Bitcoin is currently on a roll. Over the past few months, the leading cryptocurrency has posted significant gains across the board, crossing its previous all-time high and setting a new one at over twice the former threshold.
There is little to no doubt that investors the world over are excited about Bitcoin at the moment. The opportunity to invest in it is more alluring now since economies and stocks are still getting back up following the coronavirus's effects last year.
Although Bitcoin started as a shadow asset, it has since gained significant legitimacy over the past few years. Today, Bitcoin operates as an investment asset, a means of making payments, and much more. However, there are several industries where Bitcoin hasn't seemed to be able to crack. One such sector is real estate.
Blockchain and Crypto's Slow Creep into Real Estate
There have been signs that the real estate industry is opening up to Bitcoin - and cryptocurrencies at large. However, most of these integrations have mainly focused on utilizing blockchain technology.
This month, Vonovia, a German real estate investment group, announced that it had issued a bond worth 20 million euros ($24 million) on the Stellar blockchain. Per the announcement, the company deployed the Stellar blockchain to facilitate security token issuances to transfer real estate rights. The tokens were issued via an online marketplace known as Firstwire.
According to Helene von Roeder, Vonovia's finance chief, the blockchain bond allowed the company to finance itself "faster, cheaper, and easier." She lauded the bond's transparent issuance process, which ensures professional transaction operations.
Of course, Vonovia's application is a tad too complicated for everyday people. Most who have Bitcoin will want to see the asset's use in making simple purchases like buying yahoo or renting out property. Just as Bitcoin is now being used to make payments for services and goods, crypto enthusiasts would also want to check how well it performs in processing real estate transactions.
Sadly, some challenges arise when you consider things like these. For one, Bitcoin is still slightly difficult to spend in bulk. Many have decried this difficulty, explaining that they only have access to small amounts that won't be sufficient to make real estate transactions happen.
There is a solution to this. For one, investors are getting savvier when it comes to trading Bitcoin. So, they should be able to grow their holdings over time to levels where they can easily spend Bitcoin when purchasing houses and properties.
At the same time, the entrance of payment processors has been a blessing. PayPal now accepts Bitcoin - as do companies like Square and VISA (in a way). If payment processors can improve the ease with which people spend their Bitcoins, facilitating real estate transactions will be much easier.
Dealing With Volatility
Now, we get to the meat of the issue - volatility and its ties with Bitcoin. Ever since Bitcoin gained notoriety, many have hit hard at it for being overly volatile. Ray Dalio, the founder of Bridgewater Associates, said last year that Bitcoin failed as a currency because it was too volatile. As far as he was concerned, the fact that Bitcoin is subject to significant price swings means that no one can trust it to hold value and act as a reliable payment method.
To be fair, Dalio has a point. Bitcoin is susceptible to price swings, and its value can change within a few days. Take the past two months, for example. Data from CoinMarketCap shows that Bitcoin held a value of $19,424 as of December 1, 2020. A month later, the asset's value had skyrocketed to $29,120. That's a 49 percent rise in a month.
When Bitcoin eventually reached its all-time high of $40,920 on January 10, it dropped to $31,039 in 12 days - that's a 24 percent drop in 12 days. If Bitcoin has shown anything, it is that it can rise and fall at a moment's notice.
With a price trajectory that moves this way, brokers and real estate agencies have been skeptical about accepting Bitcoin.
It will take a while for Bitcoin to build this trust with merchants and real estate firms. For now, however, there's little hope on that front.
Bitcoin’s Past Criminal Ties
Bitcoin has a shady past, as many know. Many criminals have used the asset to engage in nefarious activities in the past, which has hampered trust in it. Real estate brokers and companies currently fear that some digital assets being used to make transactions have criminal ties. To avoid problems with the government and law enforcement agencies, they'd instead not be associated with Bitcoin at all.
For now, the solution to this will be effective regulations. There are signs that the incoming administration can help with this.
Janet Yellen, the new Treasury Secretary, has claimed that cryptocurrencies can improve the efficiency of the American financial system. "I think it important we consider the benefits of cryptocurrencies and other digital assets, and the potential they have to improve the efficiency of the financial system."
So, if she will be bringing some crypto regulations to the table, they should be fair enough.
To overcome the fear of criminal ties, regulations will need to provide effective identity verification procedures for asset custodians and exchanges. Companies in the space will also need to develop optimal anti-money laundering (AML) and counter-terrorist financing (CTF) rules to keep themselves and their customers safe. Over time, these policies will foster trust in crypto and provide a level playing field for everyone.