[vvarren]

So my understanding is that you’d owe a set amount in Fiat but you can make payments in crypto. Would you be locked into crypto for payments, at a designated fiat value or designated crypto value?

Because if you borrowed in crypto for a house and then the price of crypto skyrocketed you would be screwed. Seems like a nice option for people trying to short the crypto market, but I doubt this has much viability.

Companies realize they can get a headline by adding crypto as a payment method, but nobody cares anymore. It’s the equivalent of a brick and mortar store accepting Venmo and then gathering everyone in the town to tell them how innovative they are…

[Finnucane]

Given the volatility of Bitcoin it would be real rate risk for the lender. I mean, over decades? There’s no way to price that.

During the great bubble, borrowers in Eastern Europe got mortgages in Swiss francs. When the market collapsed and the exchange rate sank, they were completely fucked. Don’t borrow in currency you can’t easily get your hands on.

[quantumBerry]

There is a way to price it, there are perpetual futures market for popular coins. You would pay the premium for those futures but by shorting or buying futures you can lock in value within a few percent.

For example, if i expect 1 bitcoin 10 years from now, I sell a future contract promising to sell 1 bitcoin at $45,000. If the price falls 5,000 over 10 years, the value of my contract is now worth $5,000 plus the 40,000 value of the coin. If I am on the opposite side and have to pay in bitcoin, I can buy a futures contract for 1 bitcoin at 45,000. If the price of bitcoin rises I am offset by the value of the futures cotnract and if the price falls the negative value of the futures contract locks my price at ~45,000.

The cost here is the premium of the futures contracts, which of course could make it more expensive to operate a crypto mortgage in the long run.

[FabHK]

The futures on Bitmex go out less than a year, and on CME until Dec 2022.

I very much doubt they'll hedge with futures - I'd assume they just sell the crypto as soon as they have it. They might put on a position in a future for the short period of time between agreeing on a price and getting paid.

And of course the house will be denominated in USD. So, bottom line, not much more than a marketing gimmick.

ETA: And perpetual futures are basically just spot, with financing baked into a funding rate (which is positive or negative depending on demand, but unpredictable ex ante, and as such does not solve your problem).

[quantumBerry]

It sounds like a fixed term future written by the lender directly may be a better option, I would not expect a large lender to actually trade futures Kraken/Coinbase.

Agreed it is a gimmick, I would imagine everything will be in fiat except at the time of each payment, when the instantaneous crypto value will be credited.

[TheDong]

As I understand it, the majority of these future's contracts are on Etherium or another crypto market, and pay out in stable coins at best.

That's already too much risk for 10 years out. The chance of etherium having died in the PoS transition, or the chance of any given market-related contract having an exploit that renders it worthless, are both simply too high to actually participate in for a 30 year loan.

Do you have a reference to a place where I could get one of these futures to get a good feel for how much extra it would cost to secure a loan against that volatility?

[quantumBerry]

I think the non-KYC exchanges may use stablecoins as collateral due to the inability to service fiat. But Kraken for instance has BTC-USD perpetual futures [1].

Presumably a large mortgage lender would write their own contracts or collaborate with an exchange for a product using their own mortgage contracts instead of USD on margin as collateral for the loan.

[1].https://futures.kraken.com/trade/futures/PI_XBTUSD

[vvarren]

That is definitely the solution to rate variability, but it doesn’t make sense economically. If you are borrowing money why would you also want to buy futures contracts, it would eat into your mortgage spending power when you can just trade in the Bitcoin, get a normal mortgage and probably far better rate, then buy at full buying power.

[quantumBerry]

Thus you outline who benefits most from a mortgage in crypto -- someone who expects regular payment in fixed crypto in the future. For that person, their full buying power would be a crypto mortgage as they wouldn't lose buying power by hedging with futures against USD.

I have no idea who that person would be.

[paul_f]

The problem being that I would not trust any crypto futures market to actually payout if prices crash.

[quantumBerry]

Nearly certainly everything would nominally be in fiat and at the time you pay in crypto, they would credit you the value of the crypto at the time of payment.

I can't imagine they're going to go through the effort and risk of effectively hedging their crypto risk through securities markets, which would come at a premium.