Bitcoin made waves in the real estate world in December, when a seller listed a Miami penthouse for what appeared to be $33. In fact, the seller wanted 33 Bitcoins – the equivalent of about $544,038. While it was not the first time a seller indicated they were open to accepting bitcoin as a form of payment, it was the first time they exclusively asked for bitcoin offers for a real estate transaction.
Bitcoin is a form of digital currency, or “cryptocurrency,” that can be sent anywhere in the world via computer. Bitcoin was designed to exist outside of the control of any single entity, like banks or the government. All bitcoin transactions are recorded and publically available through a ledger called the “blockchain.” New bitcoin are created through the process of “mining,” which involves solving a series of complex mathematical puzzles to verify transactions and add to the blockchain. Anyone with the appropriate software can mine bitcoin.
Since its inception in 2009, bitcoin’s value has fluctuated wildly. In a 2017 article, real estate company Redfin reported the number of bitcoins necessary to buy a typical San Francisco home was 82 bitcoins, up from 2,805 bitcoins in 2016. With that dramatic increase in value over just one year, it’s easy to see why investors all over the world are drawn to bitcoin.
The article goes on to list the median home price in fiat currency and bitcoins for major metros. In Chicago, the average home can be bought with the equivalent of 14 bitcoins. In Portland, home values jump to about 23 bitcoins. A chart illustrates median home prices in bitcoin for other major cities:
There may be a difference between how buyers and sellers perceive bitcoin transactions in the real estate market. A buyer who has profited off Bitcoin would likely be thrilled to use the funds to buy a new condo – however, a seller would be more wary, because accepting bitcoin as payment is essentially a bet that it will continue to increase in value.
The media reports incredible stories of people who invested in bitcoin early on and got rich. For many bitcoin enthusiasts, the draw of bitcoin is that it is decentralized, as opposed to regular (fiat) currency that is regulated by the federal government. However, many financial professionals are skeptical of bitcoin’s value precisely because of its unregulated nature, which makes it susceptible to inflation or a market crash.
No doubt the technology of bitcoin is impressive, and bitcoin growth all over the worldhas been unprecedented. There will likely be more cases of bitcoin used for big transactions like real estate. But like any speculative market, bitcoin is still considered a risky investment. Don’t invest what you can’t afford to lose, and do research before making any big decisions – like buying or selling a home – with bitcoin.