With a Bitcoin-backed mortgage offering, a crypto firm Sidesteps avoids TradFi issues.
As demand for institutional solutions for digital asset whales searching for alternatives to traditional finance develops, a cryptocurrency market-maker is prepared to launch its first bitcoin-backed mortgage.
In the next weeks, XBTO hopes to close a multi-million dollar mortgage in Miami, with bitcoin as the sole collateral. It’s one of the first times something like this has happened as the market for crypto-based loans grows.
Despite the fact that the company — which began as a proprietary trading operation before expanding to other business lines — would require know-your-customer checks and credit scores, there are benefits for investor clients, such as not having to sell bitcoin and incur capital gains.
XBTO’s Miami-based head of marketing, Joe Haggenmiller, told Blockworks that the initiative would provide underwriting to those who would otherwise be ineligible, such as foreign nationals.
“We’re solving a problem that individuals have, whether it’s because they’re a foreigner or can’t get an American mortgage, and they don’t want to sell their bitcoin but want to buy a nice apartment,” Haggenmiller explained.
With a 10% bitcoin downpayment on a 15- or 30-year mortgage, borrowers can access finance worth up to 90% of their mortgage. Rates will be equivalent to typical mortgages, according to Haggenmiller. He was adamant about not naming a certain range. The goal is to compare rates on jumbo mortgages, which are often used for houses that are too pricey for a standard loan.
On Bitcoin, the wager is bullish. Consider this: if the value of cryptocurrency rises throughout the duration of a mortgage, as analysts predict, the homeowner can sell a portion of their holdings and reduce the outstanding loan balance. The bitcoin deposit, which will be subject to know-your-customer (KYC) checks, will be held in an unnamed solution.
“There’s an old guard of [bitcoin] maxis who never, ever want to sell bitcoin,” Haggenmiller said. “It might be because they think it’ll go to $1 million, or it could be because they don’t want to pay taxes.” “It’s possible they have it in cold storage and are unwilling to give it up.” This is a way for them to come in and purchase that expensive item.
Milo, a cryptocurrency lender, is now offering digital asset-backed mortgages, which it claims is an industry first.
The initial offering of XBTO will be limited to Florida mortgages worth more than $1 million, reflecting the company’s intention to focus on large loan prospects rather than spreading its vetting resources and staff thin by focusing on lower-valued homes.
That area is likely to grow over time, and may eventually contain additional cryptocurrencies. Securitizing the loans to tap another pool of financing money is another feasible, though not urgent, emphasis.
To assist in doing due diligence on and underwriting lien holders, the firm has partnered with Columbus Capital, a traditional full-service mortgage provider.
“In terms of not only the product, we’ve wrapped this in what seems like a conventional mortgage,” Haggenmiller added. “We’ll acquire all the documents, just like a regular mortgage, and the application procedure and servicing will be the same as any other mortgage.”
XBTO will require credit ratings, but Haggenmiller claims that customers with a poor financial track record will not be penalised in terms of rates if they have the required quantity of bitcoin to put up as collateral.
In its vetting procedure, which Haggenmiller described as “thorough,” the company expects to search for warning flags such as a history of late payments.
Additional business areas for XTBO, managed by CEO Philippe Bekhazi, include venture capital investments, exchange market-making, equipment finance for miners, and over-the-counter trading.
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