APRIL 10, 2022 | Issue 10
PREDICTING THE FUTURE WITH CONFIDENCE Certainty. We crave it in our personal lives and professional lives.
When we feel certain about the future, we feel calm and in control. We give ourselves permission to use resources for what we want in addition to using those resources to prepare for the unexpected.
As Iife marches on, I’ve gathered practices that help me shape the future I want.
Stretching, eating right, exercising, and getting enough sleep has proven to make me feel stronger and certain that I’m doing the right thing to stay healthy.
Working in a company where I’m treated as a highly-valued "customer," provided with financial resources, expertise, and tools to succeed, instills confidence that I will meet my professional goals.
Reading books, in-depth articles, and papers, watching videos of experts, listening to podcasts, and speaking with professionals teaches me the fundamentals. Writing and speaking about what I’ve learned sharpens my understanding.
This is how I have cultivated my knowledge about crypto.
Over the past year, I’ve watched crypto commentators predict the price of bitcoin and how crypto, blockchain, DeFi, NFTs, and DAOs will change industries, governments, central banks, and global economics.
I have seen extreme volatility in crypto prices, but no exciting appreciation.
NFTs have been embraced by celebrities, but are not yet part of the mainstream culture.
I have seen a crypto real estate company tie itself in knots to sell a house as an NFT and reap the marketing benefits of being the first NFT house sale, but then discovered that the seller lost a lot money by not selling her house to a traditional buyer.
Yet, I’m not discouraged.
I am confident that crypto and blockchain will change much of our lives. After being immersed in the subject for a year, I now realize it will take much longer than the crypto evangelists espouse. This is especially true in real estate – an industry that is adept at resisting change.
Stay with me on this journey. I’ll keep researching and sharing what I learn.
Have a great week and stay crypto curious!
PS. You can find all CNR newsletters here.
CRYPTO & REAL ESTATE
▸ It's Deja Vu All Over Again – Propy Lists Another NFT House In Tampa
Propy, a startup focused on real estate, is selling their second property in the US via an NFT.
The first house, 6315 11th Ave S. Gulfport, FL was a single-family home and it listed for $650,000. After a six-hour auction, the NFT sold for $653,000. However, the MLS sale price was $631,790. (Click here for analysis of the NFT sale.)
The $21,373 difference covered Ethereum “gas fees” and other undisclosed fees. In addition, there were fees to Propy and a brokerage commission.
The seller owned a crypto business and was intrigued with NFTs. However, she said the process was “clunky.” A traditional sale would have netted her significantly more money.
This second property, 1000 W Horatio St, Apt 127, Tampa, FL 33606, is a 1-bedroom condo that is owned by Propy. It will be auctioned on April 12, 2022.
Propy purchased it for $215,000 on January 24, 2022 and it is listed on the MLS for $185,000. The MLS states that it can only be paid in cryptocurrency. Curiously, a CMA prepared by the listing agent shows a fair market value of $220,000.
▸ Miami Bitcoin Conference 2022
The largest Bitcoin event occurred in Miami this past week. Here are the highlights:
● US Senator Cynthia Lummis (R-WY) discussed her pro-bitcoin legislation, The Responsible Financial Innovation Act. The bi-partisan bill provides a framework for innovation and addresses tax issues, consumer protection, and privacy.
● Bitcoin mining experts addressed how the miners can work with the local grids to improve electricity distribution and production. CEO of CleanSpark said, "We can consume a very flat load all the time and we can drop it off almost immediately. Miners can interact to improve grid health. Bitcoin miners are now seen as really good anchor tenants to large scale power purchase agreements."
● Constitutional law scholar Neil Katyal argued that bitcoin provides power to individuals to operate outside the fiat (government currency) framework. However, he didn't think that bitcoin transactions are a form of expression protected by the first amendment. Katyal said, "Some regulation is OK."
● Bitcoin payment coming to Whole Foods, McDonalds, Chipotle, and Shopify stores. Strike CEO Jack Mallers announced these locations will accept bitcoin payment over the Lightning network (an instant payment system that sends BTC payments off the main blockchain).
▸ FDIC Asks Banks to Report on Crypto Activities
The Federal Deposit Insurance Corporation, the entity that insures bank depositors, published a letter to banks.
The FDIC expressed concern about crypto products and activities –
1) There is a lack of consistent definitions with crypto assets and crypto activities.
2) Crypto products and services are rapidly changing.
3) Difficult for institutions to assess the safety and soundness. FDIC wants the institutions to notify them of their intent to offer a crypto product and provide all necessary information to the FDIC. This request certainly casts a wide net.
I suspect that the institutions will push back on the letter and at a minimum request specific guidelines from the FDIC.
▸ JP Morgan Slowly Embraces Blockchain and Digital Currency
JPMorgan's CEO, Jamie Dimon, has a history of slamming Bitcoin. He called it a "fraud" in 2017 and "worthless" in 2021. However, JPMorgan set up the first bank branch in the metaverse and launched two crypto newsletters this week.
Dimon discussed JPMorgan's use of blockchain tokenized currency in his annual shareholder letter.
He said, "Decentralized finance and blockchain are real, new technologies that can be deployed in both public and private fashion, permissioned or not."
"We use a blockchain network ... to enable banks to share complex information, and .... to move tokenized U.S. dollar deposits.... We believe there are many uses where a blockchain can replace or improve contracts..."
CRYPTO CLASS - CRYPTO MORTGAGES
Crypto mortgages are becoming an option for homebuyers who want to use their cryptocurrency, but don't want to incur the tax consequences of converting crypto to cash.
Buyers who sell their crypto currency to get cash to purchase a house, will realize a capital gain or loss. However, if the buyer uses the crypto as collateral for a mortgage, there's no taxable event triggering a capital gain or loss.
As reported recently in Crypto News for Realtors, several lenders offer mortgages for crypto holders. Loans range from a small deposit amount to the full sale price.
Some lenders require many multiples of the loan amount in crypto as collateral and they don't require giving the lender foreclosure rights. Other lenders have the right to foreclose if the borrower defaults.
I spoke to a loan representative at the crypto lending firm Abra who told me about a loan he's writing where the borrower is getting a three-year $2 million loan at 0% interest. The borrower is providing $25 million in crypto collateral. I thought I had misheard him, but I heard correctly.
Abra's website advertises a 0% interest loan with a 15% LTV. A $2 million loan would require $13.3 million in collateral, not $25 million. Regardless, it's still a lot of collateral.
Abra, like other crypto lending platforms, will lend out the crypto to other users, traders, or other platforms in exchange for a fee. The platform will pass some of the fee back to users in the form of interest.
People lend their crypto to platforms because the interest rates are exponentially higher than at a bank savings account. Some platforms offer up to 13% on stablecoins or 7.15% on bitcoin. Whereas, savings accounts typically pay 0.60%. Enticing, but much riskier than an FDIC-insured bank account. Crypto lending is more controversial than crypto exchanges like Coinbase, Gemini, and FTX. The Securities & Exchange Commission (SEC) and six state attorneys general have threatened enforcement action against crypto lenders. When crypto exchange firm Coinbase announced in 2021 that it was going to offer a lending service, Lend, to its customers, the SEC warned that such this service could trigger legal action. Coinbase decided not to pursue the lending business. On February 14, 2022, the SEC announced a $100 million settlement with BlockFi Lending, LLC. The penalty was for misrepresentation about over-collaterization, not for failing to pay its customers. The SEC cites the legal litmus test used by the courts since 1946 to determine if an activity is a "security." The Howey Test asks three questions: 1) Is there an investment of money? 2) Is there a common enterprise? (Will customer assets be mixed together?) 3) Is there a reasonable expectation of profit from the efforts of others? The SEC has not yet issued any regulations stating that crypto lending activities are securities. The SEC's inaction is likely viewed as a signal to move ahead by existing crypto lenders and new entrants. According to a recent Wall Street Journal article on crypto mortgages, a real estate developer in Miami has partnered with crypto platform FTX and has accepted over $20M in crypto payments toward pre-construction purchase of 60 condo units. The article also quoted an attorney, Lorenzo Delzoppo, who is working with XBTO on a crypto mortgage product. Delzoppo said, “Integrating the legacy mortgage system with the new crypto environment is an operational nightmare."
INFLUENCERS - People to follow
Elon Musk – @elonmusk
Elon Musk started tweeting about crypto in January 2018, but for a year he said he didn’t own any crypto other than 0.25 BTC that he received as a gift.
In April 2019, Musk tweeted about Dogecoin and that kicked off interest and price spikes whenever he tweeted about it. Dogecoin hit its highest price in May 2021 following his Saturday Night Live appearance. He tweeted the above photo after the price spike with the caption, "UR welcome."
Musk disparaged bitcoin until he announced in February 2021 that Tesla purchased $1.5 billion in BTC for its treasury. At the end of 2021, Tesla's BTC holdings increased in value to almost $2 billion.
RESOURCES – Books, websites, podcasts, articles
Bitcoin Magazine was launched in 2012 by Vitalik Buterin, Ethereum Founder. The current issue is reporting on the Bitcoin conference in Miami.
CRYPTO WORDS – KYC/AML
Know Your Customer and Anti-Money Laundering. Financial institutions have standards to identify customers who may be attempting to launder money and finance terrorist operations. KYC involves establishing a customer’s identity, understanding the nature of the customer’s business and source of funds, and assessing money laundering risks. AML compliance is one of the most costly and challenging issues facing financial institutions. Several academic papers and the United Nations have reported that the laws are grossly ineffective, only stopping less than 1% of criminal proceeds.
OH, ONE MORE THING – In my April Fool's teaser video, I joked about the Academy minting an NFT of "The Slap" and auctioning it at Christies. A day after the Academy Awards ceremony, a "meme coin" was issued – The Will Smith Inu Coin. There was $3 million in frenzied trading, a price spike, and sudden crash. It lasted a bit longer than a slap.
Thanks for reading! See you next week.
Go to Crypto News for Realtors to read previous issues.