Reference ยท Bitcoin
What Is a Bitcoin Real Estate Fund? Structure, Custody, and Cash Flow
A Bitcoin real estate fund owns income-producing property, operates it, and directs a defined share of the resulting cash flow into Bitcoin. The Bitcoin is acquired with earnings the properties produce, not with borrowed money, and not by asking investors to part with coins they already hold.
How alternatives which some Bitcoiners consider work
- Spot Bitcoin ETF
- Holds Bitcoin and nothing else. There is no operating business, no depreciation, and no cash distribution. Price exposure vs. the currency the ETF trades in only.
- Shares in a Bitcoin Treasury Company
- Buys Bitcoin, usually by selling stock or issuing debt. Bitcoin is held on the company’s corporate balance sheet. Investment value can be affected by supply and demand for the treasury company’s securities and the market’s perception of the treasury company, not just the value of the underlying Bitcoin.
- Bitcoin-Backed Loan Product
- The borrower takes out a loan and the borrower’s Bitcoin gets pledged as collateral for that loan. Considerations include the introduction of counterparty risk with the lender, collateral calls, and the possibility of liquidation in a drawdown (if the pledged Bitcoin’s value is not tradeable for the required amount for the loan size). The Bitcoin is in the lender’s control, not in self-custody.
- Conventional Real Estate Fund
- Each real estate fund is different. Strategy, asset class, experience of the team, markets assets are purchased in, how depreciation is allocated, and plans for distributions are among the key items to consider. No Bitcoin exposure.
The mechanics that matter
Here are three key details to consider when evaluating if a Bitcoin-related investment is robust:
Where the Money to Buy Bitcoin Comes From
Bitcoin bought from operating cash flow does not need to be paid for later. Bitcoin bought by selling stock or taking out debt requires a firm understanding of how the company’s stock and/or debt obligations will be funded.
How the Bitcoin Is Custodied
Complexity, ease of access, and control are key tradeoffs. Bitcoin held with a single key is as secure as that single key. If one key is compromised, then the Bitcoin is potentially not recoverable. A multisignature collaborative custody arrangement means a single compromised key moves nothing, so this adds a way to recover from a key being compromised. Collaborative custody means more than one person controls keys, which is another layer of protection, this time against a failure of a single person. Bitcoin that is rehypothecated, lent, or used as collateral is not being held, it is being risked.
If and How the Bitcoin Is Distributed
Understand if the investment is Bitcoin itself or a proxy for Bitcoin. Is there a defined way for the investor to receive the underlying Bitcoin or will the investor receive dollars or another fiat currency at the end of the investment?
The Bitcoin Outdoor Hospitality Fund evaluates available cash flow for distributions on a monthly basis. 90% of available cash flow is distributed in U.S. dollars and 10% of available cash flow is used to dollar cost average into Bitcoin which is distributed to Bitcoin wallets at the end of the fund’s life.
Learn About the Fund →