Crypto Real Estate Is Here – Bitcoin Mortgages Are Just The Beginning

As crypto assets are increasingly integrated into mainstream financial conversations, financial markets and embraced by financial institutions, it is only a matter of time before more sophisticated financial instruments make their appearance. Even as bitcoin and crypto exchange-traded funds (ETFs) continue to languish under regulatory scrutiny, other products and services have made strides. Decentralized Finance (DeFi), Non-Fungible Tokens (NFTs), and Decentralized Autonomous Organizations (DAOs) are just one example of the blockchain-related asset classes that have dominated the market conversation since 2021. Add in discussions about Web 3.0 and the tokenization of both virtual and physical assets, and the result is a mighty whirlwind of crypto conversations.

One such tool that could fly under the collective radar of market participants, however, is the potential for bitcoin and other crypto assets to play a role in the mortgage and broader debt space. As real estate prices have skyrocketed in recent years—following concerns last voiced in 2007—the intersection of crypto and real estate has also increased.

Let’s take a look at some of the key trends driving this convergence of crypto with real estate, and what investors should be aware of in the future.

The future is now. At first glance, the convergence of crypto assets and mortgage finance may seem like a futuristic couple, but the reality is that blockchain and real estate are already converging. From simple cases of individuals buying real estate using cryptocurrencies, to NFTs playing a role in reducing paperwork related to titles and property insurance, to blockchain playing a key role in the process of registration, the implications for real estate are far-reaching.

Beyond these connections, as important as they are, the potential of crypto-backed mortgages is still an emerging use that remains widely untapped. NFTs play a very real role in symbolizing the ownership of real estate assets, going well beyond just relegating to crypto art speculation. Crypto-secured mortgages are a logical next step in crypto asset maturation, but as with any instrument, the details will vary.

Details will vary. Neither mortgage nor crypto is an easy market to understand, and especially when combining complex topics it is essential that the specific details of each trade are examined. The crypto mortgage market is no exception to this rule as there are several options available to potential buyers looking to secure a purchase using previously acquired crypto assets.

For example, there are options that require 100% of the requested funding to be secured by crypto assets; a $1 million mortgage would require $1 million worth of crypto as collateral. Other options allow customers to borrow against crypto assets to make a down payment and finance the rest of the mortgage through conventional means.

In addition to the specifics of the loan, investors and borrowers should also examine the process that occurs if the collateral value falls below a predetermined level. Are the crypto assets on deposit with the crypto mortgage provider or with a trusted third party? If the price of this collateral exceeds a certain level, will the crypto be liquidated or will the borrower have the option to make additional collateral deposits? Since volatility is a common feature of financial assets, including crypto, these are not unnecessary concerns.

Guard is important. Based on the foregoing points, one question to ask is: which entity has custody of the crypto assets used as collateral? Bitcoin

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maximalists and other self-preservation advocates are unlikely to participate in this financialization, but other crypto investors would do well to understand exactly where crypto assets are kept. Other factors to consider include the location of the custodian, the measures in place to protect client assets, specific crypto-related insurance policies in the organization, and the entity subject to formal review or certification of these procedures?

For example, if a crypto investor chooses not only to take out a mortgage with crypto assets, thus transferring custody to a third party, but also to document this transaction using an NFT, understanding of origin and storage essential. With the number of decentralized exchanges and new entrants in the space, conducting proper due diligence is an essential step for any investor.

Real estate and real estate-related financial products are clearly increasingly affected by the growing importance of crypto assets in traditional financial markets. There are several underlying use cases that can yield different types of blockchain-based applications to improve the current state of real estate transactions. As always, the potential and desirability of these trades must be weighed against the potential risks, but there are plenty of opportunities for committed and proactive investors.

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