‘Hard money’ is considered a byword in the financial services sector. It has a bad reputation that is very much undeserved. Meanwhile, equally unattractive to the financial sector is cryptocurrency. What if we were to marry the two? Well, it has happened. Whether hard money lending is ready for it or not, crypto has arrived.
A November, 2021 press release from HML Investments explains that the company has delved into the cryptocurrency arena. They are now accepting both Bitcoin and Ethereum payments on their loans. That is a huge step by any measure. Given the fact that some still question the legitimacy of cryptocurrency, a hard money lender going all-in on crypto signifies a pretty significant risk.
Hard money lenders typically do their best to mitigate risk, according to Salt Lake City’s Actium Partners. Perhaps HML doesn’t feel that cryptocurrency is too risky for their tastes. Some of their competitors might agree. Others probably wouldn’t.
Basics of Cryptocurrency
If your knowledge of cryptocurrency is limited, you are not alone. It is not something a lot of people know about above and beyond the fact that a small group of elite investors have made a lot of money on it. In a nutshell, cryptocurrency is an asset that functions as a payment platform.
Bitcoin, the one that started it all, provides the perfect illustration. Bitcoin owners do not own physical coins or bills they carry in their pockets. Rather, they own digital tokens represented by computer code. Those tokens can be used to buy things and pay bills.
Here some other basics you should know:
- No Government Backing – A genuine cryptocurrency is not backed by the government. It is completely separate from government and central bank control by design.
- Not Legal Everywhere – While cryptocurrency is traded all around the world, it is not legal in some places. Even where it is legal, it is subject to strict rules on taxation.
- Not Legal Tender – At this point in time, there are fewer than six jurisdictions around the world in which cryptocurrency is legal tender. Everywhere else, it is treated as an investment.
Because cryptocurrency is not considered legal tender, it is more of a payment system to people who don’t buy it as an investment asset. Such is the case with borrowers who would seek to repay a hard money loan with Bitcoin or Ethereum.
It is Risky for Lenders
Accepting cryptocurrency payments gives lenders another avenue for marketing to new customers. It might even be an excellent tool for targeting younger people who seem to be more accepting of the crypto concept. Still, mixing hard money with cryptocurrency is risky business.
Cryptocurrency’s biggest weakness is volatility. Just spend the next week checking cryptocurrency prices on a daily basis and you’ll quickly understand the problem. Crypto prices can easily rise or fall by several percentage points on any given day. Sometimes price moves happened by the hour.
The thing to remember is that all cryptocurrency is valued in U.S. dollars. That means supply and demand isn’t the only thing that affects crypto pricing. So does the value of the dollar. These two things combined create a level of volatility that some investors just aren’t comfortable with.
Is the hard money industry ready for cryptocurrency? Ready or not, it has arrived. The question is whether other hard money lenders will follow HML’s example. They probably won’t flock to crypto in large numbers right away. Instead, they will sit back and wait to see how HML fares. If it works out, other hard money lenders will follow. If not, they will not.