Bitcoin is moving into more traditional markets, but could it really become a norm in property sales? We explore the possibility and the risks here.
From bartering to trading livestock, coins to paper notes and cheques to credit cards, we’ve seen quite the evolution of currency over time. Today, there’s bitcoin, a digital cryptocurrency made on the internet.
Since it was created in 2009, bitcoin has been commonly used in peer-to-peer trading, investing and a variety of transactions. Property sales however have never dabbled in bitcoin – that is, until recently.
Currently, a handful of Australian property sellers are accepting bitcoin for part – or all – of their home sale. This has caused speculation about how safe digital currencies really are, and whether or not bitcoin could ever become a norm in real estate sales.
WHAT IS BITCOIN AND HOW DOES IT WORK?
Bitcoin is a digital currency traded in online markets. To trade bitcoin or use it to purchase something, you install a bitcoin wallet on your computer or other device. Then you generate a bitcoin address, which you can use to send or receive bitcoin.
Transactions are relatively anonymous, as your bitcoin wallet and address isn’t linked to your personal identity. Even bitcoin doesn’t keep track of its individual users, only the addresses and the transactions made. As a best practice, bitcoin recommends you make a new address for every transaction.
This layer of privacy is one reason users prefer bitcoin. Users also like that bitcoin is independent of banks, the government or other third-parties. Because it’s a completely peer-to-peer system, bitcoin is unaffected by market fluctuations and transactions can’t be interrupted for any reason.
THE ADVOCATES OF BUYING AND SELLING PROPERTY WITH BITCOIN
This year, Bitcoin has also ventured into new territories, one of which is property.
The main reason people are now willing to buy or sell their property with bitcoin is the rate at which bitcoin is increasing. It’s growing – fast. At the start of 2017, a single bitcoin was worth less than $800, according to Coindesk. On
7 December, the price was valued at $15,409.
Sellers who don’t see this trend slowing anytime soon are glad to accept large sums of bitcoin in exchange for real estate.
Buyers are also using bitcoin but in a different way. Due to bitcoin’s rapid appreciation, some buyers are going out and using their stashed away deposit to purchase bitcoin in hopes that it will grow.
Who are these crypto buyers and sellers? Due to the very nature of bitcoin, it’s impossible to name names, but it’s likely that these are early investors who have purchased a substantial number of coins – enough to buy a home and still be well situated. At the very least, we can confirm that it’s someone who has already bought into the idea of cryptocurrency and believes that bitcoin will continue to grow in value.
CONCERNS ABOUT BUYING AND SELLING PROPERTY WITH CRYPTOCURRENCY
So, what do you think? Will bitcoin continue to appreciate?
Many are willing to bet that it will, but there are serious concerns about the volatility of crypto markets. On their own website, bitcoin clearly concedes that the price of bitcoin is volatile, due to the following factors:
- its young economy
- illiquid markets
- novel nature
Even though the general trend is an upward one, there are often occasions where bitcoin value drops significantly – as much as 20 percent overnight.
Bitcoin’s vertical trend and recent popularity have also led some to believe that a bubble is forming, which will eventually break – hurting investors. Further, there’s the risk that some early investors – those who may have hundreds of millions of dollars in holdings – will all sell at the same, peak time. This would flood the market with coins and lead to a sell-off frenzy.
On their website, bitcoin makes it clear that they don’t recommend keeping your savings with bitcoin at this point. When you consider that many Australian property investors keep their savings locked up in real estate, it becomes clear that purchasing real estate with the currency is a particularly risky move.
There’s also the fact that buying real estate is still very much ingrained in traditional markets. What about your conveyancer, for example. Will he or she understand the legality of a bitcoin sale? Things like stamp duty are also only payable in Australian dollars.
It will be interesting to see how this trend evolves moving forward. If you have any questions about buying, selling or investing in Canberra property in a more mainstream way, reach out to the team at Civium Property Group.