Cryptocurrency has been slow to take hold in real estate, making an appearance mainly when a seller hopes to garner media attention for a listing rather than as a serious form of payment. However, the controversial currency bitcoin, which is now accepted in many retail locations and restaurants in the United States, is starting to take hold in the real estate market as well.
According to a developer presently turning a Manhattan Lower East Side building into luxury condominiums, accepting bitcoins will possibly give him an edge over his competitors. “Not everyone wants to trade in dollars or yen or euros,” observed Ben Shaoul, president of Magnum Real Estate Group, to CNBC recently. Shaoul also said he planned to hold the bitcoin rather than converting it to U.S. dollars because it has been appreciating so rapidly lately.
With Bitcoin, the Sky’s the Limit
At time of publication, one bitcoin was valued in excess of $5,000 U.S. dollars, and that was after taking what Business Insider called “its biggest plunge” in a month. Analysts credit the fall in value to trader concerns that the currency might fall prey to overregulation if the U.S. Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC). The CFTC recently categorized bitcoin and other virtual tokens” as securities. Rumors also abounded that China might close its local bitcoin exchanges, which drove prices down as well.
Bitcoin has risen in value 546 percent since the start of 2017, taking particularly large leaps, Investopedia analyst Rakesh Sharma credited much of the cryptocurrencies volatility to institutional investors’ interest in the currency and “interest from Asia,” specifically China, Japan, and South Korea. China and South Korea are regulating bitcoin heavily, thereby driving up demand, and Japan recently recognized bitcoin as legal tender.
Bitcoin & Real Estate: A Constantly Moving Target
Because bitcoin values are so volatile, conducting real estate transactions with the currency can be tricky. Investors who want to accept or pay with the currency will likely have to agree to a fixed price in dollars rather than in bitcoin because the values fluctuate so wildly. Buyers or sellers may even opt to delay closings in hopes of cashing in on optimum value for their position.
Furthermore, real estate purchases are complicated by inclusion of the cryptocurrency due to IRS regulations stating that when a buyer purchases an asset or pays for a product or service in bitcoin, they may have to pay taxes on the cryptocurrency’s appreciation since the time that the buyer initially acquired the currency. This may discourage U.S. buyers from using their bitcoins on real estate, which is also appreciating and may thereby complicate the process and create serious tax implications.
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Carole Van Sickle Ellis is the editor-in-chief for Think Realty Magazine. You can reach her at firstname.lastname@example.org.