By: Jack Fraser, October 26, 2021
Cryptocurrencies have seen exponential increases in value over the last few years. Bitcoin is at the forefront of the digital currency charge. Despite its volatility, Bitcoin’s prices have soared above the $60,000 mark in recent weeks. Within the past month, El Salvador declared Bitcoin as legal tender. Public sentiment has become increasingly accepting of cryptocurrencies as a rival to fiat currencies. Nevertheless, digital assets like Bitcoin are not without their downfalls. A big concern with Bitcoin involves its transaction time, making its viability as a direct replacement for our fiat-based payment infrastructure challenging. A typical Bitcoin transaction can take anywhere from “seconds to over 60 minutes.” Moreover, there are substantial transaction fees associated with most exchanges of Bitcoin. As a result, Bitcoin’s lengthy verification process, coupled with its high transaction fees, drive it out of many applications. For example, a consumer buying a coffee would likely avoid paying in Bitcoin, if doing so requires them to wait an hour, while costing $20 in fees, on top of the price of their coffee.
Nevertheless, while extensive transaction times and fees may cause some businesses to avoid accepting cryptocurrencies, other sectors of the market see opportunities. Some of the larger, big-ticket purchases–such as buying a house or a car–involve traditionally lengthy transaction times and expensive goods, making a relatively-insubstantial transaction fee less problematic. Accordingly, paying for these goods in crypto may work; Spain’s mortgage lenders are hoping to tap into this market.
In early August 2021, the leading opposition party in Spain proposed legislation seeking to allow for the use and regulation of digital assets to pay consumer mortgages. If successful, the bill (titled Digital Transformation Law) would “allow the real estate industry to invest in mortgage pools using crypto and encourage banks to use blockchain technology to keep track of mortgages and insurance.” In Spain, the proposed legislation followed a new law requiring residents to declare their cryptocurrency holdings in order to reduce tax evasion and fraud arising out of digital currencies. The Digital Transformation Law’s primary purpose is to help property owners pay down their mortgages using cryptocurrencies, and to allow the real estate sector to use their own digital assets for mortgage purchases. Ultimately, mortgage lenders are hoping to make it easier for consumers to pay off their monthly obligations, and new regulation may prove vital in streamlining this process, while stimulating Spanish consumer demand for the service.
In the U.S., the landscape looks much different. The U.S. has been slow to regulate virtual currencies and has mostly involved an attempt to “apply preexisting authority to new technologies.”  While no American legislation currently exists against implementing crypto-based mortgage payments, there is no infrastructure for it either. In America, plans to enable homeowners to pay off a mortgage using crypto were well underway in the summer of 2021. United Wholesale Mortgage (UWM), the second largest mortgage lender in the U.S., had begun plans to accept Bitcoin payments as recently as August of 2021. However, just three months later, UWM decided to scrap its plans, citing a lack of American demand as the primary reason to forego the venture. For many crypto traders, the perception seemed that ownership of digital assets should be viewed as a long-term investment; using Bitcoin as a replacement for money would be a waste of future profits. This sentiment is further exacerbated by the fact that American regulations subject crypto-based mortgage payments to heavy taxation.
By contrast, the proposed regulation in Spain would reduce taxation for mortgage payments, for some stakeholders. For companies providing cryptocurrency payment solutions to consumers in Spain, “[t]ax cuts . . . are proposed to reach 25% and [potentially] even more.” Although both Spain and the U.S. impose capital gains taxes to cryptocurrency sellers, it seems that Spain is considering a friendlier approach for businesses hoping to enter the foray of crypto-mortgage payment offerings.
Overall, the biggest challenge to America’s future in accepting crypto-based mortgage payments may not be regulatory in nature, but rather a problem with demand. Until Americans become willing to part with their digital assets to pay for goods and services, the U.S. is likely to remain behind our international counterparts in paying off mortgages using cryptocurrencies. Although pending legislation and tax benefits should incentivize quicker adoption of the program in Spain, the rapidly evolving landscape for digital assets in the U.S. may provide a need for American legislation soon. With noticeable governmental support, and a legal framework to provide guidance, American legislation–similar to the Digital Transformation Law–could become the catalyst needed to stimulate consumer demand and lead American mortgage-lenders back into the market for crypto-based mortgage payments.
 Daniel T. Stabile et al., Digital Assets and Blockchain Technology – US Law and Regulation, 27 (2020).