Cryptocurrency-backed mortgages are the latest product to hit the US housing market, which has enjoyed a stellar 2021.
The rise in cryptocurrency adoption has spawned digital asset banks and mortgage lenders. The city of Miami is particularly active in the digital assets space. Mayor Francis Suarez and Florida State Governor Ron DeSantis are advocates of cryptography.
With the State of Florida and the city of Miami looking to become an innovative crypto hub, Weiss Ratings rings the alarm bell.
Weiss Ratings sounds the alarm bell on cryptocurrency-backed mortgages
Weiss Ratings published an article on Tuesday raising concerns about cryptocurrency-backed mortgages.
The report highlights that "a Miami startup is racing to securitize cryptocurrency home loans."
Florida-based digital bank Milo is accepting cryptocurrencies to secure home equity loans. Milo plans to expand this further by offering these as mortgage-backed securities to asset managers and insurance companies.
Weiss Ratings refers to the pooling of risky home loans and the Great Recession of 2009.
In the last week of April, US mortgage rates stood at 5,10%, a whopping 212 basis points from April 2021. US home prices also rose sharply, while mortgage rates rose in response to inflation and market sentiment towards Fed monetary policy.
In February, the S & P / CS HPI Composite - 20 nsa was up 20,2% year on year.
As house prices and mortgage rates rose, Bitcoin (BTC) and the broader cryptocurrency market fell.
With Bitcoin and the broader market showing strong correlation with the NASDAQ and the Fed embarking on a journey towards monetary policy normalization, cryptocurrency-backed mortgages could be in a hard landing.
According to the report, CEO Josip Rupena claims there is a waiting list of 8.000 homebuyers in Texas, California and New York.
The question is not surprising when you consider that homebuyers can borrow up to 100% of the purchase price, with mortgage rates of up to 3,95%. Homebuyers don't need to sell their crypto, with Milo accepting Bitcoin, Ethereum (quotation ETH), and stablecoin as a guarantee.
Miami in overdrive to become a digital asset hub and center of innovation
Following Milo in the cryptocurrency-backed mortgage space is crypto company XBTO. In April, FX Empire reported that XBTO was in the process of completing a multi-million dollar Bitcoin collateral mortgage in Miami.
The increase in activity in the crypto space stems from aspirations to become an innovative crypto hub.
In January, Mayor Suarez confirmed that he would take his first three salaries in BTC. The City of Miami also launched MiamiCoin (MIA) in June 2021, the first CityCoin on the market.
Powered by Stacks (STX), CityCoins is “a protocol that enables smart contracts on the Bitcoin network”. Miners can submit STX in the Stacks protocol. CityCoins miners receive 70% of all STX tokens stacked in MiamiCoin. Miners can then mine the rewarded MIA to earn BTC rewards.
The remaining 30% goes to the city wallets. In the case of Miami, Mayor Suarez can exchange accumulated tokens for fiat or mine STX tokens to earn BTC.
It remains to be seen how US lawmakers and the SEC view cryptocurrency-backed mortgages. A Bitcoin slipped below $ 30.000, and a rise in cryptocurrency-backed mortgages would test the waters.