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This London property developer is accepting rent in bitcoin

But experts say it’s a risky venture because of how volatile bitcoin is

A London property developer will accept deposit payments and rent in bitcoin, marking the first time the virtual currency has been used in the U.K. residential market just as its value tumbles from an all-time high.

The Collective, a co-living facility in London, is now allowing prospective tenants to put down deposits in bitcoin. By the end of the year, it will also accept bitcoin for rental payments.

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The value of the cryptocurrency, which has ballooned by 350 percent over the past year, reached a peak last week, crossing the $5,000 USD threshold, but dipped below $4,000 USD on Monday — a sharp drop of about 12 percent.

Bitcoin was originally designed as a payment system, but because its value has risen dramatically in recent months, it has morphed more into an investment than a method of payment. Essentially, most people who own bitcoin aren’t willing to use what they have to pay for good and services — they would rather hold onto it and wait for a larger return.

But The Collective, a co-living development in London that resembles a student residence but is designed for young professionals, is now accepting bitcoin deposits — apparently due to demand from customers abroad.

The standard deposit for all rental units at The Collective is £500, while rent starts at £178 a week for a 10 square-metre space. The company has pledged to return the deposit at its original value to the tenant even if the market value of Bitcoin drops.

What could go wrong?

There are risks associated with accepting a virtual currency that isn’t currently regulated by any government or bank, say experts.

“The developer is taking a risk because it’s really volatile. Bitcoin is going up, but it tends to go up and down throughout its life,” explained Christine Duhaime, a Vancouver-based lawyer specializing in financial crimes. “So they might be accepting $5000 in rent, but the next day, it’s $2000. So there’s issues with that as there would be if you accepted gold. But other than that, I think it’s pretty cool.”

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She adds, however, that if a developer decided to accept digital currency without declaring it, it would be difficult for a regulator to figure that out.

“There’s an awful lot of bitcoin millionaires in Canada, and [Canada Revenue Agency] has no idea how to go after them. That’s an issue,” she said. “ When merchants accept bitcoin or digital currency and they’re not reporting it as revenue or when they’re taking it personally, they’re not reporting it as income, so there’s this big area of tax evasion for sure.”

In the U.S., both landlords and tenants should keep in mind that the Internal Revenue Service treats cryptocurrencies as property — if you’re a tenant paying your rent in bitcoin and the value of that bitcoin rises, you could have to pay tax on the difference between the value you originally paid for the bitcoin and the value of the rent, explains Robert Crea, a lawyer at K&L Gates who specializes in regulatory issues around digital currencies.

“Similarly, landlords receiving bitcoin in lieu of rent must be mindful of their tax basis in the bitcoin when they subsequently transact in that bitcoin.”

“As with any payment system, another consideration is how to protect against the potential for money laundering. To ensure that the person transferring bitcoin to you is the same person who is supposed to pay you rent, and also to protect against cybersecurity risks,it’s imperative to use a reputable cryptocurrency exchange and wallet provider,” said Crea.

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While Crea notes that there appear to be increasing uses for cryptocurrencies to pay for goods and services, especially in emerging and developing markets, the trend in the US. has been modest. He predicts that bitcoin will become more relevant as a payment system should the market becomes “somewhat more sober” — he expects that will happen in response to heightened intervention from international regulators.

In Canada, regulation around bitcoin and other digital currencies which aren’t considered legal tender but are subject to tax rules as a commodity, are still murky.

According to Duhaime, realtors can’t accept bitcoin payments but landlords renting out units can.

“There’s a distinction between this guy renting apartments and accepting bitcoins versus a realtor — realtors are subjects to the proceeds of crime legislation we have in Canada,” explains Duhaime, adding that realtors have to take steps to verify the buyer’s identify, which can be difficult as bitcoin can be exchanged anonymously.

In 2014, the town of Abbotsford, British Columbia began accepting bitcoin deposits for condos citing low fees and the speed of the transactions as advantages. At the time, the company said it would convert most of the coins into dollars, but did plan to hold on to some as an investment.

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