Consider someone who has a million or a few million bitcoins sitting arouind, and is thinking of buying a mansion or estate.
If they buy it with bitcoins, chances are a heck of a lot of those bitcoins will jit the markets, suppressing the price, and thus the perceived value to many people, of bitcoins.
Suppose instead they used their bitcoins as collateral for a loan, and bought the mansion with what they borrowed.
Again, chances are whatever they bought the mansion with would end up back on the market. If they use fiat, the fiat market is maybe huge enough that just one less than a hundred million dollar mansion or estate won't make a blip on the market.
But if there were enough alternatives out there so that one could use one(s) that are not as vast markets as the fiat markets, maybe their market(s) might blip, suppressing the price allowing the mansion-buyer to pick back up what they borrowed cheaper than the price is was valued at when they bought the mansion, thus effectively getting them the mansion cheaper than it would have been otherwise.
Meanwhile their bitcoin might be up another 25%, which they would have missed out on if they had parted with them...
A problem this scale reveals of course is that bitcoins are so cheap still that one cannot likely buy more than a few such relatively cheap estates without blipping the market.
(If "why not mortgage the estate itself" comes into it think shiploads of cocaine instead of estates maybe.)
-MarkM-
Yep. Do it like Larry Ellison
http://www.cnbc.com/id/49194482/How_Larry_Ellison_Actually_Funds_His_Lavish_Lifestyle and unlike all the shipple selling themselves into debt slavery by taking out mortgages.
This is a smart way to "monetize" bitcoin fortunes for those marathon runners among bitcoiners.
However, nothing new here. Google "stock loan" or "securities based credit line" or "stock backed lending". This is actually the smart way of buying high value property as opposed to various mortgage products.
The idea is that instead of having a mortgage AKA "buying one house for yourself and two houses for the bank" you borrow money using your stock portfolio as a collateral.
A typical "stock loan" is readily available for amounts above 100k$, you pledge your portfolio as collateral in exchange for some amount of money, you keep whatever dividends your stocks brings, you pay whatever interest rate is agreed until the loan is repaid. Usually such loans are not callable by the lender but debtor can walk away from the deal at any time and stop paying any interest without repaying any capital but sacrificing the portfolio. The creditor usually hedges all risks associated with such a deal using options. Think about it, dividends are (hopefully) paying lion share of interest, you keep your stocks and get back control of them after you will have paid out the loan. If stock drops to 0 or to some other low value you can walk away from the deal at any time without any further liabilities.
I would say this is the way to buy a house for those who have 100k$ in liquid assets. Of course this could be combined with traditional mortgage (at lower interest rates due to large LTV) if "top up" is needed.
Just to illustrate here is a simplified example.
You buy 430k$ worth of Realty Income Corp (NYSE:O), 10000 shares, 43$ each. It pays 5% dividend. You use this portfolio to get 400k$ loan at a fixed 3% interest. You buy yourself 400k$ house outright without any further lending. eventually dividends pay off the loan and you get your stock back. Or at any time (if stock tanks big time, for example) you just walk away and keep your house and have no any debts. Alternatively, if your stock rises significantly you can settle the loan for a portion of your portfolio and walk away with the rest of it.
Essentially, this way one turns the power of compound interest from one's enemy to one's friend, offsets interest with dividend, offsets inflation with stock price appreciation, lets lender to offset risks of stock depreciation.
Now enters Bitcoin. Imagine that a few years down the road Bitcoin trades on various financial exchanges just like all other currencies, there are liquid bitcoin ETF's which are optionable and these options are rather liquid with about the same liquidity as a typical S&P 500 stock (or simply liquid Bitcoin options).
Once the above conditions are in place it is likely that Bitcoin's market cap is around 1 billion USD (I use today's dollars i.e. ignoring fiat inflation for simplicity). Let's assume that 1 BTC worth about 1000$, for simplicity again.
I guess a typical deflationary Bitcoin loan in 4-8 years time (for Bitcoin owners) would be like the following:
You own 430 Bitcoins. You pledge it as a collateral for 400k$ at 3% interest. You buy a house outright. Every month the lender sells 0.1-1 BTC and/or you pony up some cash to pay the interest. Few years down the road your loan is paid up, you keep the house and , say, 430-N BTC that worth about the same amount of USD as your 430 BTC when you have bought the house.
So just have 1000 BTC and in a few years you will be able to use such or a similar scheme to buy yourself a house outright and keep most of your bitcoins in the process.
All you need for this to be a realistic scenario is a bunch of BTC and 1000$ exchange rate. At this point options on BTC and therefore "BTC collateralized lending" will be available.
Here is a bit of my wisdom for you: keep your bitcoins until you can buy a house (or an yacht or whatever) like that. Also note how no tax event is triggered in described above scenario. Note how one could become a tax exile for a year or so and move out his bitcoins out of a punitive taxable jurisdiction. Estate planning opportunities will be great for those who can keep their bitcoins untouched for a while.
