Using Bitcoin to Enhance Creditworthiness in an Economy with High Debt
Central banks have been operating around the globe since 1971, when US President Richard Nixon declared that the US Dollar would not be convertible to gold at a set rate. fiat-based monetary system With floating exchange rates, there is no standard currency. Money supply in the world has grown exponentially, and today most industries rely heavily on credit to fund their business and grow.
As a result of the expected further devaluation in fiat currency, nation states are forced to issue additional currency. cope Creditworthiness is increasingly important in light of high borrowing costs. It is especially true in the highly-debt-intensive real estate industry. As a result, Bitcoin is an important disinflationary asset, its inflation rate decreasing over time. It can also be used to provide a growing capital base, which can reduce the risk of devaluation in fiat currencies and increase a company’s creditworthiness. Here I explain the reasons why Bitcoin should be integrated in real estate financing and show how it can work from the beginning.
Bitcoin as a Financing Tool for Real Estate Development
Real estate has been widely used as an inflation hedge since the inflationary policies following the Nixon shock in 1971, closely tracking the growth of the US money supply M2. Due to years of inflationary monetary policy, fiat currency’s buying power has been decimated. With the advent of Bitcoin, an almost-perfect digital substitute, a potential shift is possible. This transition may eventually lead to a shift away from real estate, which has traditionally enjoyed a higher value. Bitcoin offers an alternative that is easier to access and cheaper to store and maintain.
By incorporating bitcoin into project finance, real estate investors will reap the benefits of the integration of the purchase at the beginning of the development project. The approach protects real estate investors from the possibility that bitcoin will overtake it as a currency due to its superiority in terms of storing value.
Similarly, bitcoin competes with real estate by serving as a digitally accessible, globally usable, and pristine collateral for lending. Real estate is popular not just because it can be used as a place to store value, but also for its everyday use. collateral The traditional banking system.
Due to the ease of use and accessibility that Bitcoin offers both for borrowers and lenders alike, we can assume its increasing usage as collateral will have a negative impact on real estate. Bitcoin’s use as collateral is likely to grow as people become more aware of its benefits.
The integration of Bitcoin into real-estate development is important from the outset, as it will allow investors to take advantage of the increasing role that bitcoin plays in the financial The impact of landscape on property valuation
It is my proposal to include the purchasing of bitcoin in real estate financing. Real estate developers can hedge their risk by allocating 10% of the loan to buy bitcoin. This will help them to avoid real estate becoming less valuable as a store of value. The strategy helps real estate developers prepare for the possibility of a shift to a Bitcoin Standard, in which Bitcoin becomes the main unit of accounting and store of value around. Real estate could lose its dominance.
Bitcoin as a Financing Tool for Real Estate Development
The developers will be able to hedge against inflation and increase their creditworthiness by holding bitcoins within the same entity as the titles of the real property. It ensures their ongoing business viability while taking advantage of the cash flows from both real estate and bitcoin.
Integration of bitcoin in real-estate financing will also facilitate a more smooth and productive transition to a Bitcoin Standard where real estate value is expected to depend on its utility. People can automatically save bitcoins rather than have to invest in property to protect their buying power. This can also allow developers to be more independent of the fiat currency system which makes it harder for them beat inflation while remaining profitable.
Inflation devalues fiat currency and reduces the purchasing power. At first, the situation benefits real estate as more people are investing in property to increase its nominal price and beat inflation. Inflation also reduces over time the cost of borrowing to purchase or develop real estate, which is temporary beneficial for property owners. Inflation has a negative impact on the real estate market in the short term due to the rising costs of construction and maintenance and the decreasing value generated by properties.
The dual effect of this double impact highlights the need for an alternate strategy such as the incorporation of bitcoin into credit product to mitigate the adverse effects associated with inflation. The ideal scenario to integrate bitcoin in real estate would be if the developers were able to combine a financial Service provider that offers traditional loans with bitcoin as a supplement. In an environment of inflation, companies can survive and thrive by adding bitcoin to their credit line.
It is a good way to protect the borrower from inflation. However, it also provides the lender with additional security by including a deflationary digital currency, such as bitcoin, in the collateral.
Now I’ll give you an example.
Bitcoin as a way to enhance a real estate development loan
Let’s imagine a bank financing a $10 million real estate development project. Banks could increase the amount of the loan by $11,000,000 and ask the developer to buy bitcoin for $1,000,000 more, making the total $11,000,000 (with 91% for real estate and 9% to acquire bitcoin). The borrower can use this strategy to protect themselves from several risks:
- The growing popularity of Bitcoin, an almost perfect digital currency store of value, protects the real estate premium from erosion.
- The currency is protected from inflation.
- This allows for a business to develop a unique capital base by using the increased value of bitcoin to fund maintenance, future construction and other development projects.
- Owning bitcoins, in particular for companies that are heavily debented, can improve the company’s credit score over time.
- As a decentralized and scarce asset, Bitcoin is independent of the fiat inflationary system. This provides stability in times of economic uncertainty. Its limited supply, independence from central bank, and its decentralized nature make it a valuable asset in chaotic situations. financial The collapse of the market and its strengthening from within.
- Idealy, the borrower will retain the bitcoins long-term and permanently even when the loan has been repaid. It protects the borrower from property seizure.
- To ensure continuous security, repeat the process by acquiring new bitcoin and lending it against your Bitcoins. financial Your business’s stability and growth.
Lenders can also benefit from including the purchase of Bitcoin in their credit lines. The lender will have bitcoin as an asset in the event that a property project is liquidated and fails.
It is not just limited to real estate, but applies to every industry. Bitcoin could be a part of all credit products to protect against default.
When bitcoins are properly protected, their purchasing power continues to rise even in cases of loan default. In the case of non-payment by a borrower, bitcoin protects both the lender and the potential borrower.
Incorporating bitcoin into a loan is not only an effective way to protect against default, but it also provides the benefit of a quick and cost-effective liquidity in case of non-payment. Bitcoin’s liquidity is high, which makes this process much faster and cheaper than buying a house. When compared to a property, the high liquidity of Bitcoin accelerates and reduces this process. financial Once institutions realize that bitcoin can be used in this way, it is certain to become an important component of lending solutions
It’s crucial to properly manage the bitcoin custody. To ensure control and security, consider multi-signature or multi-custodial setups. Non-custodial methods are becoming a popular way to handle funds for lending. Multisignature wallets that require more than one signer to send funds offer an advantage to both the lender and borrower by sharing custody. This cooperative approach improves trust and security, since it gives all parties involved oversight and controls. This ensures funds are only accessible with the consent of the majority of authorized signers. It reduces the risks of theft, mismanagement, and loss.
You can also read our conclusion.
In general, including the purchase of Bitcoin in a credit structure increases its security. This is good for both the borrower and the lender. Bitcoin is easily integrated into real estate financing. The story is compelling and challenges the traditional view of real estate. It also offers a solution that’s innovative to rising inflation rates and costs for construction and maintenance.
It is only in the early stages of integration that bitcoin has been integrated into real estate financing. No products have yet to be developed specifically for this purpose. The possibilities for real estate development are enormous and exciting. A company with a keen eye on the future of bitcoin in lending will most likely create this type of product. Traditional financial The institutions will be last to realize and take advantage of this opportunity, due to their dependence on existing systems and regulations.
Most industries are affected by the dynamics described, such as real estate and finance, manufacturing, retailing, healthcare, transportation, aerospace, mobile, and food and beverage. The integration of bitcoins into credit products will benefit most industries. It is possible that Bitcoins could become an important part of the credit market, particularly to protect loans from default. The market could be strengthened in response to rising geopolitical risks and increasing economic uncertainty.
With bitcoin-backed products for credit, we could usher in an era of empowerment and stability in economics, which has the potential to increase resilience and productivity within the global market.
Guest post by Leon Wakum. The opinions expressed by the authors are their own. own These views do not reflect the opinions of BTC Inc.
“This article is not financial advice.”
“Always do your own research before making any type of investment.”
“ItsDailyCrypto is not responsible for any activities you perform outside ItsDailyCrypto.”
Source: bitcoinmagazine.com