News

Landmark Links January 23rd – Funny Money

 

Lead Story…. One of the biggest criticisms of Bitcoin and other cryptocurrencies is that, for something that purports to be a unit of exchange, you sure can’t buy much with it.  The primary problem is that fluctuations (mostly upward) in the price of the “currency” make holders unwilling to use it for purchases (imagine spending it today and finding out it had 10x the buying power tomorrow), leading to hoarding.  Merchants are also hesitant to take it because the transaction fees are incredibly high as is the volatility.  Want an example? This Wall Street Journal video of journalist Thomas Di Fonzo trying to use his Bitcoin at brick and mortar restaurants is somewhat hysterical.  Especially the part when he has to pay the bitcoin equivalent of $76 for a $10 pizza.  However, there is one marketplace (other than illegal activities) where sellers are showing some willingness to accept crypto-currency: residential real estate.  Take, for example this story by Diana Olick on CNBC.com about the seller of a $45MM mansion in Malibu who is willing to take a whole lot of Bitcoin in lieu of cash (emphasis mine):

Dr Chen is also quite pragmatic about the benefits of accepting a currency that is largely unregulated.

“According to current situation, if you buy the property with cryptocurrency, it’s difficult to identify the cost of the real estate because it fluctuates so much,” he said. “The government will have a hard time to tax or put a property value on the house you are going to sell.”

And that opens up the potential buyer market for his home. There may not be a ton of $45 million buyers, but there are more now than there were even a year ago, thanks to cryptocurrencies.

New millionaires are now looking for ways to take some of the volatility out of their cryptogains, and brick-and-mortar real estate is the perfect way.

“The majority of bitcoin purchasers are outside of this country,” Chen said. “And for this type of house and this amount, I think we’ll attract more international buyers than from our country.”

If I read that correctly, it sounds an awful lot like he is willing to take on the extra volatility of accepting millions of dollars worth of bitcoin because it opens up the market to foreign investors trying to offshore their cash who may have something to hide while at the same time potentially evading capital gains taxes.  Wonderful.

However, it’s not just the ultra-luxury segment of the market that has sellers clamoring for crypto.  MarketWatch also ran a story back in December about the seller of a 1-bedroom condo unit who was attempting to sell it for 33 bitcoin.  At that point in time, Bitcoin was trading for around $16,400 implying a dollar value for the condo of around $542,000.  If he was able to sell, I hope that he didn’t hold onto the Bitcoin for too long.  In an example of how risky a sale of this nature can be, Bitcoin plunged down below $10k last week, reducing the value of the transaction to approximately $330,000 in dollar terms.  Ouch.  Despite the risks, this seller is not alone (emphasis mine):

Redfin says this is the first listing on the site in which the seller has specified bitcoin as the only payment option, though about 75 other sellers have said in their listings that they would be willing to accept bitcoin as payment. A Redfin spokesperson said most of the homes with the word “bitcoin” in their listing description were located in either California or Southern Florida.

“Buying or selling a home is generally the largest transaction in someone’s life,” said Redfin chief economist Nela Richardson. “Switching to a currency with so much volatility puts people at risk in an area that should be a sound, steady investment. We think this home for sale is more of a rare event than the start of a larger trend.”

Indeed, I tend to agree with Redfin Chief Economist Nela Richardson in the quote above.  The amount of volatility makes large dollar transactions like this one absurdly risky to execute, meaning that they probably aren’t going to become a large part of the market anytime soon save for crypto geeks and those looking to move large amounts of cash for nefarious purposes.  Otherwise, why bother to take that massive amount of risk?

Economy

Easing Up: The Federal Reserve is working on a proposal to ease up on bank leverage ratio limits put in place after the crisis.

Win/Win: Why immigration is practically a free lunch for America.

Your Periodic ReminderStability itself can create instability when investors become too complacent.

Commercial

No Lines: Is Amazon Go, a store with virtual checkout and no lines, the grocery store of the future?

Dance, Puppets: Amazon reveled a very long “short” list of 20 remaining cities bending over backwards for their new headquarters.  See Also: When cities compete to attract big employers, the country as a whole loses.  And: Amazon is sure acting an awful lot like it is going to choose Washington DC.

Residential

A Tale of Two Residents: Home owners in the city that Amazon ultimately chooses for it’s 2nd headquarters are in for good news.  Renter’s not so much.  Here’s a rundown of the finalists and their capacity to absorb Amazon’s housing needs if selected.

Next Big Thing: State Senator Scott Weiner’s latest housing bill prohibits a number of common zoning restrictions within half a mile of train stations and a quarter-mile of high-frequency bus routes, precluding density limits, parking requirements and height maximums under 45 feet. If it passes – which is somewhat of a long shot – it would be the biggest thing to happen to California housing in a very long time.

Lone Voice? Money manager James Stack called the housing bubble back in 2005 and thinks we are getting bubbly again but very few agree.  See Also: Distress has now sunk to pre-crisis levels.

Out in the Cold: Subsidizing affordable housing development by utilizing tax credits has long been popular with both Democrats and Republicans.  However, the new tax law struck a major blow against the program at a time when it is needed most.

Profiles

Is The Fantasy Over? Gambling laws allowed for the creation of daily fantasy sports. Now a challenge being heard in the Supreme Court could lead to their undoing.

The Heist: Hackers have walked off with about 14% of big digital currencies, making crypto hacking a $200MM annual revenue industry.

Taken to the Cleaners: Gold has become the secret ingredient in the criminal alchemy of Latin American narco-traffickers who make billions turning cocaine into clean cash by exporting the metal to Miami.

Chart of the Day

Chart: What Assets Make Up Wealth?

Source: Visual Capitalist

WTF

Father of the Year: A wealthy dad hired strippers for his son’s 12th birthday party.

Don’t Try This at Home: Watch a massive fireball erupt after really stupid crooks in India attempted to use a blowtorch to steal gasoline.

Gotta Hear Both Sides: In the biggest breaking news out of Tuscaloosa since the Crimson Tide’s latest national championship, a man is facing a domestic violence charge after a disagreement with his brother over the size of a slice of cheesecake led to an incident involving a knife.  

Landmark Links – A candid look at the economy, real estate, and other things sometimes related.

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