Bitcoin is booming in Miami. But can you buy a house with it?
They gathered in downtown Miami — an estimated 4,350 Bitcoin believers — to trade pitches for apps and start-ups. They discussed and debated trends in cryptocurrency. They speculated about the volatility of Bitcoin, which shot up in value from $900 to $19,000 over the course of 2017 and is currently hovering around the $10,000 mark.
But despite the national stir created last fall when a $544,500 Edgewater condo was listed for sale in "Bitcoin only," none of the panels or presentations at Miami's sixth annual North American Bitcoin Conference focused on real estate. Although Bitcoin is the oldest and best-known of the nearly 1,500 kinds of cryptocurrencies currently available, real estate developers, brokers and analysts are cool on its use in an industry that is literally defined by physical assets.
In other words, if you're hunting for a home, don't worry that you'll get outbid by a buyer offering cryptocurrency. At least not yet.
"I think it's fine to buy Bitcoin, because high risks lead to high returns, and I believe in capitalism," said Nela Richardson, chief economist for Redfin, a national real estate brokerage. "But when you come to buy my house, I'm going to need a currency that I can use to buy milk at the grocery store. I wouldn't accept junk bonds or a lottery ticket as a payment. Any currency that drops 45% in value within three months, like Bitcoin has done, is not a currency that is stable enough for large transactions."
According to Redfin, only 134 out of the site's total 568,000 listings in December 2017 — a minuscule 0.03% — included a Bitcoin mention.
Created in 2009, Bitcoin is digital currency tracked on decentralized ledgers — called blockchains — that keep a real-time, immutable record of every transaction made around the world. Buyer and seller interact directly. Bitcoins can be purchased through a digital currency exchange or broker and are kept in a "wallet" that protects the user's anonymity. And because the blockchain system is not centralized, security is considered to be significantly safer than current e-transaction software.
For now, at least, Bitcoin is not regulated by any bank, state or nation.
General awareness of Bitcoin and blockchains exploded in 2017 as the cryptocurrency's value skyrocketed. Earlier this month, the stock price of Eastman-Kodak shot up 89 percent, to $10.70 a share, just a day after the company announced an Initial Coin Offering to develop a blockchain system for photographers to secure the digital rights of their work.
Miami is one of the nation's staunchest and most enthusiastic cryptocurrency hubs, and proponents of Bitcoin argue that cryptocurrency is a perfect fit for real estate. On Dec. 22, the first-ever Bitcoin-only real estate deal in Miami closed, with a buyer paying 17.741 bitcoin — the market equivalent of $275,000 — for a two-bedroom condo at 777 NE 62nd St. in the Upper East Side.
But some experts believe a lot of the hype around Bitcoin is just that — hype. The currency's value fluctuates so much that the value of a Bitcoin transaction could either gain or lose thousands of dollars in value within a week's time. In an interview with CNBC on Jan. 10, billionaire investor Warren Buffett warned that the cryptocurrency craze is destined to end badly, costing a lot of people a lot of money.
"We're in an area of hysteria right now involving Bitcoin," said Andrew Ittleman, a partner at the Miami law firm of Fuerst, Ittleman, David & Joseph. "There are a lot of people making claims about Bitcoin that they can't substantiate and for the most part are not meant to be substantiated. I do see a lot of uses for cryptocurrency in real estate, but I don't see the disruptive effect some people are promising."
Andrew Hinkes, a partner at the law firm of Berger Singerman who specializes in technology-related issues, said cryptocurrency is nearing the end of its initial wave of interest from Wall Street and investment by new ventures. Bitcoin still has a long way to go before it is widely embraced by the real estate industry.
"Nothing has really changed insofar as how virtual currencies are impacting real estate," he said. "A lot of people saw tremendous gains in the values of their holdings in 2017. But now that the IRS has made clear how they want to treat the gains on crypto like Bitcoin, there's uncertainty in the market as to how you sell them and find value. In South Florida, that's traditionally in the ground. But if you want title insurance, or if there are any liens or taxes that are owed, those will have to be payed with fiat currency."
Although the Internal Revenue Service taxes Bitcoin capital gains — if you cash out for a profit, the IRS gets a cut — there's no procedure in place that forces people to report those transactions. (In November, the IRS ordered Coinbase, a platform for buying and selling Bitcoin, to turn over information on accounts from 2013-2015 that were worth at least $20,000.)
The current lack of regulations is one of Bitcoin's biggest draws for its users. And despite suspicion that Miami's real estate market is prey to money launderers, it can be a deal-breaker for real estate. For example, South Korea, the third biggest cryptocurrency market in the world (after Japan and the U.S.), has banned anonymous cryptocurrency transactions, fearful of the potential for shady business.
That uncertainty and lack of transparency, combined with cryptocurrency's volatility, is making real estate developers and investors wary.
"Bitcoin is too new of a form of currency," said Daniel de la Vega, a Realtor with Sotheby's International. "Anything that operates in a gray area is not something I would want to associate with. I do believe in the future of cryptocurrency. I'm just not bullish on it short term."
The Miami Association of Realtors reports that sales of luxury ($1 million and above) condos and single-family homes in Miami-Dade County surged 47% and 16%, respectively, year-over-year in December. But the market is still glutted by too much supply, which caused the average luxury sales price to fall 6.3% in 2017, according to Mansion Global.
Still, the need to sell expensive properties is not enough to make developers rally behind Bitcoin — at least for now. Gil Dezer, president of Dezer Development, said if a buyer made a Bitcoin offer right now on one of the multimillion dollar condos at the Porsche Design Tower in Sunny Isles Beach, he would turn them down.
"If Bitcoin is so easily transferable to cash, why do they need to pay with that?" Dezer said. "Why can't they transfer it into cash first and pay with that? The transverse effect of that is the seller receiving the money. If he wants Bitcoin, he can take the cash and buy Bitcoin. Why would you use Bitcoin in the actual transaction?"
Peggy Fucci, CEO of One World Properties, said she has yet to come across a buyer or seller interested in using Bitcoin as a form of payment, but she understands Bitcoin's buzzy appeal.
"I think the general consensus from the developers I work with and represent is that the whole deal with Bitcoin and real estate is a marketing thing — a way to get exposure for your property," she said. "I don't see it as a real thing yet. Most people don't even know about Bitcoin and cryptocurrencies in general. Eventually, it is something that will be inevitable. But right now, it's too early. We don't use it. Instead, people are riding the wave of a phenomenal stock market."
Some Realtors who have had first-hand experience with Bitcoin agree that cryptocurrency isn't yet ready for prime time in the real estate field.
Edgardo Defortuna, president and CEO of the real estate firm Fortune International Group, said his company has been involved in two listings where Bitcoin was in play: A $4.6 million home on Sunset Island where the seller accepted Bitcoin (the house eventually sold for $3.8 million via conventional loan) and a Key Biscayne condo currently on the market for $1.5 million (the seller received and turned down an offer for $1 million in Bitcoin).
"Bitcoin was talked about a lot last year because of the appreciation, but it has scared a lot of people away in the last month or two," Defortuna said. "Cryptocurrency could be a player [in real estate transactions] in the future, but I'm not sure this Bitcoin craziness is the way to go yet."
But Charles Penan, executive vice president of the real estate investment and merchant banking firm Aztec Group Inc., takes a more flexible approach. He currently has a property for sale at 4141 N. Miami Ave. in Miami's Design District — a three-story, nearly 16,000-square-foot building — for $14.5 million. The seller, Remy Jacobson of J Cube Development, is accepting cryptocurrency as payment.
"Crypto is a very viable alternative to traditional financing — for the right buyer and right seller," said Penan. "They have to be more entrepreneurial. Bitcoin does not work for institutions, because they are more transactional and want instant gratification. They don't want to assume any risk of fluctuation."
Others are already doing due diligence, preparing themselves for what they believe to be an inevitable and radical change in traditional real estate transactions. Beth Butler, general manager of Compass Florida, a technology-focused real estate firm, said her company isn't accepting Bitcoin yet. But she's currently researching the field, tapping experts to figure out the problems that need to be solved before cryptocurrency can be readily used.
"So far, people are very open to it," Butler said. "The appeal is that blockchain could make real estate transactions more secure. You wouldn't have the wire fraud or hacking fraud that has been plaguing our industry in the last few years. But there's a lot more that needs to be defined on a large scale first. The concept of blockchain suggests to me that state law and regulators will have to adopt some kind of policy to accept it."
Bitcoin believers, however, remain undaunted. German Montoya, chief strategy officer for the Miami-based venture-building company Rokk3r Labs, said the volume and enthusiasm of attendants at the North American Bitcoin Conference — far bigger than the roughly 100 people who turned out for the inaugural edition in 2012 — is evidence that cryptocurrency is destined to take hold.
"For a long time, the only thing you could do with Bitcoin was buy and sell it," Montoya said. "There are only a few coffee shops in the world that take Bitcoin, for example. The more Bitcoin is used for real things, the more this coin will become a real alternative to others."
At the conference, the main exhibition hall was crammed with start-ups hoping to use blockchain technology for everything from Bitcoin ATMs to virtual reality. Dr. Gor Van Ek, a respected figure in the blockchain field, flew in from Australia to promote his latest endeavor, Bitcar, a platform that will allow users to purchase an interest in exotic, rare and classic cars — a way of investment that has been traditionally exclusive to the wealthy.
"This is the third or fourth year that I've gone to that conference, and I had never seen this sheer scale and number of people who attended," said Hinkes, the attorney. "That signals a certain threshold of consumers have been reached. Bitcoin is starting to make an impact and insinuate itself into the mainstream."
Many of the panels at the conference delved into upcoming regulation that would stabilize Bitcoin and other cryptocurrencies for both consumers and government entities. That kind of regulation, if successful, could presumably offset Bitcoin's volatility and make it a more viable and dependable medium for large-value transactions.
"Once there are enough things to spend Bitcoin on directly, the real estate market could never be a reason to go back to the dollar," Montoya said. "You could have a whole economy where you use Bitcoin to buy and sell and spend."
The questions, for now, are how long that wait will be and whether Bitcoin's seesawing value can stabilize. Six weeks after all the hubbub, that Bitcoin-only condo in Edgewater still hasn't sold. On Jan. 24, the price on the listing was quietly raised to 37 Bitcoin.
Despite the apparent increase, though, the adjustment actually brought the value of the condo down in dollars — from $525,000 to $410,000.