Cryptocurrency in Real Estate
Cryptocurrency “Crypto” has been making headlines and causing a buzz across the globe. But what is it? Cryptocurrency is defined by the Oxford Dictionary as “a digital currency in which transactions are verified and record maintained by a decentralized system using cryptography, rather than by a centralized authority”. In layman’s terms, it is a type of digital or virtual money. It has the same purchasing power as money but it exists only in electronic form.
The possibility of big cryptocurrency names like “BitCoin” and “Ethereum” being the next big investment vehicle has caused a divide among investors. Despite apprehension from some, new forms of cryptocurrency are continually being introduced, and the virtual coin is expanding into industries in a remarkable way. One industry in particular generating headlines: the Real Estate Market.
In Miami, Florida, a luxury penthouse was just purchased for $22.5 million – paid completely in cryptocurrency. Although it is not the first real estate purchase involving virtual assets, it is the largest to date. The sale closed within weeks of the seller announcing that they would accept digital currency as a form of payment. Speaking of the sale, the seller stated he was overwhelmed by 17 offers. The eagerness of men and women in real estate to seize opportunities involving cryptocurrency speaks to the excitement around the virtual coin. This aligns with the city of Miami recently declaring itself a growing hub for the cryptocurrency market.
Let’s take a look at the positive and negative aspects of Cryptocurrency in Real Estate:
The Advantages of Using Cryptocurrency in Real Estate:
Privacy when buying property
Easier international and overseas transactions
Liquidity in real estate investing: Liquidity determines whether assets will be sold quickly or slowly and if the price will be above or below market value. Property that is easy to sell and purchased at market value is liquid.
Reducing the cost of real estate transactions
Avoiding tax on transferring property rights
Gaining attention and buzz in the press
Balancing the security of brick and mortar real estate with flexibility of bitcoin
The Dangers of Getting Involved with Cryptocurrencies:
Losses due to hackers. Bitcoin recently experienced a major crash a result of their system being hacked.
No downside protection and hard collateral
Frauds and entrepreneurs with no real estate experience. At this point in time, anyone can create or promote cryptocurrency without any knowledge or credentials backing up their claims.
Hyper volatility
Control over currency prices held by very few influencers
Risk of new regulations. Although some of the negative aspects (such as fraud risk) could be avoided if laws and regulations were put in place, it could also affect some of the more appealing aspects such as ease and cost.
Cryptocurrency may go up in value, but many investors continue to steer clear. The reason? Like real currency, cryptocurrency does not generate cash flow. In order to profit, someone has to pay more for the virtual asset than you did. This is known as the “greater fool” theory of investment. Some notable voices in the investment community have advised potential investors to steer clear of them. Of particular note, legendary investor Warren Buffett compared Bitcoin to paper checks: “It's a very effective way of transmitting money and you can do it anonymously and all that. A check is a way of transmitting money too. Are checks worth a whole lot of money? Just because they can transmit money?".
Still, there is no denying that cryptocurrency continues to grow in popularity and expand across industries. It is getting harder to imagine a future without the virtual coin. Ivory Johnson, certified financial planner and founder of Delancey Wealth Management, when asked about where he sees the future of cryptocurrency in 50 years said, “Cryptocurrencies will disrupt traditional finance because one of their most attractive utilities is the ability to efficiently transfer payment across borders with little to no cost, delay or foreign currency fluctuations. With respect to bitcoin, 50 years is a long time and bitcoin could either become the world reserve currency or the next AOL that made a lot of people wealthy until it was unseated by better technology”. There is often opposition at the start of all major innovations. Will cryptocurrency crash and fade out or is it the future of finance?
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