Cryptocurrency has exploded over the last decade. 10 years ago, it was something niche and barely known of, these days it’s hard to avoid the topic.
There are currently lots of different aspects of this new “asset” that are hotly being debated, for instance, whether we are to acknowledge it as a legitimate “asset class” in and of itself.
The Cryptocurrency space itself is something that isn’t currently regulated by the FCA (Financial Conduct Authority) and does not yet fall under the FSCS (Financial Services Compensation Scheme). We don’t yet know if this will ever happen so it’s important to note that at this point in time, Cryptocurrency is still very much in its infancy and should be carefully considered.
What is Crypto?
Put simply, cryptocurrency is a new form of digital money. It’s a digital payment system that doesn’t rely on any centralised bank or entities to verify transactions. Cryptocurrency is held in digital wallets and when you transfer cryptocurrency or make transactions, these get recorded on a public ledger called a “Blockchain”.
As opposed to the conventional banking system where banks control and hold money, cryptocurrency does away with the need for middlemen or banks. Instead, it relies on users and computing power on its network to confirm and verify the transactions through encryption and advanced coding (Cryptography) between all wallets and ledgers. The blockchain cannot be tampered with or changed retrospectively.
It is estimated that there are now over 18,000 cryptocurrencies in existence, all with varying degrees of value volatility and stability. Cryptocurrency is only a small element of the potential of Blockchain technology. It can be used for secure data sharing, international payments, financial services infrastructure, government infrastructure, voting mechanisms, online applications and so on.
Crypto Investment
As with anything in this world, if it exists, you can invest in or bet against it.
There are many routes to invest in the crypto market but the most common and most accessible is to use online exchanges.
They work very similarly to when you go to the post office to buy your Dollars to go on holiday. You add funds to your account and then buy cryptocurrencies. The online exchange usually takes a commission for their service.
Crypto investment used to be reserved for tech wizards and people in the know due to its niche and obscure start however, the popularity of crypto investing has increased rapidly over the last few years. It is becoming a much more accessible investment option for the ‘average Joe.’
Investment is a risk in any market but crypto is notoriously an incredibly volatile market, so it is not for the faint hearted.
People have made a considerable amount of money by investing in cryptocurrencies but there is also no shortage of stories of people who have lost significant sums of money.
The Market
To give you an idea of the growth this market has seen, let’s compare one of the biggest cryptocurrencies, Bitcoin, to some giant international companies:
This graph shows you the time it took for these companies to reach a market cap (a company’s worth) of Trillion.
Microsoft – 44 years
Apple – 42 Years
Amazon – 24 years
Google – 21 years
Bitcoin – 12 years
Crypto in Mortgages
To date, most lenders have steered well clear of cryptocurrencies. With many economic and social developments over the years, lenders can be slow to react. This is ultimately because lenders by default are risk averse to some degree or another and Crypto, quite rightly, is a risk to a lender.
That isn’t to say that it isn’t possible to use cryptocurrencies, or more specifically the proceeds of, when looking to buy a home. There are well over 100 banks, building societies and other financial institutions that provide mortgage finance in the UK and of those, there is only a handful that can accept the involvement of cryptocurrency in the funds used to purchase property.
The viewpoint varies from lender to lender on this topic but generally, the lenders that can accept the involvement of cryptocurrency in the house buying process however, it will almost definitely need to be in the form of savings by the time it comes to buying.
There are different policies around this but the general theme is that most lenders will want the proceeds to have been exchanged from its native cryptocurrency (Bitcoin, Ethereum, Solana etc) into currency, pounds sterling, at least 3 months before buying the property and have been sitting in your bank account.
The other point to raise here is that although lenders may be willing to accept this form of investment and deposit generation, they will still heavily lean on the solicitors to verify the source of funds to make sure that there hasn’t been anything untoward.
Your home may be repossessed if you do not keep up with your mortgage payments.
This article was written by Chris Billingham
A now infamous story of Bitcoins meteoric rise is the story of when an early adopter of Bitcoin, Laszlo Hanyecz used some of his bitcoin to buy two pizzas from a local pizza place that agreed to accept payment by means of Bitcoin. On the 22nd of May, now “Bitcoin Pizza Day”, in 2010, Laszlo bought two pizzas using 10,000 Bitcoin, which at the time equated to around 1. On the 4th of March 2022 one bitcoin was worth 0,876 which means if Laszlo used the same number of Bitcoin to buy pizzas now, those two pizzas would cost him around 08,769,000.