Blockchain: Why It Feels Different This Year

Blockchain, crypto, and the U.S.

Bitcoin hit a $68K+ high in November 2021; it’s just under 40K today. But something is going on with digital assets that should be on everyone’s radar. They are part of the property system in 2022 — in a way they weren’t before.

Biden’s Executive Order on Digital Assets Is a Tide-Turner.

We started publishing information on blockchain in real estate last year. Way back then, an online search for, say, bitcoin and real estate would keep bringing up the same six or eight news pieces — half of them published by blockchain companies themselves.

Suddenly — mainly in just the past month — it’s different. A search brings up lots of news. Bitcoin, and its offshoots in the blockchain-based innovation world, are coming to life. One major reason? President Biden’s March 2022 Executive Order.

The Executive Order on Ensuring Responsible Development of Digital Assets directs federal agencies to synchronize the responsible development of digital assets. With this Executive Order, the United States affirms that digital assets aren’t going anywhere and that U.S. leadership is a boon.

Blockchain Technology Is Earning a Nation’s Confidence.

It’s clear that the U.S. will support, not scuttle, blockchain technology. (And contrary to the belief of some crypto bulls, the federal government could have done that scuttling quite handily. Imagine if the government had instead decided to, say, tax unrealized capital gains on digital holdings every year. As it stands, bitcoin gains will only be taxed when a holding is sold — as with other property assets.)

Many blockchain investors and companies are also reassured. While they value autonomy, they know institutional investors want basic consumer protections and cybersecurity laws.

Historically, the Executive Order is a highly unusual “whole-of-government” directive. Socially, it indicates that the administration will accept a form of property that includes everyone — even the unbanked. For the technology is developing in such a way that anyone with a smartphone and a few dollars can put money into a cash machine and buy digital assets.

When Real Estate Companies See New Competition Ahead…

As for the real estate sector, Sotheby’s and a few small, luxury companies are getting into cryptocurrency transactions. They’re eager to impress younger buyers, to achieve high-profile “firsts,” or to prove cryptocurrency’s potential in the market.

Developers are getting in, too. Calling blockchain a “transformative” technology that is “rapidly gaining acceptance globally,” Harbor Custom Development, Inc. (active in Washington, California, Florida, and Texas) has styled itself as the first national land developer and home builder to take digital assets for its land, houses, condos, and rental properties. Harbor uses a third-party exchange to converts bitcoin or the buyer’s preferred cryptocurrency into dollars so they can be deposited into escrow.

In March 2022, the Wall Street Journal reported that real-estate developers and brokerages have begun holding cryptocurrency seminars for their agents.

Can Mortgage Companies Be Far Behind?

People with substantial cryptocurrency holdings might not have a lot in dollars. This is a problem when the time comes to apply for a mortgage. But early crypto mortgage lenders have arrived, gearing up to value a borrower’s digital assets.

In the best models, the crypto assets need not be sold. The borrowers’ digital account becomes the collateral. This way, the buyer can still benefit, for example, from a potential bitcoin surge in the future, while steering clear of tax on a sale of bitcoin.

At this time, the borrowers face relatively high interest charges and adjustable rates. But cryptocurrency mortgages could become competitive within a few years — and this year’s Executive Order will surely embolden the emerging companies.   

This Year, the Wall Street Journal Is Describing How Crypto Real Estate Transactions Work.

A few months before the Executive Order came out, an oceanfront condo at One Thousand Museum in Miami closed for $7.2 million in ether (Ethereum). The buyer did pay the down payment in dollars, the Wall Street Journal explained. And the seller converted the proceeds into U.S. dollars upon closing. Most people do.

Yet regulated cryptocurrency exchanges are offering options. They can lock in prices, accept digital down payments, and partner with escrow agents who take payments from crypto exchanges. These transactions can happen quickly, conveniently, and outside of banking hours.

For the moment, our curiosity has to be tempered with caution. Case in point: Vice reported on a rogue blockchain real estate startup. The con artists used all the right lingo, then left their investors in the lurch. Vice said the perpetrators of this “rug pull” exploited people who wanted to profit from the real estate market, but lacked financial access to traditional investments.

Sounds like “responsible development of digital assets” is a timely idea.

Supporting References

Jason Brett for Forbes: Biden’s New Executive Order on Digital Assets Fuels U.S. Crypto Economy (Mar. 11, 2022).

Guest post by Paul Gilbert for Bitcoin Magazine: Buying and Selling Real Estate With Bitcoin in 2022 (Feb. 27, 2022).

Press release via Globe NewsWire: Harbor Custom Development Inc. Announces Acceptance of Bitcoin and 12 Other Digital Currencies for Its Real Estate (Jan. 24, 2022).

E.B. Solomont and Katherine Clarke for the Wall Street Journal: Crypto Kings Are the Real-Estate Industry’s Newest Whales (updated Jan. 27, 2022).

Marco Quiroz-Gutierrez for Fortune: Crypto Mortgage Lenders Are Entering the Hottest Housing Market Ever (Mar. 3, 2022).

And as linked.

Photo credit: Aaron Kittredge, via Pexels.