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Author Topic: Using Bitcoin as collateral for real estate  (Read 1901 times)
mercSuey
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April 22, 2014, 11:37:31 AM
Last edit: April 22, 2014, 11:48:26 AM by mercSuey
 #1

Has there been any news or stories of Bitcoin being used as collateral for a real estate purchase?  I know it has been used to make the actual purchase but what about as collateral?

Given the nature of the block chain (ie. public ledger), it would be easy for a real estate entity to confirm a signee's Bitcoin ownership has not changed while still staying in possession/control of the signee.

I think the new US regulation will open up a new world of 'Bitcoin as collateral' and less so as a 'currency' per se.
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BitchicksHusband
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April 22, 2014, 12:06:42 PM
Last edit: April 22, 2014, 02:30:02 PM by BitchicksHusband
 #2

I'm sure it will happen, but the price will have to be stable first.  And that will happen when bitcoin has billions of users, not 2 million 1 million with wild volatility.  

Otherwise the bank would accept the collateral, the person would fall through, and the bank will find out that the bitcoins are only worth half of what they thought.

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mercSuey
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April 22, 2014, 12:12:31 PM
 #3

I'm sure it will happen, but the price will have to be stable first.  And that will happen when bitcoin has billions of users, not 2 million with wild volatility. 

Otherwise the bank would accept the collateral, the person would fall through, and the bank will find out that the bitcoins are only worth half of what they thought.


Yes, of course, any asset valuation is discounted because of market volatility or liquidity concerns.  But as you hinted, I expect the 'Bitcoin as collateral' story to be a good one in the near future for many banks and real estate firms.
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April 22, 2014, 02:04:03 PM
 #4

Who knows maybe It will happen but as said price must get more stable first. Im' sure BTC is used as collateral not officially.
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April 23, 2014, 12:21:45 AM
 #5

It's going to be hard to implement.
Say it's used as a collateral in the current position BTC is in now, which bank would allow it to be used? Due to its volatility I doubt any financial institution would be willing to accept it's use. Besides, even if they would, they'd undervalue it tremendously and ask for a ridiculous amount of BTC in the event that they'd need to liquidate it. BTC is currently defined as an 'asset' and it's 'irregular' in the sense that it fluctuates more than other types of 'assets' such as property, art etc. The bank/financial institution wouldn't accept it as the value of the collateral could become worthless at any stage throughout the duration of the loan.
If the collateral is being backed on a personal loan/sale then I'd assume that'd depend entirely on whether or not the seller/person granting the loan would allow it.
From a legal point of view, I don't see any issues with it though.
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April 24, 2014, 12:02:10 AM
 #6

The price is not a big concern, as a collateral you can use 1/10 of its value if that is the largest retracement of exchange rate during the latest 4 years, actually given a standard deviation based model, you might be able to use 1/4 of its value as collateral

And if it can work as a collateral, it could also be bought with a loan, that will ignite a rally which could be magnitudes higher than those rallies we have seen so far


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April 24, 2014, 12:15:06 AM
 #7

Lol collateral at low value makes little sense. Also coins would have to be given to lender and then lender maybe give them back and maybe not. Escrow can take some risk but again its tricky Smiley
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April 24, 2014, 01:09:32 AM
 #8

If you are talking about mortgages, the house is the collateral
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April 24, 2014, 06:36:36 AM
 #9

Your question made me ask more questions myself.  Many of them have been posted already.  But yes I'd suspect the volatility of The BTC price would be an issue.
mercSuey
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April 24, 2014, 02:09:50 PM
 #10

The price is not a big concern, as a collateral you can use 1/10 of its value if that is the largest retracement of exchange rate during the latest 4 years, actually given a standard deviation based model, you might be able to use 1/4 of its value as collateral

And if it can work as a collateral, it could also be bought with a loan, that will ignite a rally which could be magnitudes higher than those rallies we have seen so far



This is what I'm talking about right here...
mercSuey
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April 24, 2014, 02:12:14 PM
 #11

If you are talking about mortgages, the house is the collateral


But for loan applicants with borderline credit, a strong crypto currency holdings from years of mining might strengthen their chances to get approved.

I'm just thinking of tangible uses of not just Bitcoin but of small yet devoted miners over time.
TrailingComet
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April 24, 2014, 04:48:48 PM
 #12

Good couple years away from that kind of px stability

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April 24, 2014, 06:10:36 PM
 #13

It might be able to be done FSBO real estate deal.  I doubt any escrow agency would accept a highly volatile payment like bit coin.  Wouldn't that be similar to exchanging real estate for stocks?  It would be risky for both parties involved...
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April 24, 2014, 07:16:28 PM
 #14

It might be able to be done FSBO real estate deal.  I doubt any escrow agency would accept a highly volatile payment like bit coin.  Wouldn't that be similar to exchanging real estate for stocks?  It would be risky for both parties involved...

They'll just tell you to sell the BTCs and give them cash
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April 24, 2014, 08:38:41 PM
 #15

The volatility can be reduced with deleveraging

Risk-adjusted return for bitcoin is magnitudes higher than any existing investment portfolio including government bonds and gold, so it will be very safe to finance the purchase using a loan from a perspective of historical performance. The question is always the risk in future. But now when even government bonds have a questionable future (default), the risk for bitcoin might still be the least among all investment vehicles (after risk adjusted)

It seems the bitcoin's value is really depend on the investment: The more people invest in bitcoin, the more valuable it will become. So this kind of feedback loop without any end user utility is different from traditional investment, but you can also say that the demand for a high quality medium of saving is the major market for bitcoin

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April 24, 2014, 08:52:05 PM
 #16

In conventional terms, BTC cannot be used as collateral for Real Estate (in the US at least), because there is no official way (recognized by Fannie Mae or Freddie Mac), to verify or document deposits, or method to verify that you actually own the BTC.

In real estate and lending these days, there are so many anti-money laundering guidelines and policies, that we are many years from even being close to using BTC as assets for Real Estate.


The one way that you can use the cash from BTC towards a home, would be to sell the BTC (somewhere like coinbase), and let the money sit in your account for about 2 months.  Once the money has seasoned in your bank account for 2 months (or you cannot see the deposit in the transaction history), you would be able to use the money towards a home.
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April 24, 2014, 09:02:46 PM
 #17

Actually, if you want real estate, you don't need any collateral from bitcoin, you just hold bitcoin and take a mortgage loan, and sell some of the coins at a later time to pay back part of the loan

If you have 1 million worth of coin (2000 btc), and take a 100K loan, then you might be able to sell 100 bitcoin after one year to pay back all the loan when bitcoin exchange rate back to $1000

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April 24, 2014, 09:40:02 PM
 #18

Actually, if you want real estate, you don't need any collateral from bitcoin, you just hold bitcoin and take a mortgage loan, and sell some of the coins at a later time to pay back part of the loan

If you have 1 million worth of coin (2000 btc), and take a 100K loan, then you might be able to sell 100 bitcoin after one year to pay back all the loan when bitcoin exchange rate back to $1000

You still need to be able to qualify for the loan with your debt to income ratios.   Depending on the type of financing that you want, you may need 6-12 months of liquid reserves (of principle and interest, with property taxes, and homeowner's insurance).   As liquid as BTC is at this point, at this juncture they would not be considered as reserves.
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April 25, 2014, 03:01:25 AM
 #19

I have never heard this. The crowd who trust bitcoin only occupied a very small part.
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April 25, 2014, 11:52:47 AM
 #20

Has there been any news or stories of Bitcoin being used as collateral for a real estate purchase?  I know it has been used to make the actual purchase but what about as collateral?

Given the nature of the block chain (ie. public ledger), it would be easy for a real estate entity to confirm a signee's Bitcoin ownership has not changed while still staying in possession/control of the signee.

I think the new US regulation will open up a new world of 'Bitcoin as collateral' and less so as a 'currency' per se.

Not a chance.

Too much volatility in Bitcon and crypto in general.

My $.02.

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