• As Cryptocurrency Holders Seek Monetization, Bitcoin Payments For Real Estate Are Gaining Steam

  • As the cryptocurrency market continues to boom, crypto investors are betting big on real estate this year. According to a recent survey done by the New York Digital Investment Group (NYDIG), 46 million Americans, or 22% of all adults, possess Bitcoin. While most cryptocurrency investors are positive, some have highlighted worries about the security, custody, and volatility of digital assets.

    Nickel Digital Asset Management, for example, a regulated European investment manager focused on the crypto market, surveyed institutional investors and wealth managers from the United States and Europe with a combined $275 billion in assets under management. According to the findings, 76% of these people are concerned about the protection of their digital assets. The same number stated the same thing about market size and liquidity, followed by 71 percent who perceive the crypto market’s regulatory framework as a serious issue.

    With this in mind, many Bitcoin (BTC) and other cryptocurrency investors have begun investing in less risky assets such as real estate. Magnum Real Estate Group managing partner Ben Shaoul told us that the company has been receiving more inquiries to sell real estate to cryptocurrency holders recently. Magnum began using cryptocurrency for real estate deals roughly three years ago, according to Shaoul:

    “We hadn’t faced this before because most real estate developers were unfamiliar with cryptocurrency payments. However, we had a good understanding of what it signified and how we could structure a cryptocurrency sale. We figured out how to perform crypto transactions with regulators’ permission with the help of our legal staff. We first sold a few residential units, and then three years ago, we sold a retail condominium in New York for cryptocurrency.”

    According to Eric Hedvat, chief operating officer of Jet Real Estate and a special consultant for Magnum, BTC payments for real estate are more important than ever before, given the fast-paced growth of today’s crypto market, because it allows crypto investors to grow with cash flow: “The cryptocurrency market has created a vast network of new wealth that wants to fintech.” There are very few commercial properties for sale that can be purchased using Bitcoin.”

    In particular, Shaoul stated that all of the revenue gained from the retail condominium building that Magnum sold for $15.3 million in BTC in 2019 is credit. “M&T Bank has occupied this building since it was constructed. They’re a multibillion-dollar corporation.” This is a crucial point because Shaoul went on to say that those who have made new money with cryptocurrencies don’t know how to monetize it or build a consistent revenue stream:

    “This property generates over a million dollars in free cash flow every year. This is a highly appealing proposition for someone who has accumulated bitcoin money. This offers them the ability to efficiently monetize and collect a bond in the future.”

    This has become particularly true as a result of rising interest rates in the United States. To put this in context, a recent poll conducted by the Financial Times and the University of Chicago’s Booth School of Business suggested that rising inflation could force the Federal Reserve to raise interest rates twice by the end of 2023. “You can’t monetize into cash and keep your money in the bank and convert in an environment where interest rates are where they are now,” Shaoul said, adding that as a result, Magnum has seen a lot of cash migrate out of both the crypto and equities sectors and into physical assets like real estate.

    Crypto for real estate transactions is becoming more popular, according to Piper Moretti, CEO and founder of The Crypto Realty Group. Moretti stated that her company presently has Bitcoin real estate listings in Tulum, Uruguay, Puerto Rico, and Costa Rica.

    Despite this, Moretti stated that many buyers using cryptocurrencies to purchase real estate are taking out loans against their cryptocurrency. “People are taking out loans against their crypto because of capital gain difficulties and the idea that Bitcoin’s price would hit $100,000 by the end of the year. They may keep their bitcoin and yet make money this way,” she said.

    According to Joseph Kelly, CEO of Unchained Capital, a Bitcoin financial services company, around 30 percent to 40 percent of the company’s loan originations are for real estate.

    However, for sellers, cash is still king.

    While Bitcoin and other cryptocurrencies are being used to buy real estate, it’s crucial to remember that sellers generally prefer cash to crypto in these deals. “If a seller receives many offers, 99 percent of the time they will push the cash bids to the top of the pile, even if it is a crypto conversion because they will most likely be receiving the cash at closing,” Moretti stated.

    To put this in context, Sonny Singh, the chief commercial officer of BitPay, a Bitcoin payment processor, told us that in the last five years, BitPay has handled $100 million in real estate transactions. Crypto transactions can be easily converted to US cash, according to Singh:

    “The first step is for the title or escrow business to agree to participate in this process. Sellers can also use the companies with which BitPay has previously partnered. The buyer can then pay in Bitcoin, which we will convert to cash. The Bitcoin is now delivered to the escrow company at a cash-pay spot rate. The transaction takes one day to complete, and there is a 1% cost to initiate it.”

    Despite the fact that this isn’t always the case, Shaoul revealed that Magnum preserves a portion of bitcoin acquired from real estate deals in its treasury. “We hold a portion of this to maintain the same crypto proportion we’ve been balancing for the last six to seven months.” To do this, Shaoul said that the firm is collaborating with Galaxy Digital, a crypto investment firm, to help handle cryptocurrency generated from real estate deals.

    Is the use of Bitcoin to pay for real estate just a fad?

    While it’s undeniable that crypto investors are seeing more options to buy real estate with their digital assets, some industry professionals say the trend has gotten overhyped.

    For example, Natalia Karayaneva, CEO of Propy, a blockchain-based real estate transaction platform, told us that many of the stories in the media now focus on crypto payments for real estate as if it were a recent invention. Accepting crypto payments, on the other hand, dates back to 2014, when BitPay assisted in the selling of a Lake Tahoe property for $1.6 million in BTC. In 2014, a tech entrepreneur placed his Tiburon, California property for sale for $3.6 million in Bitcoin.

    The use of blockchain technology to facilitate crypto-to-crypto transactions, according to Karayaneva, will be a game-changer for the real estate market. A real estate transaction can be completed purely in Bitcoin, with no need for currency conversion. Both the buyer and the seller save time by executing transactions this manner, according to Karayaneva:

    “Blockchain crypto transactions are 100 percent transparent and immutable, saving up to 1% in exchange fees. They also support smart contracts, which allow users to produce, audit, and authenticate documents in real-time from anywhere on the planet. Because the transaction is completed only if all parameters are met, it removes the need for middlemen and reduces the danger of payment disputes.”

    Many escrow businesses today still do not want to be engaged with crypto transactions, which is why a smart-contract framework is a more appealing choice, according to Karayaneva.

    Moretti, on the other hand, disagrees, claiming that using a blockchain to execute real estate transactions is challenging because it bypasses the traditional escrow process. “I know it’s possible, but it’s clumsy. In California, we have good funds laws, and it may be difficult to get regulators on board with such a solution.”

    While it’s too early to say whether blockchain technology will be the missing link in real estate transactions, it’s evident that more cryptocurrency investors are utilizing Bitcoin to buy homes today. “People want to relocate their assets from an unstable state to a stable state. And nothing is more stable than real estate?” says the narrator. Singh made a comment.

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