How to Survive a Bear Market with Crypto in Real Estate

HODLing can be stomach-churning, especially when exploring new ways to lock up bull run gains. On the one hand, periods of downturn historically haven’t lasted that long. When referencing the S&P 500 Index since 1928, for example, bear markets average in length of 289 days versus bull markets that last an average of 991 days.[1] That said, bear markets are notorious for gutting significant asset value if proper precautions aren’t taken to weather the storm—even in the world of decentralized finance.

Fortunately, crypto investors have maneuverability on their side. While stocks can only be traded or liquidated, cryptocurrencies can be committed to physical assets that move at the pace of a different market. Though many traditional financial institutions have been slow to engage in crypto loans, the era of acquiring tangible assets with digital ones is just taking shape.

The vast majority who invest in cryptocurrency aren’t looking for short-term gains, but a lifetime of financial security. Up until recently, NFTs, exchanges, and staking have been the only “surefire” methods to arrest valuation—but all of those approaches still leave investors with yet another digital asset.

As web3 technology interweaves with the fabric of the world economy, it leaves many wondering the same thing—can crypto be used as an asset for a mortgage?

Crypto Mortgages for Real Estate Investors

Historically, the US real estate market has brought massive ROI to property owners both foreign and domestic. Homeowners have even seen an average 16% increase in the value of their properties since the housing bubble burst in 2008.[2]

For those with the means to accrue assets, real estate in the US has been a go-to for players looking to benchmark and grow their net worth. So how does a crypto investor leverage their assets to play the same game?

Unfortunately, the average crypto-enthusiast is likely to walk away disappointed after asking their bank, “Can I use Bitcoin as a downpayment for a house?” Bitcoin loans might be a new concept (read: too volatile for banks to guarantee profit), but that’s not the case with companies like Milo who offer home loans in the US to anyone who can back the investment 1:1 with their crypto portfolio, regardless of citizenship status.

What other crypto mortgage lenders get wrong is how they structure their loans. True HODLers don’t want to surrender their hard-earned positions for a single asset. They want to use their portfolio as collateral to acquire a new asset, pay off their new acquisition and retrieve their account’s full value after that asset is paid off. After all, crypto’s most attractive feature is its function as a bargaining chip across so many different industries—why would you want to give that up?

Engaging in a mortgage loan backed by Bitcoin, Ethereum, or even stablecoins such as USDC or Gemini Dollar, is the easiest way to put your portfolio’s total value to work while cementing its worth in a way that leaves you holding a physical asset.

Assuming an investor has $1M worth of Bitcoin in their wallet, with Milo, they are eligible for a home loan up to the exact amount of their holdings (in this case, $1M). Instead of cash or other collateral, the investor simply pledges their holdings against the loan, at which time their assets are kept in a third-party custodial account and released when the loan is settled.

No selling, no exchange, no missed gains—and all digital assets are returned to the $1M homeowner after the loan is paid in full.

Unlike other Bitcoin mortgage structures, Milo’s smart contracts move with the market. Should our hypothetical investor’s portfolio see a rise in valuation, they’ll be given the option to retrieve some of their Bitcoin as their portfolio held with the custodian continues to stack its value.

In a downturn, so long as the investor continues making loan payments in crypto or fiat currency, the property will remain in their name as it would with any other mortgage lender. The only time a property would be seized is in the event of consistently missed payments.

How to Make Crypto Mortgages Work for You

Crypto-backed mortgages aren’t just the way of the future—they’re a profitable solution for those looking to come out on top of a bear market.

With the last bull period having ended in March 2020 after an impressive 11-year sprint, the pain of panic-selling has been felt far and wide. Though there’s no telling how long our present bear market lasts before the next rally, there’s solace in the truth that recoveries have always outshined losses over a long enough timeline.

You could sit on your portfolio and ride the ups and downs of one market, or you could throw your weight around and add an investment property to your roster. The choice is yours.

References

[1] https://www.hartfordfunds.com/practice-management/client-conversations/managing-volatility/bear-markets.html

[2] https://markets.businessinsider.com/news/stocks/how-americas-home-prices-have-fared-since-the-housing-crisis-2018-5-1024994866

The opinions expressed in the Blog are for general informational purposes only and are not intended to provide specific advice or recommendations for any individual or on any specific security or investment product.