Citigroup Points Out Potential Risks Of Cryptocurrency-Backed Mortgages And Advantages Of Real Estate In The Metaverse

Citigroup Points Out Potential Risks Of Cryptocurrency-Backed Mortgages And Advantages Of Real Estate In The Metaverse

The investment banking giant, Citigroup has published a study on how real estate technology could affect the real estate market, mentioning virtual goods in the metaverse and cryptocurrency-backed mortgages.

In a report released Wednesday, titled “The Home of the Future: PropTech – Towards a frictionless real estate market?” citi said that cryptocurrencies, blockchain, and property in the metaverse had the “potential to transform the traditional real estate market.” While crypto-backed mortgages could streamline the home-buying process, many individuals have seen investments in metaverse properties grow over the past two years.

Citi reported that crypto-asset-linked real estate loans could allow investors to “use their investment earnings” without incurring capital gains taxes, but commented on the potential for risk in a volatile market. While many standard fiat-linked loans have regulatory procedures to assess a borrower’s ability to repay, crypto holders could be forced to pay significantly more if the price of tokens falls during a bear market.

“If the value of the cryptocurrency declines, the borrower may be subject to margin calls, and ultimately the cryptocurrency may be liquidated if the value of the collateral falls below a certain threshold, such as 35% of the value of the collateral. the property”, the report said. “Introducing cryptocurrency exposure into the credit profile could increase the overall risk of the loan.”

In addition to buying physical properties, the Citi report discussed the potential benefits of owning and monetizing “digital real estate” in the metaverse. Specifically, the researchers detailed how individual and corporate owners of the virtual property in The Sandbox (SAND) – called LAND – have treated the metaverse as an investment similar to real-world property, with prices rising from about USD 100 per LAND in January 2021 to no less than USD 200,000 a year later:

“Given the nascent nature of the virtual real estate environment, many of LAND’s buyers have no concrete plans to cultivate the properties and are limited to speculating on the future growth of the platform and thus LAND’s price appreciation.”

The banking giant is not the first to consider the risks of cryptocurrency-backed mortgages. Ahead of the recent bear market, Florida-based rating and research firm Weiss Ratings warned investors that falling Bitcoin (BTC) prices, in addition to stock performance, rising interest rates interest and policy changes from the Federal Reserve could turn crypto mortgages into a losing bet.

Read:  Nearly $55M in TFN from Bored Ape and CryptoPunks at Risk of Liquidation Amid Debt Crisis

Clarification: The information and/or opinions expressed in this article do not necessarily represent the views or editorial line of Cointelegraph. The information set forth herein should not be taken as financial advice or investment recommendation. All investment and commercial movement involve risks and it is the responsibility of each person to do their due research before making an investment decision.

Keep reading:

Investments in crypto assets are not regulated. They may not be suitable for retail investors and the full amount invested may be lost. The services or products offered are not aimed at or accessible to investors in Spain.