Former casino mogul Jack Sommer is selling his mansion in Las Vegas for $7.85 million or the equivalent in bitcoin.
Bitcoin, a virtual currency that was invented in 2009, has skyrocketed in popularity since the beginning of 2013. More and more vendors are now accepting it as payment for everything from tacos to cars. But this is the first high-profile case of real estate in exchange for bitcoin.
A little background: bitcoin derives its value in the fact that there is a limited supply. You can either buy bitcoin (at $693.86 USD per bitcoin at the time of this writing) or you can mine it with computers that solve a complicated algorithm designed by bitcoin’s creator.
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Despite its recent popularity, is it wise to accept a virtual currency in trade for a real, hard asset such as a residence, and a very expensive one at that? After all, bitcoin is an online currency that could become as worthless as air or valuable as gold within hours, depending on the latest news, hype, and investors’ projections.
Since the beginning of 2013, the currency has fluctuated from about $13 to over $1000. In the past 24 hours, bitcoin is down 20% because of China’s remarks that payment providers can no longer deal in the currency.
Sommer could literally agree to a price for his home in terms of bitcoin, and get almost nothing by the time the transaction closes.
So why would someone who knows a thing or two about real estate do something so seemingly unwise?
Simple: exposure. At the time of this writing, all the major news outlets were covering the story, giving Sommer publicity unlike anything he could buy.
Sommer, now a commercial developer, could view the publicity received by this stunt worth at least $7.85 million. So, even if he gives his home away, it could still be a profitable transaction.
It’s not known what Sommer will use this publicity for. But rest assured, a time-tested businessman knows value when he sees it. Don’t be surprised if you see Sommer’s name pop up again soon for a new project or venture he’s kickstarting.
Even so, Sommer may come out on top as far as the sale as well. It’s risky, but by offering his residence in exchange for bitcoin, he opens up his potential market to people around the globe who want to spend their bitcoin. The currency is still quite limited as far as vendors who accept it. So Sommer could leverage this pent up demand, get his asking price, and cash in his bitcoin profitably if the timing is perfect.
But the one asset Sommer is sure to take to the bank is the publicity.
Whatever the financial outcome for Sommer, it will be years or decades before the typical home seller offers bitcoin as accepted payment. This is not some fad that’s worth losing a home over, at least not for the average homeowner.
So, while this is a brilliant stunt on Sommer’s part, I don’t expect to see many homeowners jump on the bitcoin bandwagon. Real estate is a hard asset, something you can use, despite its value on paper. I would hate to see homeowners trade it in exchange for what could amount to nothing.