Bitcoin's value has multiplied nearly 20x this year. At the time of this writing, bitcoin is trading just above $19,000 USD per coin. As the year ends the average house in Silicon Valley is just under $1.2m, or roughly 63 bitcoins.
Being Silicon Valley, many of our clients have either heard of bitcoin over a decade ago and/or have even participated in 'mining'. Many have accrued bitcoin and often forgot about them as the actual value was below $0.01 for a very long time. We're not going to get into the origins of bitcoin, or what exactly bitcoin is, however for this article we'll be treating it as a variable asset no different than a public stock traded on a global exchange, and finally we will not be discussing the ramifications of bitcoin or other cryptocurrency and real estate. Those are topics for future articles and workshops.
So you have enough bitcoins in your wallet and would like to purchase a house? At the very foundation of such a transaction, a house is a tangible asset of which its owner can exchange for anything they deem of value and worthy of exchange. Typically, this is a cash value, but being in Silicon Valley we have seen enough homes sold for pre-IPO stock, usually for a young and promising 'disruptive' company. Most recently we witnessed a Santa Cruz beach house sold for an undisclosed amount of pre-IPO Facebook stock in early 2012.
Considering that the entire cryptocurrency market is experiencing a bull market at the moment finding a home owner willing to exchange their property for your bitcoin may highly likely, however should you? Lately the value of a single bitcoin has been anything but stable, and when managing real estate transactions the very last thing we want our clients, buyers or sellers, to experience, is remorse.
Our recommendation would be to first consult with your CPA, because when you convert your bitcoin for cash the IRS considers this a taxable action. Like selling stocks or shares in a publicly traded company, any gains on your bitcoin falls under capital gains. Thus when purchasing a theoretical $1.2m Silicon Valley home and assuming you've held your bitcoin longer than 2 years that 63 bitcoins looks more like 75 bitcoins once capital gains and closing costs are factored in.
In short, if history serves, exchanging actual bitcoin for property is a terrible financial idea. In 2010, a man in Florida exchanged 10,000 bitcoin for 2 Papa John's pizzas. 10,000 bitcoin today is worth nearly $200m. In 2013 a man paid 91.5 bitcoin for a Tesla Model S, that 91.5 bitcoin is worth nearly $2m today (a used 2013 Model S is only worth $40-45k today). Earlier this year a man purchased a Lamborghini Gallardo for 45.6 bitcoin. Bitcoin has skyrocketed since and those 45.6 bitcoins are worth nearly $900,000 today. You get the idea. Convert to cash, plan to pay capital gains, and we'll get you that house!