Will the UK banks follow the US in accepting Bitcoin as mortgage payment?
United wholesale mortgages (UWM), the second-largest mortgage lender in the US, announced last week that it would give homebuyers in the US the option to pay for their mortgage in bitcoin. The bank announced that it expects to accept bitcoin from Q3 of this year, making it the first company in the US to take cryptocurrency to satisfy mortgage payments. The exact details of how this will work are yet to be released.
Bitcoin on Monday this week shot up above $50k after dropping below $30k in July amid fears of China’s crackdown on digital assets, but still below its peak of $64k back in April of this year. Bitcoin in recent weeks has surged amidst a string of announcements from Amazon, PayPal, and Walmart, all hinting at potentially accepting the digital currency.
However, the reality thus far is that it has proved far more complex, with bitcoin trading being so volatile. As in the case of Tesla, which initially announced in April of this year, it would accept bitcoin as payment for its cars. Only for it to reverse its decision in May to stop accepting it sighting the use of fossil fuels for bitcoin mining, and that, of course, is the exact opposite of what Tesla is trying to achieve with its electric cars.
What does the Bank of England (BOE) think of cryptocurrency?
The governor of the BOE, Andrew Bailey, believes that cryptocurrencies have no intrinsic value. And that people who invest in cryptocurrency should be prepared to lose all their money. This view is also shared by the Financial Conduct Authority (FCA), which regulates residential mortgages in the UK. The bank fears that with cryptocurrencies attracting investors as an alternative to sterling, there is a fear that the cost of transactions linked to sterling could leave the currency vulnerable to digital currencies such as bitcoin. Which it fears could result in undermining the ability of BOE to set interest rates to control inflation in the future.
And for that reason, the BOE this year launched a joint task force with the treasury aimed at exploring central bank digital currency, which the bank can control whilst maintaining the benefits of digital assets.
Why cryptocurrency will be an issue for banks in the UK:
Purely Speculative
The gains made by Bitcoin and other cryptocurrencies have purely been speculative thus far and very sensitive to news of big companies either heavily investing in them or accepting them as modes of payments. This followed by a sharp decline, and in some cases, over 50% to news of policy changes as in China or the company’s failure to adopt it as in the case of Tesla.
This is where the issue will be for banks trying to adopt it in the mainstream, a currency that could lose half its value in days is risky and will be hard for banks to work out until the cryptocurrency is regulated and stable like fiat currency is in the real world. The only other option will be to convert it into fiat currency based on the days trade valuation.
Why would investors want to pay with Bitcoin?
Another big issue from a consumer/investor point of view will be that if you hold digital assets like bitcoin, based on the assumption that their value in years to come will be far higher than its value today (albeit speculative). Why would you give it up? The only reason to start trading in goods and services with cryptocurrency will be if its value has stabilised like fiat currency. Because fiat currency in real terms loses value with inflation year on year, why would you not want to make payments with that. It makes very little sense to part with digital asset as oppose to cash for now.
Strict anti-money laundering checks in the UK:
One of the other significant concerns for banks will be the regulatory issue in the UK. The strict anti-money laundering rules which govern a property purchase in the UK mean that you must prove the source of funds. Because cryptocurrency is decentralised, it can be harder to verify the source of funds as you must before buying property in the UK.
And you add that BOEs and FCAs concerns around the cryptocurrencies, I see very little in the way of regulatory approval for banks to use this as a form of mortgage payment at least in the short term and indeed not to become mainstream anytime soon in the UK. Any investment which can lose up to 50% or more in a matter of days will be very risky for banks. It will be interesting to see how UWM approach this and one that we will monitor and report on in Q3 of this year.