I clearly remember the moment I first became interested in Cryptocurrency. It was June 8, 2015, and I had just finished presenting a financial course at the Disneyland Resort in California. One of the attendees approached me and asked, “Do you think that eventually, you will be able to purchase a house with Bitcoin?”. I said, “Bitcoin is a currency, consumers have forced the hand of change, when people embrace something, it seems to find its way into any industry and as long as a buyer and seller are willing to make the exchange, I don’t see why it could not be used to purchase a home.”
I walked away from that conversation and realized that I needed to become educated on what cryptocurrency was and how it will impact the real estate market in the future. At the time, Bitcoin was selling at the time for around $100 per coin – not the $40,000 - $60,000 that it trades for now. Since that conversation, I have spent considerable time learning about cryptocurrency, the blockchain, and what it means to do any type of transaction with cryptocurrency – specifically with the purchase of real estate.
What is Cryptocurrency?
The most generic definition of cryptocurrency is a software that forms a decentralized, person-to-person payment system with no central authority like a government, the Federal Reserve, or the U.S. Treasury. These “coins” are actually not physical, but rather numbers on a “digital ledger” known as the blockchain. This blockchain resides on thousands of computers, all over the world and the “coins” are mined by employing computers to solve mathematical equations to find pieces of a coin. Jared Bilkre of Yahoofinance.com says that he has a laptop that runs a mining software package in the background of his machine, and he has generated 0.000000071589 Bitcoin since he installed the program, he says at the current rate of his mining, it will take him approximately 1,200 years to mine one complete Bitcoin. Hopefully this gives you an idea of how complex it is to mine cryptocurrency and that is just the tip of the iceberg.
As cryptocurrency is not a tangible asset, questions to its legality and monetary value are continually being raised – which in turn makes the price extremely volatile. Most governments (including the United States) do not officially recognize cryptocurrency as legal tender toward the payment of goods, services, or debt; although the U.S. government does not block transactions in cryptocurrencies if a merchant wants to accept this instead of U.S dollars. One of the biggest risks to accepting cryptocurrency is the volatility in price that can occur in seconds – and with well over 300 different cryptocurrencies, the flow of money in and out of those digital coins can be overwhelming to track (https://finance.yahoo.com/cryptocurrencies). Take a look at the chart below (provided by https://ycharts.com/indicators/bitcoin_price) of how the largest cryptocurrency known as Bitcoin has fluctuated over the past 12 months. On May 26, 2020, the price of one Bitcoin was $9,204.62 compared to May 26, 2021 where one Bitcoin is priced at $38,210.81. Please note that at its high, on April 12, 2021, the price of 1 Bitcoin was trading for $63,558.48. With that type of fluctuation in price, you can see why it is risky as a merchant or more specifically as a buyer or seller of a home, to transact the sale of a home in cryptocurrency.
How Could You Buy a Home with Cryptocurrency?
I have spoken to agents who have said that they have transacted the sale of a property with cryptocurrency, but upon closer look, what actually occurred was the buyer made a lot of money on their cryptocurrency investment, sold the crypto for a large profit and transferred the earnings to US Dollars wherein they completed the transaction by exchanging cash for the seller’s property. If the transaction was to actually occur with cryptocurrency, the buyer and seller would first need to consent through the contract that in exchange for the property, the buyer would provide an agreed to amount of cryptocurrency to the seller for the home. I will use Bitcoin as the cryptocurrency in this example. The buyer would move their Bitcoin into a 3rd party wallet (escrow) and the seller would have that Bitcoin transferred to their Bitcoin wallet and take Bitcoin as the form of currency on that house. Keep in mind that if the seller has a mortgage, the mortgage company will most likely not accept the Bitcoin in this example as payment and the seller would then need to transfer the funds from their digital wallet and convert the Bitcoin to US Dollars and pay off the mortgage prior to the transaction being approved for recording by the title company.
Chris Madison at Eagle Gate Title says that although the day is coming where title companies could serve as intermediaries, he is not aware of any title companies or underwriters that will guarantee a digitized transaction with the use of cryptocurrency at this time in the state of Utah. This being said, according to Mortgage Insider, Bitcoin has been used to purchase properties in California, Texas and, New York, so it is only a matter of time for the demand to create change in the real estate industry so that this can become an acceptable method of payment.
At this point, converting cryptocurrency to US Dollars is the only accepted method to complete the purchase of a home. Keep in mind, that this could also raise questions when going to qualify for a mortgage as lenders will want an established paper trail to show where the money for the earnest money and down payment originated. Showing digital wallet statements are not typically accepted by mortgage lenders as there is no traceability from the origination of the purchase through the volatility of the crypto coin and back into your bank account as cash. The lender has no way to directly connect the person to where the cryptocurrency came from – they will be left asking, “Were the gains due to the cryptocurrency increasing in price, or did the borrower have someone else depositing cryptocurrency into their digital wallet to assist them with the purchase of the property?”. The point to take away from this is to prepare ahead and deposit funds into the bank account well prior to getting serious about looking for a new home.
Final Thoughts
To summarize, “Can you purchase a home with Cryptocurrency?” the answer is “yes,” however you could also purchase a home with gold, baseball cards, or whatever other form of currency that a willing buyer and a willing seller agree to.
The better question that should be asked is, “Should I use Cryptocurrency to purchase a home?” The answer to this is, “No.”
At this time, there are too many obstacles to overcome in order to assure seeing the purchase or sale of a home through the finish line. Mortgage lenders will not accept cryptocurrency as payments and there are still no clearly defined rules from the IRS regarding potential tax repercussions for the use of Cryptocurrency.
Although the features of Cryptocurrency are attractive, the volatility and unpredictability present too much risk for the general public. However, keep an eye out for changes in the near future several companies such as Coindesk and Fluidity are launching programs to enable mortgages to be completely handled with the Ethereum Cryptocurrency. The more acceptance of Cryptocurrency will create the demand to make this a commonplace. As with any new innovation being adopted by the masses, the use of Cryptocurrency will create demand and new industry which will bring greater acceptance to its use equal to traditional currencies in the near future.
My hope is that the information from this article can give you a realistic expectation of what to plan for while going through the sales process. If you have any questions about anything real estate, please contact me at brandonrwood19@gmail.com or 801-885-2558.