The ABCs of Cryptocurrencies in Real Estate

Luis Leiva believes he is a very forward-thinking Realtor® and considers himself an early adopter of many technologies. So, in 2018, after researching cryptocurrencies and blockchain, he saw the implications of using it in the real estate industry and all its auxiliary businesses.

“Why not be one of the first people to compensate one of my agents with cryptocurrency?” says Leiva, CEO of Culture Estate in Scotch Plains and Realtor ® with EXP Realty.

Some of his agents were investing in cryptocurrency anyways. One of those agents accepted her commission check from the brokerage in digital currency two years ago. Despite the transaction being a traditional one involving the sale of an investment property with U.S. dollars, the agent’s portion was converted into her cryptocurrency wallet. This way she could convert it to her crypto of choice. She saw the funds instantly and did not wait for days to have a check clear.

“Since then, the economy had been really strong, and cryptocurrency took a beating,” Leiva says. “People backed off of it for a while. But it’s slowly coming back in a healthy way.”

He believes many people still think it’s a scam. He hopes that like on the West Coast, people in New Jersey will begin to research it and embrace it in many areas of life including real estate.

The ABCs of Cryptocurrency and Bitcoin

Bitcoin was the world’s first and most widely used cryptocurrency and is stored and exchanged securely on the internet through a digital ledger known as a blockchain. Bitcoin has a total market cap of a little more than $100 billion, according to Coinbase.com, which means there is a limit to how much Bitcoin is available. Collectors and users of the currency believe that because of its limited amount, it will continue to grow in value.

Coinbase shows current market value, historical value, and fluctuating prices of the top cryptocurrencies such as

Bitcoin, Ethereum and Litecoin. The platform allows for people to buy, sell, and store digital currency. The Bitcoin network includes thousands of computers run by individuals all over the world.

Many cryptocurrencies come and go, making them risky for big purchases like a house. For instance, the value of one Bitcoin rose to a high of $20,089 in April 2018. In June 2019, it reached $13,000 again after going up and down. When the pandemic hit, the value dropped to $3,858 on March 12, 2020, but rose to over $10,000 in early June.

With Bitcoin and other cryptocurrencies, you simply open up what is called a “wallet” online. Then, you can buy small portions of the digital money, which can be spent at restaurants, car shops, coffee shops, and more. This step will help beginners understand what it entails and what it can get you. Coinmap.org has a list of businesses that accept Bitcoin around the world.

Adopting Cryptocurrency into Real Estate

Darren Lizzack’s wife tried convincing him that cryptocurrency was the next big thing.

“So, I started digging into it myself. It was so new then, but I realized the technology behind it will not go away,” says Lizzack, founder the Commercial Real Estate Alliance (CREA) United and associate vice president of NAI James E. Hanson, a sales and leasing of commercial real estate, headquartered in Teterboro. He hasn’t seen digital currency come into play yet in New Jersey’s commercial business real estate.

“I’m sure it will happen. It will probably be a positive thing for the real estate business. It just makes things more efficient, and once again, the government is slow to the table,” he explains. “They first want to wrap their arms around it.”

He believes there just aren’t enough resources out there for Realtors® to tap into when it comes to the subject on the real estate side. So, the CREA United hired a writer to investigate cryptocurrencies and now offers data on the organization’s website. The information talks about why Chinese investors flock to real estate in Los Angeles, New York, and Miami. They seek out real estate attractive to immigrant families with established school systems and diverse job opportunities. Since cryptocurrency has become a popular method in some of those areas to purchase properties, agencies should consider offering crypto as a form of payment.

“New Jersey has many marketable strengths that make this state alluring to foreign investors,” the data from CREA United says. “New Jersey’s proximity to major urban centers – particularly Philadelphia and New York – is one of the state’s many selling points.”

Investors Paying Attention

Henry Elder serves as president of International Blockchain Real Estate Association (IBREA) and director of Wave Financial headquartered in California, which offers cryptolinked and blockchain-linked financial products.

IBREA is a member-focused educational and trade organization dedicated to implementing blockchain in real estate. IBREA has over 5,000 verified individual members and several industry members around the world.

“Once you go down the rabbit hole, you don’t look back. There’s been an explosion of the utilization of blockchain, and I’ve been using it to raise money for companies,” he says. “But in real estate, it’s really hard for developers and investors to understand it.”

What his company does is take cryptocurrency and turn it into traditional real estate.

“A lot of investors are sitting up and paying attention,” he says. “On the commercial side, we haven’t seen whole buildings being traded for cryptocurrency. That is being more adopted on the residential side – in some cities and states.”

Data published by the market research firm Fundstrat shows that Bitcoin (BTC) is the top-performing asset class of 2020, so far. The data reveals Bitcoin to have outperformed every other asset class by at least 19 percent by gaining 39 percent since the start of the year.

“Bitcoin has performed fantastically, and there is tons of interest from investors,” Elder adds. “This is sort of why Bitcoin was created for this kind of environment. With the pandemic, the high unemployment and all the unrest in this country, cryptocurrency stands on its own.”

More and more companies including title companies and others in the real estate world are looking into this technology as a way to create a more efficient way of doing business, Elder states.

According to Elder, blockchain offers an open source, universal protocol for property buying, recording, escrow, crowdfunding, and more. It can reduce costs, stamp out fraud, speed up transactions, increase financial privacy, internationalize markets, and make real estate a liquid asset.

David Sorin has worked for years with technology companies.

“As a lawyer who lives and dies by new technology, I ended up creating a blockchain task force,” says Sorin, partner and East Brunswick office managing partner of the law firm McCarter & English.

“That part of our practice has grown and involves anybody who resides anywhere along the supply chain of blockchain. One of the applications of blockchain is to disrupt the supply chain,” says Sorin.

He’s worked with a pharmaceutical company that is using blockchain technology for every pill along the supply chain. A broad array of industries use that technology.

Just recently, Gov. Phil Murphy formed the Blockchain Task Force, with Sorin and 19 others from various careers. The group is analyzing what should or may be able to be done at a the governmental level to create efficiencies with blockchain. The pandemic hit after the task force had met only three times, but Sorin hopes to get it started again.

“The implications of cryptocurrencies for real estate are very real and starts with the recording system,” says Sorin. “The current system for recording deeds, mortgages, and liens on real property can be dramatically disrupted with blockchain technologies. The authenticity and lower cost are some things many state governments are looking in to.”

On another level the combination of blockchain and digital currencies can be used by real estate developers, says Sorin. Developers borrow money to fund a project. The project gets built, then they sell their interest in it, and go on to the next project. They only do one project at a time. Now, Sorin is seeing commercial real estate developers looking into or already using blockchain to finance multiple projects at a time.

A number of new investment vehicles are being created by blockchain allowing investors to participate in areas that they might not be able to have done before like diamonds, real estate, and fine art, he adds.

“I do worry though about the banks and how that will cut into their operations. If cryptocurrency becomes mainstream, what do you need banks for? It could put a lot of people out of business,” says Sorin.

The future of digital currency remains unknown.

“But at this point, this technology is like the internet. In 10 years, no one will talk about it anymore because it will be the underpinning of everything in real estate from the title to escrow,” Elder says.