The year ended with reports that mortgage demand had plummeted following increased rates and growing concern about the financial outlook.
While more recent reports have shown a more positive picture, many are concerned that renewed interest continues to teeter on the edge of another fall.
“This rapid rate increase affected a lot of individuals,” said Josip Rupena, CEO and founder of Milo. “For many of them, it almost just paralyzed them.”
“What I think has changed… is that there’s a little bit more clarity that it doesn’t look like it’s going to be 75 basis points or 50 basis points by the Fed anymore. It looks like it will probably be closer to 25 basis points.”
He explained that this had restored some confidence and expected to see mortgage rates drop as a response.
“I think after Q2 and Q3, we should have much more clarity on rates…No one believes that rates will be higher, further than a couple of years out anyway. And if the economy slows down more than expected, which is a real risk, then there could be a situation where that would prompt the Fed to lower rates again.”
Within this context sits the crypto mortgage, a product that became ever more inevitable as wealth in crypto rose. While DeFi was developing its own crypto loans, fintechs like Milo looked to use existing financial frameworks to bring the new asset class into the economic landscape.
Investors who had made a fortune in digital assets could use the mortgage to diversify without relinquishing ownership of valuable coins. Last year the product gained popularity, and Milo had no defaults despite various crises in the crypto space and went on to launch an under-collateralized version towards the end of 2022.
However, the crypto industry has taken a beating. Reports say faith in the industry is low. What does this mean for crypto mortgages?
Rupena explained that he expected the crypto market to stay reasonably level, with a low chance of another price drop.
“If you see from a market perspective, many of the people that have been long-term holders weren’t selling. So there was a very limited amount of float to be able to transact with bitcoin prices around $16,000. And you had something where so many companies went out of business, and it was much harder for people to even buy and sell.”
“What that’s done is that most people were positioned pretty negatively. But now you’ve seen this rally in prices…and negative news coming out from Genesis, filing for bankruptcy, but not a big reaction. So a lot of that is already sort of priced in, in the space.”
“From what we’re seeing, we think bitcoin and crypto prices will probably be pretty strongly correlated to macro news this year. And if we get positive news around rates not going higher, if we do get some of these elements, then you could see prices probably accelerate pretty significantly to the upside.”
“I think structurally, from a market perspective, it’s probably in a safer position today. Suppose you think about where the retail wealth concentration is. In that case, they are migrating towards a demographic where now I think they’re personally trying to become a little bit more conservative with their holdings and diversifying into assets.”
Sustained interest in the crypto mortgage
Milo has found the majority of its clients are early investors in bitcoin. After profiting from the coin’s popularity, the company has found that clients want to diversify into more “conservative” assets like real estate. Due to bitcoin’s recent dip, holding the asset in the crypto mortgage has become even more attractive instead of cashing out.
“It’s not necessarily people that were panic selling. They’ve been holding for a longer period of time,” said Rupena. “Now, it comes down to them. Whether they’ll transact is based on personal life decisions.”
Although many financial players are becoming more vocal about their criticism of the crypto industry, the crypto mortgage has continued to show benefits.
In addition to the taxes clients would have had to pay on the sale of that bitcoin to obtain a traditional mortgage, the company has seen clients’ asset value improve due to their decision to hold the coins and opt for a crypto mortgage.
“I think the biggest benefit to clients today is that they don’t want to sell at these prices. The individuals that got mortgages with us in December, at those prices, even today, after the recent surge, the value of their holdings is 20% more. Just by holding, a quarter of their net worth is back off that transaction.”
This is what a product like ours, which allows them to keep access to both types of assets, could potentially do for them.”
A new crypto loan product is launched
In addition to the crypto mortgage, Milo launched a crypto loan today, Jan. 24, 2023. Targeted to lend lower amounts, starting at $10,000, customers can use their holdings of bitcoin, ethereum, and USDC as collateral.
Like the crypto mortgage, the company uses existing regulatory frameworks to underwrite and grant loans on a case-by-case basis.
“Cryptocurrency loans are an essential financial solution when consumers want to hold their crypto for the long run but need dollars today,” said Rupena.
“We felt it was important to help our clients today by making it convenient for them to take out a crypto-backed loan. Many companies filed for bankruptcy because they took extreme levels of risk, and that’s not our philosophy. Simple, safe, and transparency are what we want to deliver.”
With over five years in the art and design sector, Isabelle has worked on various projects, writing for real estate development magazines and design websites, and project managing art industry initiatives. She has also directed independent documentaries on artists and the esports sector.
Isabelle's interest in fintech comes from a yearning to understand the rapid digitalization of society and the potential it holds, a topic she has addressed many times during her academic pursuits and journalistic career.