** Addition as of 2/25/14: The NY Times reports that an important administrator of bitcoin currency, Mt. Gox, has announced the digital theft of a significant amount of users’ currency. This illustrates the risks with bitcoin and some say poses a threat to its long-term viability. …My original review from 2/5/14 follows below:
Bitcoin is a purely digital/virtual currency. Rather than issued by a government or backed by a real asset like gold, bitcoin money is created (or “mined”) when someone uses extensive computing power to produce an encrypted data point. Once bitcoin is issued, it can be purchased in an online exchange that swaps traditional currency for bitcoin, or bartered for goods and services using computer-based bitcoin “wallet” software.
RealtyShares is one of the crowdfund sites that has opened real estate investing to a larger audience by facilitating investing online and offering low minimum investments in the range of $10K or less.
RealtyShares says online that they had investors interested in bitcoin, particularly to reduce the transaction fees of 5%+ that can occur when transmitting money, especially when currency conversion is involved.
So, is this a game changer? On the positive side, a number of web sites now take bitcoin, such as overstock.com. And, can you argue with the Winklevoss twins (of Facebook/”The Social Network” fame) who have invested VC money into this area?
However, the bleeding aspects of bitcoin make it risky to say the least. The currency value is very volatile and subject to speculation. During December 2013, the value dropped from over $1,000 USD to under $600, then climbed back to over $900. It’s hard to see who in the real estate ‘chain’ would take ownership of the bitcoin for any period if it adds significant currency risk to the unknowns already in crowdfunding returns and swings in real estate. Instead you’d need a market to hedge the currency exchange. And, government authorities have warned that your ‘wallet’ may be subject to hacking and theft.
My takeaway is that bitcoin makes for an interesting new-bite and praiseworthy creative project for the technical team that produced it. However, the majority of crowdfund RE investors are looking other types of enhancements: greater clarity on the deal risks, terms and financial regulations that apply; a wider spectrum of deals on each site; more interaction with the RE operators on the other end of the deals; and of course strong returns. Bitcoin may work best for the few sites that take $100s as the minimum investment, rather than those that are average $10K-100K per investor per deal.