Bitcoin is now available from mainstream financial managers. Suddenly, it’s a significant part of U.S. investment and retirement portfolios. So, bitcoin is joining real estate as an asset class.
At this point, the leading cryptocurrency can influence the costs of housing in some markets. Its rise even allows some people to buy their first homes.
Let’s take a closer look.
For Holders, Is a Bitcoin Surge Like Winning the Lottery?
Prof. Scott R. Baker at Northwestern University looked into how people spend crypto profits. Do they behave as people do when the stock market’s up — more relaxed about their spending, yet still focused on building their savings? Or do they act like lottery winners, exuberantly spending large sums?
Prof. Baker’s group reviewed the spending of more than 60 million people. Specifically, the researchers reviewed transactions through bank, investment, and credit accounts.
They found that 16% of households have bought bitcoin or other digital money in the last ten years. While some of these people are “all-in” on crypto, most aren’t. Typically, digital currency makes up just a small percentage of people’s larger investment portfolios.
When they make gains in crypto, some of these investors spend at least some of their gains. Not as though they won the lottery, but enough to have an impact on local economies.
Retail Crypto Windfalls: Where Do They Go?
When the price of bitcoin goes up, profit-taking happens. And so does a wave of withdrawals.
Turns out a lot of these investors’ proceeds go into real estate. And withdrawals from crypto proceeds of $5,000+ do correlate with first-time home purchases. Seems to make sense, but it’s interesting to see an actual academic study finding:
- More people receiving deeds to their own homes for the first time.
- More people seeking mortgage loans.
- More current mortgage borrowers upping their monthly repayment amounts to their lending companies.
The correlations were so impressive that Prof. Baker and team wanted to look into the effects crypto gains have on local housing.
To Understand Patterns, Start With the 2017 Bitcoin Surge.
In 2017, bitcoin attracted attention with its dramatic surge. What might not be so obvious is the correlation with a rise in real estate prices wherever bitcoin was most popular.
Researchers from the U.S. National Bureau of Economic Research did notice. Last year the NBER published The Effects of Cryptocurrency Wealth on Household Consumption and Investment. This study points to homes in some areas costing nearly $1,900 more for nine months after bitcoin’s remarkable 2017 rise.
So, Prof. Baker and team looked into counties where bitcoin is popular. As with the NBER study, the group at Northwestern found home prices rising significantly over several months after the bitcoin rally.
Bitcoin and Housing: What Could Possibly Go Wrong?
Will bitcoin wealth destabilize the market during times of volatility? It’s a fair question. And the answer’s unlikely to come into view any time soon.
Why? Today, about two-thirds of global wealth is invested in real estate. Bitcoin wealth pales by comparison.
Still, as the Northwestern prof says, it’s a “big enough asset class” to have a clear impact on what people buy, how they buy it, and where money gets invested — such as investment platforms. Such as homes.
We’ll listen for the dialog to evolve, should bitcoin become a whale, moving through the seas of our financial system.
Supporting References
Sachin Waikar for Kellogg Insight, published by Kellogg School of Management at Northwestern University: When Crypto Went Mainstream — And Drove Up Housing Prices (Sep. 1, 2023; report based on the research of Darren Aiello et al.).
Sebastian Sinclair for Blockworks: Crypto Wealth Boosts House Prices, NBER Study Finds (Jul. 17, 2023; discussing The Effects of Cryptocurrency Wealth on Household Consumption and Investment, published by the U.S. National Bureau of Economic Research in July 2023).
Leon Wankum in Bitcoin Magazine by BTC Inc.: Opinion – Bitcoin Will Completely Change Real Estate Markets and Interest Rates (Nov. 6, 2023).
Rob Nelson for TheStreet via TheStreet.com: Roundtable – Why Crypto Might Solve a Huge Housing Market Problem (Sep. 20, 2023 discussion with Tristan Marino of Moon Mortgage, a crypto-as-collateral lending platform).
And as linked.
More on topics: Bitcoin versus real estate investing, NAR on bitcoin home buyers
Photo credit: AlanHarder.ca via Wikimedia Commons (CC-BY-2.0; modifications by Deeds.com: cropped; brightened).