Bitcoin as an asset is a perfect form of collateral and will likely be used to provide financial backing for mortgages and other forms of debt.
Bitcoin 2022 held a panel at the Enterprise Stage on the use of bitcoin as collateral for mortgages and other debt-based instruments. The panel began with moderator George Mekhail introducing the panelists: Edward Rodriguez, co-founder and CEO of BPN Capital Group; Adam Reeds, co-founder and CEO of Ledn; Sam Abbassi, founder and CEO of Hoseki; and Josip Rupena, founder and CEO of Milo.
Mekhail started the panel by introducing the subject of proof of reserves: how mortgage lenders verify that you have bitcoin in order to qualify for the mortgage. “The idea that an exchange can prove to you that you have the assets you should have…building a layer that can prove it…will unlock Bitcoin’s full potential.”
When asked why customers wouldn’t call Wells Fargo instead, Reeds replied, “In terms of traditional income, they might not qualify…but they’re very bitcoin rich.” This introduces the idea that bitcoin could replace income as a method of verifying a homeowner’s ability to repay their loan.
Adding to this concept of blank collateral, Rupena said, “Bitcoin is the perfect collateral an individual can have.”
Moving on to bitcoin-backed mortgages, Rodriguez explained, “As of 2018, mortgages were a heavily regulated industry, we have to make sure we comply with all the regulations… three years later we were able to satisfy the regulators . ”
Financial inclusion was a concept widely echoed throughout the panel.
“Also working on a fund where they buy large commercial debt from financial institutions, and allowing investors to buy them…allowing bitcoin owners to enter these industries that have only been largely exploited by 1%.” -Edouard Rodriguez
Many current lending companies that accept bitcoin as collateral are not necessarily the best option for mortgages due to the liquidation process. Reeds noted, “The primary challenge of a bitcoin-backed loan is liquidation; the ability to meet margin calls in the event of a liquidation…very liquid asset with bitcoin, very stable asset in real estate…extending the margin call deadline to allow people to meet collateral for two weeks.
By extending the deadline for margin calls, mortgage customers would have more time to post more collateral. Reeds explained how current bitcoin-backed loans make margin calls: “Current margin calls could be instantaneous, when they hit 80% LTV, we liquidate bitcoin to pay off the loan and close it…moves quick prizes could happen and you could suddenly be caught in the middle of it.
Mekhail aptly identified that lenders might be more comfortable with bitcoin as virgin collateral, and perhaps those longer liquidation windows will be the norm. It also benefits the consumer, as holding on to their bitcoin while financing a home instead of selling it is a real game-changer.
In response to how potential borrowers are reacting to these new types of loans, Abbassi replied, “We haven’t heard anyone say no yet; there are many people who want to use their bitcoin without selling it. Bitcoiners hold the most precious thing ever conceived in mankind, we should feel empowered by it, not chained by it.
Reeds responded to a question about regulating the use of bitcoin as collateral for public mortgage lenders: “As far as how mortgage approvals work today, you don’t even really lend on the ‘asset, you lend out of your future income. By using bitcoin as collateral, it actually allows you to borrow against an asset of equal or greater value.
Reed compared holding private keys to holding title, “If you have the keys, you have the title.”
Rodriguez built on Reeds’ answer by returning to the topic of financial inclusion: “We’re building financial instruments that were previously only available to the 1%…that’s what bitcoin represents, the inclusion… how do we put the right tools into Bitcoiners? ‘ hands that, without having hundreds of millions of dollars, profit like the guys who have hundreds of millions of dollars.
“The reason the Third World is poor is because of a poor framework around private property rights,” Abbassi added, noting that allowing owners to deposit their bitcoin as collateral will enable a much larger number of borrowers previously. discouraged from financing a house.
Regarding borrowing against your bitcoin, Rupena says, “People can now hold their bitcoin, they can borrow 100% of the value of their purchase, all they have to do is pledge their bitcoin . We [Milo] weren’t stuck by the standards of Fannie (Mae) and Freddie (Mac).
Rupena added: “We think this is a great opportunity, we have a responsibility to get it right.”
Rodriguez clarified his end goal for bitcoin-backed mortgages: “We are very close to the finish line when it comes to commercial mortgage-backed securities… The dream will be that by the year Next, we have several mortgage-backed securities on the blockchain up and running.
He concluded, “The reason Steve Jobs was able to bring out the computer…is because he made it simpler without people having to figure it out…we have to make people don’t have to understand the backend of the computer. technology for people to use.
Rupena then chimed in to explain how bitcoin-backed mortgages offer the best of both worlds: “The ability to hold your bitcoin for the long term and diversify into real estate…combining something more liquid and verifiable with bitcoins… [allows] alternative credit models and extending credit to an entire community.
Finally, Reeds closed the discussion with his comment: “Bitcoin is equal to everyone, the other thing that is equal to everyone is that everyone wants to own a house… What you can to expect from Ledn in the next two years is that we’ll continue to build and continue to use bitcoin to diversify into other asset classes.
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