On April 8th, an Australian real estate giant made history and unleashed a genie that can’t be put back in the bottle when it held the world’s first property auction to accept bids in cryptocurrency.
LJ Hooker, one of Australia’s largest brokerage firms, held the live auction, accepting cryptocurrency bids (in bitcoin and Binance Coin), and in doing so sent a message that crypto is now fair play for real estate. And this changes everything.
A Disruptive Force
This isn’t merely a pipe dream. A major real estate firm has demonstrated the will to lead the way, showing what’s possible. Now people will see the trend unfolding before their eyes, a trend that’s going to gain momentum. And it’s going to happen right here in the United States.
So what’s the downside? It’s a brand-new paradigm, and change, particularly dramatic change, can have a polarizing effect on people who aren’t predisposed to embracing the change agent.
Auctioning isn’t the ideal choice for property sellers because auctions aren’t always conducive to garnering the best selling price. Bidding wars do occur and sometimes favor the seller, but in auctions, which are often born out of foreclosures and estate sales, buyer determination is an intangible and cryptocurrency won’t change that.
But there are other disruptive forces that might cause pushback from realtors. A real estate system predicated on auctions could reduce the need for agents and support staff, and those people would fight tooth and nail to see a crypto-based auction system die a quick and painful death.
It would also limit the pool of buyers. A system based on cryptocurrency would require buyers who were sufficiently vested in a cryptocurrency, that is, the money would have to be in ‘the bank,’ so to speak. The average home buyer doesn’t pay cash for a new home and that won’t change if the purchasing medium is crypto.
Are we seeing in real-time the borders being torn down? Investors from the United States, United Kingdom, Dubai, and Canada participated in the auction, but cryptocurrency doesn’t have a country.
During the auction, the auction firm displayed incoming bids in crypto but next to the crypto bid, converted Australian dollar values were displayed. It’s understandable why, but it also begs the question whether we’ll eventually be untethered from the comfortable currency standards we were raised to understand – whether the standard is dollars, pounds, euros, or other – and ‘think in crypto.’
We also have to talk about the elephant in the room. Cryptocurrency has an established history of volatility, for numerous reasons. But that hasn’t had a significant effect on micro-transactions like purchasing a pizza with bitcoin (even if in hindsight the pizza cost the buyer $82 million). Large transactions like property purchases, on the other hand, raise some important questions. How can volatility be mitigated? What happens if a seller lists a house in crypto and the price of crypto suddenly plunges, even for a day? Or what happens if a purchaser makes an offer in crypto and the price of crypto suddenly spikes?
It’s possible that both parties would have to lock-in an established price based on a fiat currency (not the ideal solution but a workable one in the short-term). In any event, both parties would have to have contractual mechanisms that would mitigate risk for each party. Moving forward, we should have a better understanding of how these transactions will work as more events like the Australian auction occur.
We also have to develop working models for cryptocurrency escrow. Hacks happen, and purchasers and sellers will need escrow services that deal in crypto and have established policies in place to mitigate risk for both parties. Whether or not these services currently exist is debatable, but at very least an escrow service would have to deal in hardware or cold-storage wallets, multi-factor authentication, and backups. Banks have insurance, but purchasers and escrow services would have to work together to establish some kind of guarantee.
Evolution or Revolution?
Changing a well-established process is a conundrum that won’t be solved overnight. What the Australian auction tells me, however, is that the presence of crypto will open the floodgates for cross-border real estate investment – creating greater competition, which leads to healthier profits. One needs look no further than the interest in the property in Australia in the weeks leading up to the auction. The event generated significant interest, with more than 200 in attendance at the auction as well as international investors from the US, UK, China, Dubai, and Canada participating in the auction.
According to the auction’s organizer, the property received more than 180,000 online views per week in the four weeks leading up to the auction. And that’s remarkable, because he also stated that the average number of online views for a property in that region is typically around 5,000 views.
It’s impossible to predict how quickly it will happen, but this auction signifies a proof of concept, even if it didn’t conclude with a purchase (the property in the Australian auction failed to meet the reserve price). And as more properties hit the auction block with crypto as a bidding medium, we’ll see keen interest in the American market as global investors seek to purchase real estate in the United States using cryptocurrency.
About the author: Varun Bajaj educates investors about the intersection and importance of cryptocurrency and real estate with Cryptohomebuyers.com. Find more information on his author page.