July 30, 2021

The role of cryptocurrencies in the mortgage market

A few years ago, investors saw the crypto market as a means of investing in the right coins and capitalising on the explosive profit potential at any stage. However, the market started to change last year when financial institutions and corporations began buying up tokens in large volumes. They were able to see something more lucrative: it was not just the technology that sparked interest, but also the endless opportunities lying ahead. If we look at the stock exchange, the gains are much lower and a 20 per cent margin looks impressive. But crypto is  slightly different. High volatility allows an investor, whether retail or institutional, to see a 1000 percent return. Given that such outstanding results are generally possible, it became clear that the time for crypto management was well and truly here, and rightfully so.

However, higher volatility is only great for gains in good times, such as the Bitcoin bull run period. But just as you can make a 1000 per cent profit on a Monday, you can also easily lose everything the next day. Some investors, like HODLers, the crypto investors who buy and hold their positions regardless of price, stay in the game for several years. They don’t sell their assets and buy up during hard times. However, it’s important to acknowledge the elephant in the room: What’s the point of investing in crypto if you can’t translate profits into something more tangible, such as fiat cash or a home? 

Fortunately, we saw a rise in DeFi/CeFi in 2020. Crypto investors and banks sometimes still overlook its importance, yet DeFi/CeFi lending protocols are something that can change our daily lives for the better. In a nutshell, DeFi/CeFi lending protocols allow you to borrow fiat or cryptocurrency for crypto collateral. It’s an excellent opportunity, especially for early crypto adopters, to avoid unnecessary credit history checks and bureaucracy and get an instant loan approval without describing the reasons behind an application. So far, around 625,000 bitcoins are used as collateral, and the figure is projected to grow. The reasons for that vary, yet, the two most popular rationales behind taking out crypto loans are investing more into crypto and buying property. 

Currently, inflation rates are around the same as during the 2008 Financial Crisis. In the US alone, the current rate is 5 per cent. COVID-19 played a major role as conventional logistical routes were disrupted, leading to shortages of necessary goods. High demand and low supply result in higher prices, and higher prices lead to a higher inflation rate. A current outcome was easy to predict: Banks tightened credit history checks and getting a mortgage became much more complex than before. That’s why crypto lending has potential. 

In most cases, those who consider taking out a crypto loan to buy a house are early investors – they bought much earlier than everyone else, and no matter what happens to the crypto market in the future, their profits won’t vanish. Just a few years ago, bitcoin was worth $100, and now it’s fluctuating between $32,000 and $36,000 – the rollback to 10-year-old prices is highly unlikely. Furthermore, early buyers discovered crypto in their early twenties. Since then, they have grown older, have built families, and wish to translate their early investments into a comfortable living. The current average age of early crypto investors is 35. Yet, while crypto lending works for them, this option might be out of reach for others.

While crypto lending is a great option, it is normally only suitable for those who can provide a large enough collateral. The average house in the US is worth $269,039 or 8.52 BTC. To get a crypto loan at 70 per cent loan-to-value (LTV) ratio, you will need to provide 12.18 BTC and pay an interest rate ranging between 4.95 per cent and 11.95 per cent. That’s a lot of money. Therefore, while crypto lending is excellent for early crypto investors, it might not be the best mainstream option. At the same time, DeFi is in the very early stages of development. There is no doubt about its mass adoption in the future, but the technology is relatively young and needs some time to reach market maturity. 

The world is rapidly changing, and old methods of doing things, like conventional loans, are slowly but surely becoming obsolete. However, there is still a long journey to go before we consider crypto loans mainstream.

About CoinLoan

CoinLoan is a fast growing and reliable international fintech company based in Estonia. Founded in 2017, CoinLoan’s smart asset management platform allows clients to store idle assets, buy, sell, or swap coins on the go and with just one click. They are the only crypto loan regulated company in Europe and have more than 60,000 customers worldwide. Visit their website: https://coinloan.io/ and follow them on Twitter: https://twitter.com/coin_loan