Crypto Mortgages: Crafty or Crazy?

You can’t swing a cat in a roomful of marketers without hitting the word “crypto,” and that’s as true in commercial real estate as other industries. There’s fractional investing and tokenization, purchases of homes, and even cryptocurrency for condo deposits.

Now there are crypto-based mortgages. A couple of Miami firms—fintech company Milo and cryptofinance lender XBTO—have taken up crypto-based home loans, according to the Wall Street Journal. “Between crypto millionaires who don’t want to sell their cryptocurrency and foreign buyers who have trouble entering the market, we see a huge demand,” Joe Haggenmiller, head of markets for XBTO, told the paper.

There are other companies, like Mbanc, testing the crypto mortgage waters

Which leads to the question of what a crypto-based mortgage is. The main model may cause those who deal with normal housing mortgages to scratch their heads. The buyer puts down the entire price of the property in an agreed upon cryptocurrency. That sum sits with the lender. The buyer  gets a mortgage for the property with typical rates in the 5% to 8% range.

Complicating the deal is the volatility of cryptocurrencies. They can skyrocket up or plummet in value on little notice. When the drop happens, there’s the equivalent of a margin call the lender makes and the borrower has to deposit more crypto to match the value of the loan.  No extra crypto? Oh, terribly sorry, you forfeit.

What seems crazy on the surface here is asking people to tie up the entire cost of a house to only get an unusually high mortgage rate. Why not pay the full price and walk away with the deed?

For the crypto enthusiast and believer, it’s a matter of balancing an interest payment on a home and the expectation that the value of pledged crypto will continue to rise. Because the asset is only held by the lender and not converted to cash, the buyer continues to see increased value on the holding that, hopefully, will grow at a rate higher than the mortgage. In that case, the buyer effectively lowers the loan rate, possibly into negative territory.

All that makes some big assumptions, like crypto continuing to ascend in value. But while something like Bitcoin is indeed up dramatically since its inception, it’s also down many thousands per coin since two massive spikes in 2021.

Depending on timing of when someone bought, a big drop would mean an equally large margin call. If the borrower is rolling in crypto wealth, that might not be an issue. But it could equally be that things get sticky, which, depending on exposure to those with only modest crypto wealth, could leave specialized lenders in an uncomfortable squeeze to unload property in a hurry.