Why The Cryptocurrency In Real Estate Trend Won't Last

Bitcoin fever appears to be increasingly attractive to the real estate industry. In the last few weeks alone, there have been stories about adoption in Dubai, New Zealand and the U.S. It can only be a matter of time before we also see the launch of a real estate-backed cryptocurrency — but what does this really mean for the real estate industry? And how long can this bubble realistically last?

If we take the 2009 housing crisis out of the equation, real estate is historically one of the most stable investments you can make. With this in mind, introducing a notoriously volatile crypto market into the mix will be seen as a huge red flag for obvious reasons. For example, although Bitcoin was up by 900 percent over a 12-month period, it also recently lost $3,000 in a day and halved in price in a month.

In some circles, Bitcoin is considered a currency on the same level as gold. It has become a tool for the wealthy to buy big-ticket items and is a much easier way to move large quantities of money around the world. The downside, of course, is this could quickly set off a few anti-money laundering alarms and cause major headaches to brokers.

Investors of cryptocurrencies should also ask themselves one question: Are you okay with your real estate portfolio dropping 25 percent in 48 hours because of a few tweets or news reports? We all know the answer to this question is no, and that's why cryptocurrencies are much more about speculation and gambling than investments.

But many believe the recent crash was caused by an increasing number of tech-savvy early adopters that are currently making huge gains and “profit taking” at key price levels. Ironically, they are withdrawing these profits to put back into traditional investments such as real estate.

The fact that even champions of cryptocurrencies are gambling their way to profits and putting them directly back into traditional markets to secure a better risk-adjusted return is quite telling itself. But these lucrative returns mean that many deals are completed without the need for a mortgage, and this is making it hard for brokers to resist quick sales.

Many believe that real estate brokers underestimated the increasing number of people with crypto profits and are missing out on potential buyers. But by rushing in and simply accepting this payment method, they could equally be putting themselves into dangerous territory. Neither developers nor investors should chase a fool's gold without carefully considering the risks involved.

The attraction of streamlining processes, cutting costs and increasing competitiveness is incredibly alluring for businesses and the finance industry as a whole. Technology works best when it solves real problems and removes pain points faced by a company or its customers. But if the cost of entry is increased risk, then it's not the right time to introduce it into a stable market.

Traditional experts believe that Bitcoin is currently in a "classic bubble" that is reminiscent of Holland's tulip bulb mania in the 1630s. Many are also starting to question whether banks and government legislators are waiting on the horizon to rain on Bitcoin’s parade and bring much-needed regulation into the crypto industry.

This is not to say that there is no future for blockchain or cryptocurrencies. There is a great deal of opportunity in this space, and we are still yet to realize the art of the possible. But, if you take a step back from the hype machine, you will be left with more questions and uncertainty about its future.

It's important to remember that although tech trends such as blockchain and cryptocurrencies are exciting, this technology is still in its infancy. While it's a relatively low risk buying your next subway sandwich, pizza or even flight tickets with a bitcoin, should a broker really risk an expensive real estate deal that could spectacularly backfire?

The truth is that right now, nobody knows if cryptocurrency in real estate will go the distance. For this reason alone, it would be incredibly foolish to put yourself, your business or your future at risk by rushing into the unknown. Maybe Warren Buffett said it best when he advised: "Only buy something you would be happy to own if the market shut down for ten years.”

Allen Shayanfekr is Co-Founder and CEO of Sharestates, an online real estate investment marketplace that allows individual and institutional investors to participate in rigorously vetted debt offerings.