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Cryptocurrency Wave Crashes into the World of Real Estate

Bitcoin and Blockchain, Real Estate Legality, Real Property

There is an old adage often thrown around political circles: money in politics is like water on pavement, it finds every crack and crevice. Substitute the economy in place of politics and it seems like cryptocurrency is on its way to becoming a real world example of this maxim. Created to bypass cash and enable incorruptible financial transactions using blockchain, a distributed digital ledger, these virtual currencies have been winding there way into an ever growing number of areas of the global financial system. With a current market cap of over $450 billion[1], cryptocurrencies have even made the leap into the physical economy, expanding their reach into real estate.

Real estate is known to offer relative stability and steady growth. In contrast, the value of cryptocurrencies can be unpredictable. However, the market with the greatest potential for cryptocurrencies so far has been residential real estate. Most real estate transactions involving cryptocurrencies have unfolded the same way. “The parties agree on a fixed price in dollars and then decide on a fair exchange rate at closing. The [cryptocurrency is] then converted to cash by a third party… which [is] then given to the seller.”[2]

The main concern with these transactions is the massive day-to-day or even hour-to-hour changes in the value of cryptocurrencies. “What seems like a fair exchange rate at the time, can seem like a steal or ripoff months later. [For example,] Ivan “Paychecks” Pacheco paid 17.741 bitcoin to Frank Mainade Jr. for a two-bedroom condo in Miami’s Upper East Side… [which] was equivalent to $275,000 with an exchange rate of about $15,500 per bitcoin. As of publish time on Thursday, those 17.741 bitcoins were worth $159,577.”[3] As regulations are still in the early stages, individuals need to be aware of the risks before exchanging real property for cryptocurrency as opposed to fiat currencies.

However, using cryptocurrencies for real property transaction is becoming a more common occurrence. A new company called Deedcoin has just filed with the Securities and Exchange Commission in preparation for its upcoming initial coin offering, a capital-raising event which disperses a set amount of cryptocurrency-based tokens to investors. Within Deedcoin’s system “buyers and sellers should be able to buy Deedcoin’s Ethereum-based tokens starting at $1.50 per token, and then use them to hire real estate agents nationwide. Agents who agree would then accept the tokens as payment in exchange for reducing their traditional commissions in U.S. dollars to as low as 1 percent, or an average of $225 per token used, the company claims.”[4] Though we have yet to learn what the true extent of the use of cryptocurrencies will end up being, it is clear that the real estate market is yet another area of the economy where cryptocurrencies are beginning to fill in the cracks.

Tips for Real Estate Buyers and Sellers Considering Cryptocurrencies[5]:

  • Do your research! Seek advice from an attorney or financial advisor.
  • Understand that cryptocurrencies are both an investment and real currencies that can be used to buy products or services, including real estate.
  • Don’t dive into the deep end without first testing the waters. Before purchasing real estate with cryptocurrencies, try buying and selling cryptocurrencies on apps such as Coinbase.

[1] CoinMarketCap. (Feb. 1, 2018) “Cryptocurrency Market Capitalizations.” Available at: https://coinmarketcap.com. Accessed on Feb. 1, 2018.

[2] Jacobs, Harrison. (Feb. 1, 2018) “Someone is selling their New Jersey house for $2.3 million in bitcoin – and it’s a growing trend.” Business Insider. Available at: http://www.businessinsider.com/bitcoin-payment-for-real-estate-listings-2018-2. Accessed on Feb. 1, 2018.

[3] Ib.

[4] Hinchliffe, Emma. (Feb. 1, 2018) “Real estate cryptocurrency startup Deedcoin secures SEC registration.” Inman. Available at: https://www.inman.com/2018/02/01/real-estate-cryptocurrency-startup-deedcoin-secures-sec-registration. Accessed on: Feb. 1, 2018.

[5] Olick, Diana. (Jan. 11, 2018) “5 Tips before you buy or sell a home in cryptocurrency.” CNBC. Available at: https://www.cnbc.com/2018/01/11/5-tips-before-you-buy-or-sell-a-home-in-cryptocurrency.html. Accessed on: Feb. 1, 2018.

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