Crypto for Advisors: Bitcoin and the American Dream

Today’s article features insights from Meredith Yarbrough, a managing partner and co-founder of La Hoja Capital Partners, who discusses the potential use of Bitcoin as a component in mortgage collateral.

Eric Tomaszewski, representing Verde Capital Management, shares some key points to ponder when assessing this model within the context of Ask an Expert.

– Sarah Morton

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What Can Bitcoin Do for the American Dream?

Owning a home has long been a key aspect of the American ideal, yet throughout various market periods, both lenders and borrowers encounter consistent risks. For borrowers, these risks include property market fluctuations leading to negative equity, lack of liquidity, ongoing tax payments, insurance premiums, and maintenance costs. Lenders, on the other hand, are vulnerable to borrower defaults, changes in interest rates, early repayments, and economic downturns.

As forward-thinking credit administrators are now incorporating Bitcoin into business loan frameworks, a point of interest surfaces: is it possible to apply this method to home loans, thereby mitigating risk for both parties while leveraging Bitcoin’s growth prospects?

Your home: A highly concentrated risk

For many Americans, owning a home equates to a significant financial risk, as the bulk of their wealth is invested in one asset – their property. The value of this property can change drastically due to market conditions, inflation, and local factors. Moreover, homeowners are responsible for ongoing expenses like taxes, insurance, and maintenance, making it challenging to access quick cash during emergencies.

Bitcoin: A liquid, appreciating asset

Including Bitcoin in a mortgage collateral package can be an attractive proposition due to its limited supply that’s increasing in popularity. Unlike traditional real estate, Bitcoin is highly liquid and quickly convertible into cash, giving homeowners faster access to funds when necessary. Its value is influenced by scarcity, decentralization, and a history of strong long-term growth, potentially benefiting both borrowers and lenders because it’s driven by these factors.

Bitcoin in the mortgage collateral package

Incorporating Bitcoin into a mortgage means that both the borrower and the lender need to have a mutual, long-term perspective. Although Bitcoin’s short-term fluctuations are widely recognized, its potential for long-term increase offers a substantial chance for value expansion. By jointly experiencing this growth and managing the related risks, both parties can gain benefits from it.

In this mortgage arrangement, not only does it finance your home purchase, but it also includes a provision for investing in Bitcoin. The lender takes care of this Bitcoin segment, and when its value rises, both parties share the profits. Over time, as you continue to pay off your loan, your ownership stake in the Bitcoin grows, encouraging long-term homeownership and decreasing the chances of an early repayment.

Benefits for lenders and borrowers

This hybrid collateral structure provides notable advantages:

A new future for homeownership

Homeowners can benefit from using Bitcoin as security by gaining access to a growing asset that can assist in managing ongoing expenses such as repairs and improvements. This asset allows them to avoid dipping into their personal savings or acquiring further debt. The extra financial flexibility provided makes homeownership more financially viable, with Bitcoin acting as a safety net for future costs.

At a local community level, the advantages could be significant. Homeowners experiencing an increase due to Bitcoin’s growth would have additional funds available for property maintenance, thereby enhancing the general well-being and robustness of neighborhoods. This might result in healthier, more appealing communities and opportunities for eco-friendly homeownership that is sustainable in the long term.

Embracing Bitcoin in mortgage arrangements offers a more adaptable, progress-focused dynamic for both lenders and debtors. As Bitcoin gathers momentum as a financial resource, its potential impact on transforming conventional mortgages might signal a substantial evolution in homeownership and the pursuit of the American dream.

– Meredith Yarbrough, managing partner and co-founder, La Hoja Capital Partners

Ask an Expert

Q. What are the similarities amongst Bitcoin and the American Dream?

As a researcher, I find myself drawn to the profound similarities between the American Dream and the essence of Bitcoin. The American Dream embodies the belief that with determination and effort, one can achieve anything, including financial success. In the same vein, Bitcoin stands as a testament to individuals asserting control over their own financial destiny, bypassing traditional centralized institutions. This principle is deeply rooted in empowering self-sovereignty and upholding personal freedoms.

At the heart of the American Dream lies the concept that every individual has a fair chance at prosperity. In the case of Bitcoin, anyone who has an Internet connection is granted the potential to engage and reap its benefits.

The drive of American entrepreneurship has fueled advancements and development over time. Bitcoin, representing cutting-edge technology, signifies our journey toward the next phase in human evolution.

Let me propose a tactic – take some time for reflection. First, determine your objectives and what matters most to you. Instead of focusing on any particular investment, consider creating a well-thought-out strategy. I personally believe that excess in anything isn’t beneficial, hence striking a balance between digital and traditional assets could be both strategic and lucrative if executed skillfully.

If an individual has too much focus on Bitcoin, it might involve discussing strategies to diversify their digital asset portfolio or establishing reasonable targets regarding when they aim to purchase a house. Ultimately, it’s all about being thoughtful with planning to ensure that assets are used wisely. Additionally, it’s essential to keep in mind that renting could sometimes be a more financially sound choice for a client’s situation and overall plan.

– Eric Tomaszewski, financial advisor, Verde Capital Management

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