An analyst from Weiss Ratings claims that the value of a property — and major cryptocurrencies — has the potential to plummet in the short run, according to current economic conditions.
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- What You Need to Know About Crypto Mortgages
Investors should be “cautious” about crypto mortgages, according to one analyst, because current market conditions suggest they are quite hazardous.
According to Weiss Ratings’ Jon D. Markman, digital banks are attempting to provide home loans backed by such assets as Bitcoin.
A number of firms based in Florida, notably Milo and XBTO, are attempting to attract venture capital from people who may be crypto-rich but cash poor.
Some of these lenders, according to Markman, have a more grandiose vision of pooling these home loans and selling them as bonds to asset managers. He added with concern:
“All of this should seem familiar. The recipe for the Great Recession of 2009 was to pool risky home loans and then sell them to unsuspecting asset managers.”
According to him, while this was a successful technique as long as home prices kept growing, millions of individuals with bad credit histories ended up defaulting when the real estate market fell.
According to the analyst, there are parallels between the current financial environment and those preceding it. He adds:
“Inflation is at its highest level in 40 years. Cheap money policies by the Federal Reserve over several years have aided many homebuyers while few new houses were built.”
With the Fed expected to raise interest rates this week, causing home loans to spiral in price, Markman predicts that we’ll soon see “fewer purchasers and lower property values” as the real estate market begins to cool.
In his analysis of what’s next, he offered his view on Milo’s presentation:
“The product appears to be like a win-win, assuming real estate and crypto prices continue to rise… except there are indicators that both wagers are unlikely to succeed in the near term.”
What You Need to Know About Crypto Mortgages
At the Bitcoin 2022 conference in Miami last month, CoinMarketCap had a talk with XBTO — one of the businesses that provide crypto-backed mortgages.
The company claims that the rates it offers for 15- and 30-year loans are comparable to conventional mortgages, which is a little surprising since traditional home loans won’t be available in Florida on properties worth more than $1 million.
Philippe Bekhazi, the CEO of XBTO, said that investors shouldn’t have to sell their Bitcoin in order to get on the housing ladder.
We also inquired about what would happen to people who took out crypto loans if the Bitcoin they used as collateral dropped to $20,000 — and how this would affect them. He said:
“The worst-case scenario is that we’d stay very close to our consumers and inform them that the loan to value was getting near to a point where we would have to sell some Bitcoin in order to make up for the collateral. We’d ask them to increase the amount of Bitcoin they were lending, so it didn’t result in a selling event.”
On the other hand, Bekhazi warned that if the value of the world’s largest cryptocurrency rose, the amount of BTC required as collateral would decrease.