Bitcoin-backed home loans at 50% LVR: 'I just want someone to explain how this works'

Bitcoin-backed home loans offering up to 50 per cent of a purchase price came under scrutiny on the Property Buzz podcast, with host Phil Tarrant saying he could not see how the product converts crypto holdings into property.

Under the structure discussed, a borrower pledges Bitcoin as security and can borrow against it at a 50 per cent loan-to-value ratio. The Bitcoin does not change hands. It sits on a platform as collateral while remaining under the borrower's ownership, with Block Earner named as one provider operating in the space.

Tarrant's objection was not the mechanics of the security but the underlying nature of the asset.

"Cash is something you can move around, right? But Bitcoin, and if I've got Bitcoin, I want to use that to buy a home or an investment property with. I've got to sell that Bitcoin and pay tax on that Bitcoin in order to get it into something which is universal currency to put into a home," he said.

The tax problem

The panel noted that liquidating a holding triggers capital gains tax, currently reduced by the discount, and that this is the trade-off buyers face if they want to convert paper wealth into a deposit.

"For me to actually turn that into something of utility, which is to be able to get a property of some sort, I need to sell that Bitcoin. I've got to liquidate that Bitcoin and therefore I need to pay the taxman," Tarrant said. "But then you lose your exposure."

He added that no bank, and few private lenders, would treat a crypto holding seriously as an asset unless it was cashed out.

Regulation is still catching up. The panel noted legislation is currently moving through that should clarify the position of Block Earner and similar businesses.

Utility is the sticking point

Tarrant returned repeatedly to whether Bitcoin can actually be used for anything in day-to-day life, citing a figure raised on the podcast that between 30 and 37 per cent of younger Australians hold it.

"You go, well, that's nice to have Bitcoin, but unless you can use it to get things in your life with it, you can go buy a coffee with Bitcoin, I think, these days. It's got to have utility," he said.

The panel argued that Bitcoin's original purpose as a decentralised currency outside bank control has largely been overtaken by its volatility, leaving it used principally for speculative investing and illicit activity.

Tarrant speculated that the appeal for lenders may be financial rather than consumer-led. "I see here going, it's just a Bitcoin arbitrage play, right? So they're thinking, we're really smart," he said, describing a structure where a lender takes rights over the Bitcoin at a marked price and captures the upside if the asset appreciates.

"I don't know, it's all a bit beyond me, but I just want someone to actually explain to me how you can turn Bitcoin into real estate."

He suggested that if the product cannot be explained simply, it will struggle for adoption. "If I can't understand it, I reckon you're probably going to struggle getting other Aussies to actually understand it."

Comparisons to shares and equity release

One comparison raised was to shares or ETFs, assets which must also be sold to fund a purchase and which are not typically accepted as security for a residential mortgage.

Tarrant questioned whether anyone uses an ETF holding as loan security, though the panel noted there are reverse mortgage and equity release products where proceeds are invested into ETFs.

The product was described as niche, aimed at people who already hold significant crypto and want to retain their exposure rather than sell down to fund a deposit.

Tarrant said he would like to put the questions directly to a provider.

Listen to the full episode: Australia’s Mortgage Madness!