Blockchain Law Permits Housing Purchases with Bitcoin

Photo by Nick Chong on Unsplash

A new law allows Texans to leverage bitcoin to buy a house while avoiding the capital gains tax associated with selling the digital currency.

“HB 4474 changes business law so Texans can now use virtual currencies as a secure form of collateral when borrowing against their assets.” said Lee Bratcher, president of the Dallas-based Texas Blockchain Council (TBC), a trade group for digital currency companies.

Also known as the Virtual Currencies Bill,  HB 4474 is applicable to all cryptocurrencies, including Bitcoin, Ether and Cardano.

“Blockchain is really just an overarching term,” Bratcher told Dallas Express. “Bitcoin is just a type of blockchain. It’s the biggest one. It’s the first one and a lot of the innovation that’s happening in this space is happening around Bitcoin.”

HB 4474 updates the Texas Uniform Commercial Code (TUCC) to define virtual currencies, how control over such currencies is established, and how a security interest in a virtual currency is perfected.

“There’s a lot of companies that could help people who want to buy a house or car with bitcoin,” Bratcher said in an interview. “One of them is Unchained Capital out of Austin. They would actually loan them U.S. dollars in exchange for their bitcoin and they could use that money to buy a car from anywhere.”

TBC is headquartered in Dallas because of its business focus.

“There’s a lot of capital here, a lot of entrepreneurs and a lot of innovation,” Bratcher said.

But a virtual currency law was necessary because of a lack of regulatory cryptocurrency framework in Texas.

“Due to that lack of clarity, there are innovators and venture capital and private equity entrepreneurs who have been overlooking Texas and going overseas to places like Singapore, Switzerland or Lichtenstein where they have regulatory transparency around their virtual currencies and digital assets,” Bratcher said. “So, by providing definitions and legal frameworks, we root out bad actors and provide confidence for large institutions who want to get involved in the cryptocurrency space.”

Before the bill was approved, it was too risky for venture capitalists to do virtual currency business in Texas, according to Bratcher.

“These are large institutions and they can’t get involved until you have satisfied the risk threshold of their compliance teams and all the compliance issues that they have,” he said. “By providing a regulatory framework, we’re actually bringing jobs and investment to Texas. Before, it was mostly individuals and family offices that were okay with that kind of risk but now we can have institutions like pension funds and large-scale investors who invest in those kinds of companies with a certainty that their investment has the backing of business law in the UCC.”

Early in the summer, Texas Banking Commissioner Charles Cooper announced that charter banks can custody virtual currencies like Bitcoin and Ethereum, which means a bank can choose to hold cryptocurrency on behalf of their clients.

“While custody and safekeeping of virtual currencies will necessarily differ from that associated with more traditional assets, the Texas Department of Banking believes that the authority to provide these services with respect to virtual currencies already exists pursuant to Texas Finance Code § 32.001,” the June 10 notice states.

But that doesn’t mean every bank will be participating.

“Banks are going to have to make that decision individually,” Bratcher said. “It is safe if they have the right kind of custody solutions because no bank wants to lose people’s money from hackers. So, they are going to have to do their due diligence.”

The 87th Texas State Legislative Session also saw the passage of HB 1576, which the TBC supported and helped research.

Also known as the Blockchain Work Group Bill, HB 1576 requires the establishment of a 16-member Blockchain Work Group consisting of legislators and private citizens who will be charged with formulating statewide blockchain-related policy recommendations.

“The Blockchain Work Group will be an official entity of the state of Texas and a lot of TBC members, including myself, will likely be on the working group team but we haven’t gotten back the results as to who will be assigned,” Bratcher said.

Lieutenant Governor Dan Patrick is expected to appoint two members from the legislature, two members from higher education and 12 members from the general public.

“HB 1576 will create a working group to lay out a roadmap for the state and part of that working group is education,” Bratcher said. “There will be some education initiatives that come from that working group but we won’t know specifics for several more months. It means that the legislature, the governor’s office, the executive branch and state agencies will be focused on blockchain technology a little bit more closely and we anticipate that it will lend itself to a greater degree of emphasis in the education system around this kind of emerging technology.”

HB 4474 and HB 1576 were supported by Representative Tan Parker (R-Denton) and Republican Senator Angela Paxton.

“These two laws are the opening salvo letting the world know that Texas is open for blockchain business,” said Natalie Smolenski, chair of the TBC board.

Other than preparing to launch the first annual Texas Blockchain Summit, TBC is exploring the possibility of amending the Texas Constitution to allow Texans to pay their property taxes in cryptocurrency, specifically with Bitcoin.

“It would be like paying your property taxes with stock or with gold that has appreciated,” Bratcher added. “So, there is a tax advantage to being able to do it. Texas would then hold Bitcoin in the treasury and as it appreciates in value, the state of Texas has an asset in hand that’s appreciating.”

Confirmed speakers at the October 8 conference include SEC Commissioner Hestor Peirce, Senator Ted Cruz (R), Rep. Parker, Wyoming Senator Cynthia Marie Lummis (R), Congressman Warren Davidson (R) and Texas Banking Commissioner Cooper. General admission is $435.

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