The Flip of a Bitcoin
Logan Paton | January 10, 2018
Lately the news is ripe with conversations about this digital currency based on blockchain technology. Speculators are debating if Bitcoin failure is imminent or if it will continue to climb in value, which some enthusiast call “going to the moon”
Some claim that Bitcoin will “go to the moon” and give owners of the digital currency life altering wealth. For some, it has already done so: On January 1st 2011, $100 would have been enough to buy ~333 BTC ($0.30 per BTC). On December 19th, 2017 they could have been sold for $19,300 each. In just 6 years, $100 of BTC became worth $6+ million. Many claim this is just the beginning and that the coin’s value will continue to skyrocket as it becomes more and more mainstream.
Others argue “the bubble” has to pop”… I certainly remember reading about the tulip bubble in an economics class of yester-year and the graphs look eerily similar.
Mixed opinions are on the table so let’s take a look at both sides of the coin:
Why use Bitcoin?
Bitcoin’s peer-to-peer payment network cuts the middleman. Transactions were designed to be made without fees or the need for banking institutions. It was a revolutionary concept when first launched. While Bitcoin has been used in retail transactions, it’s not as common in real estate. For instance, Texas just reported its first single-family home sale using bitcoin in September 2017.
Challenges to Bitcoin’s Success
Bitcoin still isn’t a widely accepted payment method. Depending on the market, finding shops, stores, or buyers willing to deal with the currency is the first obstacle. The fluctuating exchange rate poses some challenges for converting a transaction into a different currency. In real estate, the rate could negatively impact the buyer. Bitcoin price has regularly moved +/- 25% in a single day. That’s a lot of risk for most businesses accepting BTC as a form of payment.
Rising Transaction Fees
While Bitcoin was proposed as a fee-free currency, there are transactions fees. These costs are rising at an exorbitant rate, and fluctuate from day-to-day. As Stan Schroeder writes, it could cost $4 USD to send $42 USD from one Bitcoin address to another. Or it could cost $6, or $8. It depends on the volume of transactions moving through the network at that time.
Slowing Transaction Speed
At the same time, the speed of transactions is slowing down because of limits on the blockchain network. For years, the network only worked with 1MB “blocks” of data at a time. To survive, some say Bitcoin needs a software upgrade to speed up its network and reduce transaction fee costs. This upgrade, called SegWit2x, will upgrade the block size from 1MB to 2MB, allowing for faster processing. In March 2017, fears the virtual currency might split due to the block size limit standoff in the developer community. In August, the split happened. Bitcoin Cash launched on August 1, 2017, and has plans to upgrade its block size during 2018. There is now Bitcoin (BTC) and Bitcoin Cash (BCH) which has added to the confusion surrounding the world of crypto currency.
On several occasion, uncertainty surrounding Bitcoin has caused the currency value to crash, although it has often goes on to recover to all time highs. Recently we saw a massive price increase in Q4 of 2017, but then a subsequent drop from $19,000+ to below $10,000+ per coin with some day’s having 20%+ price swings in either direction. It will be difficult for Bitcoin to become a mass adopted form of payment with such volatility at play.
Bitcoin Has Competition
Bitcoin is no longer the only crypto-currency operating in the space. Now there are hundreds offering “massive upside” and being traded all over the world on crypto exchanges. One that is picking up steam is Ether, which uses the Ethereum blockchain network and is trading around $480 USD in late November 2017 and broke $1000 before January 2018. It boasts lower fees and faster transactions, it is also the most widely accepted form of payment in other crypto currencies “ICO” (initial coin offering). With hundreds of newer crypto currencies to choose from, can Bitcoin maintain it’s relative value? Will BTC maintain it’s gold standard status and rise with the tide if crypto currencies have a more profound economic ripple than we’ve even begun to witness?
Bitcoin’s future looks shaky if the past predicts the future. Those monitoring its tremendous growth warn of an impending Bitcoin crash.
“When the price run-up is 100% or more, they found the probability of a crash becomes 50%. When focusing on price run-ups of at least 150%, that probability becomes 80%.” writes Mark Hulbert. “Consider that bitcoin’s runup over the last two years is nearly 2,500%. That’s more than 10 times greater than the threshold the researchers found was associated with a “near certain” subsequent crash.”
Other Bitcoin watchers predict the currency could top out at $40,000 by the end of 2018. This might make Bitcoin inaccessible to the average user looking to use the service to make payments.
With all of that said; I do enjoy the Mark Twain quote, “there are three kinds of lies: lies, damned lies, and statistics” and might be worth keeping in mind.
What Does This Mean for Real Estate?
Real estate professionals with an eye on the latest tech developments know blockchain applications are coming for real estate. They’ve been touted as a way to reduce transaction fraud and speed up the escrow process. But what about using cryptocurrency as payment?
As the agents explained in the CNBC video, dealing with the currency was not as complex as they expected. In September, a Miami seller agreed to accept Bitcoin as payment for his home listed at $6.4 million. Other reported sales in New York City and Lake Tahoe have used the cryptocurrency as payment. There’s even a website dedicated to buying real estate with Bitcoin.
The launch of new cryptocurrencies means even if Bitcoin does lose value or crash, “digital currency” as a concept is here to stay. Whether or not buyers or sellers want to accept cryptocurrency in a transaction is up to them. It’s possible in the future, agents and brokers may be paid with cryptocurrency.
Bitcoin may not make it long term, but the underlying blockchain technology is here to stay. Heck, maybe one day there will be a CommissionTrac Coin.