Bitcoin-Backed Mortgages Could Transform The Real Estate Sector
Image courtesy of 123rf.

Bitcoin-Backed Mortgages Could Transform The Real Estate Sector

Canadian Ledn may have just sparked a new trend of Bitcoin-backed mortgages.
Neither the author, Tim Fries, nor this website, The Tokenist, provide financial advice. Please consult our website policy prior to making financial decisions.

The world’s first Bitcoin-backed mortgage will provide Bitcoin holders with an important use-case for their diamond stashes, but without having to resort to a BTC selloff.

Although Bitcoin’s uncertainty period is dominated by fear sentiment, good news keeps trickling in to maintain long-term confidence. A couple of days ago, the United Arab Emirates wealth fund, Mubadala Investment Company, indicated onboarding the crypto train.

Mubadala’s wealth is considerable, at $243 billion in AuM (assets under management). Following this development, more bullish news is forthcoming, this time from Canada’s Ledn.

Canadian Ledn Announced Bitcoin-Backed Mortgage Product

Based in Toronto, the three-year-old Ledn Inc. has made moves to upscale its crypto commitment. As a digital asset platform providing savings and credit accounts, Ledn is now valued at $540 million. The new valuation comes from the latest Series B funding round worth $70 million, led by Golden Tree Asset Management, Raptor Group, and FJ Labs.

Alongside bolstering its digital assets lending program, the funds will go into the world’s first Bitcoin-backed mortgage product. The stated purpose of this FinTech innovation is to marry Bitcoin’s price appreciation with real estate as an illiquid asset to maintain price stability. In practice, future home buyers could go to Ledn and get a mortgage equal in value to their Bitcoin holdings.

In turn, both the real estate and Bitcoin funds serve as a joint collateral for the mortgage loan, at 50:50 ratio. The Bitcoin Mortgage can be used to either buy a new home or do a fixer-upper for the existing real estate. The length of the loan is two years and currently only available in Canada. However, some time in 2022, this pioneering product should arrive in the US.

For heavier Bitcoin holders, Bitcoin mortgages represent an excellent opportunity to buy a home without selling any of their BTC, as noted by Adam Reeds, Ledn CEO and co-founder.

“Our clients want to diversify their portfolio in order to protect their wealth and then utilize that wealth for instances such as purchasing a home, but one should not come at the expense of the other.”

Lastly, the monthly interest rate payments should be lower than average precisely because of the joint collateral.

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The Current State of Real Estate

In the latest inflation rate roundup, having achieved a 39-year high, we took note that the median household income is on a steep divergence trajectory from the average home value, having started in the 1970s.

Image courtesy of CNBC

Nonetheless, housing demand is going strong, even out of season. There are many factors contributing to this. One of them is the rampant crime rate increase across the board. According to CDC data, the homicide rate alone increased by 30% between 2019 and 2020. Then, there is the matter of a rise in crime seen in some states, prompting retail industry leaders to ask help from the US Congress.

This may explain why housing demand is so strong in the typically slower season. Correspondingly, the National Association of Home Builders and the Wells Fargo Housing Market Index (HMI) have reported a higher builder sentiment within the single-family housing market, at 90. The HMI reached 84 in December, which is well above the positive 50 mid-range.

The NAHB/Wells Fargo Housing Market Index (HMI), image credit: The Tokenist, source: nahb.org

In December 2020, HMI was 86 while the traffic of prospective buyers was 73, compared to this December at 84 and 70, respectively. This is still an impressive builder sentiment given the new pressures coming from all sides: inflation, supply chain disruption, and labor shortages. Likewise, there has been a steep increase in the price of building materials, from wallboard and steel to aluminum and plastic, represented by the Producer Price Index (PPI).

Image credit: fred.stlouisfed.org, source: U.S. Bureau of Labor Statistics

Both the Consumer Price Index (CPI) and Producer Price Index (PPI) represent inflationary measures, CPI from consumers and PPI from producers. In other words, when producers tackle higher production costs, they pass it on to the consumer level. In turn, PPI is not affected by consumer demand.

This transfer of producer costs to consumers was noted by chief Investment Strategist at Claus Schwab, Liz Ann Sonders.

Moreover, to combat rising inflation, the Federal Reserve is expected to ease support for mortgage-backed bonds, which would effectively raise mortgage rates. Consequently, housing will become even less affordable in 2022. That is, for those who have not invested in Bitcoin years prior.

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Many have invested in Metaverse coins after Meta’s rebranding and push into virtual land plots. Do you think this is a viable investment vehicle to make enough profit to buy a real home? Let us know in the comments below.

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