If you’re one of the lucky people who own four to six Bitcoin — or 111 to 166 ETH — that’s enough to buy an average-priced house in the US or Australia.
But who wants to cash out their Bitcoin today when pundits like Samson Mow and Plan B are tipping it will be worth 10 times more in the future? The dream of a Bitcoin-backed mortgage is that you get a house today and still get to benefit from Bitcoin’s appreciation tomorrow.
If everything goes to plan, you just pay the interest each year, and in a few years’ time, hopefully pay off the mortgage with a smaller fraction of your Bitcoin holdings. The loans are quicker and easier to get than a standard mortgage too. All you need is Bitcoin worth approximately 50% more than the loan amount and you’re good to go.
There are some big drawbacks however, with interest rates sometimes twice as high as ordinary mortgages. Holders face margin calls if the price of Bitcoin plummets and their loan-to-value (LTV) ratio drops too far.
Depending on the particular product or protocol, once the threshold is crossed, Bitcoin collateral may automatically liquidate, either in full or just enough to bring the LTV back up. Some providers offer a grace period to provide additional collateral.
Cliff takes out two Bitcoin mortgages to enjoy his wealth
Sixty-year-old construction supply company director Cliff has had a successful run leveraging his Bitcoin to buy property. He tipped 40%-50% of his wealth into Bitcoin across 18 months during the pandemic, after falling down the hard money rabbit hole on YouTube. With Bitcoin up almost 1,000% since, his portfolio is now worth what Australians call a “shitload.”
Also read: Baby boomers worth $79T are finally getting on board with Bitcoin
Cliff tells Magazine he wants to hang on to his Bitcoin because “what else are you going to put your money into that gives you a better rate of return?” But he also wants “to be able to take advantage of it and have access to cash flow without selling it.”
About a year ago, he borrowed enough from Australian crypto lender Block Earner to buy two properties and take a nice honeymoon, borrowing against the value of his entire Bitcoin portfolio.
Having just won a long court battle with the Australian Securities and Investments Commission, the local equivalent of the SEC, Block Earner is set to write the first of its four-year-long Bitcoin-backed “mortgages” this year, with the wider launch expected in early 2026. But Cliff was able to borrow the money to buy property under similar conditions, via a 12-month loan that can either be paid out or rolled over once the interest is paid.
The idea was to “buy a couple of properties where you can go to, and enjoy some nice places, and Airbnb them out as well,” he says. “It’s really just to create a quality of life.”
Cliff wasn’t worried about Block Earner blowing up like the majority of crypto lenders did in 2022, including Celsius Network, Voyager Digital, BlockFi, Genesis Global and Vauld — mostly because he says he hadn’t heard about these incidents.
Block Earner requires 150% Bitcoin as collateral, and if the price of Bitcoin falls too far, users have 30 days to stump up more cash or Bitcoin, or a proportion of their Bitcoin will be sold. Cliff says he went under the LTV ratio on two occasions.
“Bitcoin went over that but then came back down within the 30 days, I think a couple of times. And then I did sell a couple of Bitcoin at one point, sort of spur of the moment, I probably wish I didn’t… but that’s brought my loan to value ratio down to the point where I’m not even close any more.”
Bitcoin mortgages in US, Australia and in DeFi
Even if you break out in a cold sweat at the thought of borrowing against your Bitcoin to buy a house, it can sometimes be one of the few available options for crypto owners. That’s because traditional banks will ignore crypto portfolios worth millions and instead assess suitability for a mortgage based instead on your savings, stocks and other assets.
“We have a lot of customers — and a lot of staff for that matter — who have gone through the process of trying to get a mortgage and in that assets test part of the process, crypto is completely ignored or recorded as a zero dollar value,” explains Block Earner’s chief commercial officer, James Coombs.
Things are slowly changing on that front. In Australia, an unnamed major bank has partnered with Monochrome to treat shares of its Bitcoin ETF as marginable collateral for high-value properties worth 5 million Australian dollars ($3.26 million) or more. In the US, mortgage agencies…
cointelegraph.com