Can you buy a home with cryptocurrency?

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Cryptocurrency became a lot more mainstream in 2021 with more recognition from institutional investors, and it has begun playing a small role in the housing market as well.

Not just Bitcoin, but other currencies including Dogecoin and Ethereum gained popularity, and as the metaverse became more functional, even virtual properties started to change hands.

A Miami penthouse sold for $22.5 million in June, paid out in Bitcoin, making it the largest crypto-real estate transaction in history. In a sign of the super-hot real estate market, the property listed again a few months later for $28 million. A luxury Manhattan apartment is now for sale for $29 million, and the owners will only accept Bitcoin.

Regulation and tax codes are pretty lenient around cryptocurrency these days, so it’s quite possible that a certain class of investors will rely on the option more when purchasing real estate in the future. Whether folks buying a condo in Fort Myers or a tract house in Cleveland will latch onto crypto is another matter, however.

It will take some time for cryptocurrency to become a standard part of real estate transactions, according to Kevin Werbach, the Liem Sioe Liong/First Pacific Company professor of legal studies and business ethics at the University of Pennsylvania’s Wharton School of Business.

“There’s value in that these are more efficient mechanisms” for transactions, he said at a recent press conference. But he quickly added that such efficiency also comes with a lot of risk. “There’s really a great deal of obscurity about what these platforms may be doing.”

Pros and cons of buying real estate with cryptocurrency

First we have to acknowledge that crypto deals are done by almost no one in real estate right now. Few homebuyers own cryptocurrency, and most lenders, real estate firms and other stakeholders aren’t accepting it for payment. But for those situations where it is an option, here are a few things to weigh.

Pros:

Smart contracts

Because cryptocurrency is digital and relies on the blockchain, it could actually revolutionize the way real estate transactions are recorded. In theory at least, a crypto transaction should be able to replace the mountain of paperwork that most real estate closings typically involve.

Tokenizing home purchases

The way cryptocurrency works, by using the blockchain, means it’s possible for properties themselves to be traded online in the same way cryptocurrency tokens are — and virtual property in the metaverse can be traded, too, but that’s very in the weeds at this point. All these practices are still in their infancy and it’s unclear whether blockchain will catch on in this way.

Fewer intermediaries, possibly

If the blockchain backers have their way, its application in real estate could eventually mean fewer middlemen in your transaction. If that ever becomes reality, you may pay less in fees and see a more efficient process to closing, but that future remains a long way off, so don’t expect to avoid agents, lawyers and fees, even in a Bitcoin transaction, any time soon.

Cons:

Hacking

Because cryptocurrency is digital, it is susceptible to hacking. Hackers have been known to disrupt areas of blockchain, which could result in unsafe real estate transactions or the loss of the currency itself.

Fraud

Real estate transactions today take time and lots of paperwork in large part to make them less susceptible to fraud. A more streamlined process might sound great for buyers and sellers, but if the deals close faster with fewer parties involved, it may be easier for something to go wrong.

Volatility

As with most investments, the value of cryptocurrency is constantly changing and has been particularly volatile through its history. For example, Bitcoin values fell 25 percent over one weekend in December 2021. Similarly, properties traded through the blockchain may not have the same kind of protections that traditional real estate transactions do. Without a strong regulatory framework, these deals will remain risky.

Bottom line

While crypto real estate deals may be an exciting idea, the process is not quite ready for prime time.

“I do worry that people, retail borrowers, are going to get in before the market is at a point where they can really trust it and a lot of them are going to get hurt,” Werbach said.

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Written by
Zach Wichter
Mortgage reporter
Zach Wichter is a mortgage reporter at Bankrate. He previously worked on the Business desk at The New York Times where he won a Loeb Award for breaking news, and covered aviation for The Points Guy.
Edited by
Senior mortgage editor