[REN #399] Bitcoin Blasts Off

picture of upward graph for Real Estate News for Investors Podcast Episode #399

Bitcoin is skyrocketing in value as it gains more and more support from individual investors and larger financial institutions. And with profits burning a hole in some digital wallets, there are plenty of people pulling their money off the table, or spending on goods, services, and hard assets like real estate. But there are also concerns about a Bitcoin bubble as valuations soar to great heights.

Bitcoin’s value has increased by a multiple of nine so far this year, and there’s no sign of a slowdown. CoinDesk reports that it surged about $1,000 during the Thanksgiving week and hit a record high of more than $9,700 — per coin — on the following Monday.

It could be that holiday table talk may have touched on the Bitcoin craze and inspired people to buy. One CNBC contributor said that everyone he spoke with in the cryptocurrency community had indulged in conversations about Bitcoin, and it’s likely that the same topic was shared by many families at Thanksgiving meals.
 

Bitcoin Gains Credibility

Those big gains may also be the result of an announcement on October 31st by the Chicago Mercantile Exchange that it would begin “bitcoin futures” in early December. That’s getting the attention of big institutional investors. The market cap of the cryptocurrency realm has gained more than 50% since that announcement. This lends some kind of legitimacy and credibility to a currency with a shadowy past.

The rush to buy Bitcoin may have also been part of the holiday shopping spirit. As Black Friday shoppers went for door buster deals, investors went for cryptocurrencies. CNBC says that Coinbase — which it says it the largest bitcoin exchange in the U.S. — gained about 100,000 accounts between the Wednesday before Thanksgiving and Black Friday right after Thanksgiving. The exchange now has more than 13 million users. That’s up from about 5 million last November (1).
 

The Rise of Cryptocurrencies

And it isn’t just Bitcoin that is doing well. Two Bitcoin rivals are rising to impressive levels. Ethereum is up more than 5,000% since the beginning of the year. It hit a new high of $485 on the Sunday after Thanksgiving. Litecoin is also doing well. It’s at the $93 level and is racing toward $100, with a 2,050% upside for the year.

If you add the valuations for all cryptocurrencies, including those three, they topped a collective $300 billion on Sunday, November 27th, just after Thanksgiving. Bitcoin is the biggest player, with half that total valuation.
 

Bitcoin Bites into Real Estate

While some people are just getting into Bitcoin, others are cashing in — and finding a growing number of ways to spend their digital profits. It’s being accepted by some restaurants and retailers, but only recently started making its way into real estate.

The Wall Street Journal reports that several states have already adopted laws that allow the use of cryptocurrencies for real estate deals. The paper says, Vermont and Arizona are leading the way. And, a homebuyer in Austin, Texas, became the very first person to buy a single-family home with cryptocurrency just a few months ago. It’s not clear how much the person paid for the home but the use of Bitcoin reportedly simplified the transaction. The Bitcoin was transferred from the buyer to the seller who then converted the currency into U.S. dollars (2).

The buyer’s agent said in a Futurism article that she didn’t expect the deal to close so easily using a payment method that was so unique. She said, “In a matter of 10 minutes, the Bitcoin was changed to U.S. dollars and the deal was done.” And there are other stories like this popping up around the world.

In New York, a developer building upscale condos on Manhattan’s Lower East Side is hoping to sweeten the deal for buyers by accepting Bitcoin. Developer Ben Shaoul of the Magnum Real Estate Group told CNBC, “I think the demographic of the crypto user is a younger millennial, but that being said, you have a lot of people come over from other countries, who are buyers from different places, who like to trade in different types of currency. Not everyone wants to trade in dollars or yen or euros.”
 

Bitcoin for Rental Payments

Some real estate companies are also entertaining the use of cryptocurrencies for rental payments. The Wall Street Journal reports that New York based technology company, ManageGo, which provides payment solutions for property managers, will make it possible for people to pay their rent with digital cash early next year.

When that happens, ManageGo will allow payments in Bitcoin, Ethereum, and Litecoin. ManageGo’s Vice President, Chaim Lowenstein, said, “This is just another amenity for this crowd that fits the demographics of people that have dabbled in Bitcoin.”
 

Blockchain Technology for Property Titles and Transfers

The blockchain technology that supports these digital currencies is also expected to be a big disruptor for title-insurance companies. Technology experts say, Blockchain makes the recording and transferring of property titles more efficient and more secure. That’s not reassuring news for those title-insurance companies. They are reportedly studying the potential use of Blockchain. As a lawyer for the American Land Title Association said in the Wall Street Journal, these companies want to be sure “they are in the driver’s seat versus being in the passenger’s seat” if Blockchain becomes a real threat to their business.

As the Journal reports, the current method for recording property ownership has been in use for a very long time in some 3,600 counties across the U.S. Many of those records are printed on paper documents that are only available to people who physically visit the office of the town clerk in any given municipality. So any changes to that system won’t happen overnight.
 

Bitcoin Bubble

Meanwhile, the Bitcoin bubble keeps growing, along with warnings about speculative buying. Since January, Bitcoin has risen in value from about $1,000 to almost $10,000. Analysts say with a market cap of $160 billion, Bitcoin is now worth more than IBM, McDonald’s, Disney, or seven times an ounce of gold. And while more and more people and businesses are embracing the technology, there are plenty who are skeptical.

One of the more serious detractors is JP Morgan’s CEO, Jamie Dimon. He said Bitcoin is “a fraud that will ultimately blow up.” He says you can’t “invent a currency out of thin air and think that people who are buying it are really smart.” He is also concerned about Bitcoin’s shady beginnings, allegedly as a currency for drug dealers and other criminals. He threatened to immediately “fire” anyone at his investment bank who does any trading in Bitcoin (3).

Bitcoin is definitely a phenomenon. But is it a good investment?

Sure, if you bought at $1000 and now it’s worth $10,000, you’d say it was a good investment! But unfortunately, the masses will be buying at $10,000 thinking the trend will continue, just when the smart money is exiting.

Never forget the basics of economics, supply vs demand. Already, bitcoin has competitors, and many more will jump in. There is no limit to the supply of digital currency.

Many people think that it’s a way to hide taxes from the government or take control of one’s currency and get it out of the hands of the Federal Reserve. That may be wishful thinking.

The dollar has no value either. It’s just a piece of dirty, cheap paper – or more often, is also a cryptocurrency created out of thin air. It only has value because the government says it does. If you think you can get out of paying taxes because you’re not using dollars, you may be sitting in a jail cell someday learning just how badly Uncle Sam wants his money.

If you were lucky enough to buy Bitcoin early on, now may be the time to cash out. Maybe spend it on hard assets that don’t disappear overnight, like real estate, which has real intrinsic value.
 
Links:

(1) Coinbase Growth: CNBC

(2) Wall Street Journal Article

(3) JP Morgan’s CEO Speaks Out: The Guardian

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