In recent years, cryptocurrency has become an increasingly hot topic in the world of finance and business. Leading blockchain currencies like Bitcoin and Ethereum have sparked a rapidly expanding industry of similar digital tenders. As a growing number of high-end investors and consumers have taken interest in cryptocurrencies, blockchain exchanges have become more common in luxury markets.
2021 was an introductory year for cryptocurrency in the realm of luxury real estate. However, as blockchain currencies become increasingly prevalent assets for both buyers and sellers, cryptocurrency transactions in the high-end real estate market are trending upwards.
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Impact on Luxury
In 2021, luxury buyers broke global cryptocurrency records. As a growing number of affluent retailers and businesses began accepting forms of cryptocurrency as payment, more buyers turned to their blockchain assets for everyday transactions. Now in 2022, as cryptocurrencies prove increasingly lucrative with high-end investors, blockchain currency transactions are trending to explode across nearly every sector.
This, of course, includes luxury properties and real estate. 2021 saw some of the first ever luxury real estate transactions conducted through blockchain currencies. However, as a market with many nuances and complexities, how cryptocurrency will impact luxury real estate long term is yet to be determined.
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Real Estate and Crypto in 2022
Last year a Miami, Florida penthouse made international headlines when it sold for the equivalent of US $22.5 million in cryptocurrency. While a few other high-end sellers across Europe and North America would begin to accept cryptocurrency as a form of payment, blockchain transactions remained rare in the real estate market.
One trend that has emerged early on, however, is Bitcoin as the preferred form of cryptocurrency within real estate transactions. This comes as no surprise as Bitcoin is already the most popular form of cryptocurrency. Monica Barbu, CEO, Romania Sotheby’s International Realty has worked with clients who have included Bitcoin as a payment option for their luxury properties. She notes that although sellers can be open to other forms of blockchain currencies, “the preference is Bitcoin”.
As it stands, cryptocurrency is by no means a common method of transaction. However, as a greater number of high-value luxury properties accept blockchain currencies as payment, this could change. Given existing trends and notable purchases so far, it is fair to assume that Bitcoin will be the leading form of cryptocurrency in real estate. Whether crypto itself is likely to make a big splash on luxury real estate in general, is yet to be determined.
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Amongst the positive momentum building with blockchain currencies in recent years, several myths and misconceptions have also emerged. One of the most common misconceptions surrounding cryptocurrency is its relationship to taxation at municipal, provincial and federal levels.
As cryptocurrency is not considered legal tender in Canada, many investors and users have assumed that blockchain transfers or transactions are immune to taxation. However, this is simply untrue. In Canada, the CRA treats cryptocurrency as a business commodity. When transactions occur using Bitcoin or other blockchain currencies, it is considered a barter transaction and is subject to appropriate taxation. Like any other investment asset, the disposition of cryptocurrency either through the exchange for goods or services or conversion to legal tender is also subject to taxation.
Luxury buyers or sellers that are expecting tax relief through a cryptocurrency transaction should consult an expert first. A real estate agent who specializes in luxury properties can help you navigate the legal implications of blockchain transactions.
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Other Complexities and Implications
Perhaps the most significant thing both buyers and sellers of luxury real estate should keep in mind is that cryptocurrencies are still new. So while cryptocurrency in the world of luxury real estate is swelling with opportunity, it does carry some potential pitfalls and convolutions.
Like Canada, federal governments around the world have rapidly developed and reinforced legal regulations surrounding cryptocurrencies in recent years. This can mean a handful of unexpected complexities during the selling process – especially with international transactions. In some cases, recent luxury real estate blockchain transactions have involved converting Bitcoin or Ethereum into cash in order to speed up the process.
As the landscape of digital currencies within luxury real estate continues to evolve, our team can offer the most up-to-date knowledge for buyers and sellers.
Have questions about buying or selling? Contact us.