1% on exchange fees, and blockchain crypto transactions are 100% transparent and immutable. They also enable smart contracts that allow a user to create, audit and authenticate documents from anywhere in the world, in real time. This eliminates the need for intermediaries and minimizes the risk of payment disputes, as the transaction is only concluded if all the requirements are met. “
Karayaneva further mentioned that today many escrow companies still don’t want to be involved in crypto transactions, which is why a smart contract framework is a more attractive option.
Moretti, however, disagrees, noting that using a blockchain to complete real estate transactions can be difficult because it doesn’t go through the normal escrow process. “I know it can be done, but it’s awkward. There are also good fund laws that we adhere to in California, and it can be difficult to get regulators to buy into such a solution. “
While it is too early to say whether blockchain technology will be the missing link for real estate transactions, it is clear that more and more crypto holders are using Bitcoin to purchase property today. “People are looking to move unstable assets into stable assets. And what could be more stable than real estate? Singh remarked.