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Cryptocurrency & Real Estate: A Few Potential Side Effects

Oct 8, 2020 8:59:11 AM

A  few years ago, the question of whether cryptocurrencies could change real estate truly became relevant. While it was true then (as it is today) that cryptos aren’t quite positioned to achieve mainstream adoption in the real estate market, they have unquestionably gained more general influence.

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Leading cryptocurrencies are now well known, valuable, and — at least by comparison to how they used to be — somewhat stable. There have already been examples of cryptos being used in real estate transactions, and as they’re increasingly normalized, we’re likely to see more examples still. But aside from the straightforward use of cryptocurrencies in real estate transactions, there may be some additional effects and applications as well.

Real Estate ICOs

When we talk about cryptocurrency in real estate, it’s primarily related to the idea of direct payment. We envision realtors and even sellers accepting funds from buyers in the form of cryptocurrency, as opposed to ordinary money. In some cases though, we’re actually seeing the real estate industry essentially creating cryptocurrency.

This is a reference to the emergence of real estate ICOs, which are essentially blockchain-based tokens that serve to crowdfund real estate projects and/or facilitate purchases. The easiest way to think of the idea is that an ICO functions somewhat like a share in a project in cryptocurrency form. Numerous projects of this nature worth several million dollars each have already succeeded in selling ICOs for just a dollar or two, and it’s likely to be an arrangement we continue to see more of. It’s essentially a new kind of real estate investment grounded in original cryptocurrencies.

Alternatives to Real Estate Investment

Even as cryptocurrencies introduce new means of investing in real estate, they may also be providing some with an alternative to real estate investment. Buying and selling cryptocurrency is in itself an investment of sorts. But as these currencies have grown more popular and more valuable, methods more suitable to traders seeking to diversify their portfolios have emerged.

Primarily this is a reference to futures and CFD trading. Futures trading with cryptos now works much like any other futures arrangement: an investor makes a deal to buy an asset at a fixed price at a future date regardless of fluctuation in value in the interim. Meanwhile, buying and selling crypto CFDs is somewhat more unusual, but similar in practice. In this sort of an arrangement, an investor can seek to profit off of predictions — not arranging futures trades, but instead setting up contracts that pay out for correct anticipation of a currency’s upward or downward movement over time.

These somewhat new methods of crypto investment don’t directly affect real estate. However, they’ve emerged as popular options for those seeking investment activity outside of stock markets. It is such people who have often been drawn to real estate, and it’s conceivable that the presence of new, mainstream options may actually draw some away from the real estate market moving forward.

Blockchain Use

The idea of blockchain revolutionizing real estate is one that’s been talked about for a number of years now. The main idea is that the blockchain’s support for “smart contracts” — effectively, automated contracts that can be customized and carried out via the technology — can basically take over the industry. They can lower fees and make it simpler for all parties involved to do business on any given real estate deal. To date though, we haven’t quite seen the mass movement toward blockchain-driven real estate transactions some expected.

That’s where cryptocurrency comes in. Much is written these days about how blockchain tech has evolved beyond cryptocurrencies, and it is indeed proving to have numerous additional applications. But there’s also something to be said for the idea that as cryptocurrencies continue to gain attention, influence, and value, the blockchain will be better understood as well. By this logic, it’s fair to wonder if progress in cryptocurrencies will ultimately bring about more widespread use of blockchain technology in real estate.

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