The Times (plus a number of other publications) report on Wednesday that Baroness Mone, the model turned lingerie entrepreneur turned Cameron peer, will be launching a “£250m luxury property development in Dubai that will sell apartments in bitcoin, the digital currency”.
What’s unique about the story is the bitcoin aspect, naturally. High-end property sales occur everyday. High-end property sales for bitcoin, not so much. Or so the narrative goes.
The venture is further endorsed by Douglas Barrowman, Lady Mone’s partner, who tells the Times he has “watched bitcoin grow and been actively involved in it over the last couple of years” and that “the currency is here to stay.”
All a fantastic endorsement for the currency of the future you would think. But is it? Is it really?
To get to the bottom of what’s going on it’s best to move over to the coverage by Coindesk. Here we discover the following:
As might be expected, the flats aren’t cheap, costing between $133,000 and $379,000. The venture is accepting payments in bitcoin, with BitPay serving as payment processor.
“These property purchases can now happen in minutes from anywhere in the world with the speed of sending an email,” Stephen Pair, BitPay’s CEO, said in an email.
The above tells you everything you need to know.
For one thing there is BitPay CEO Stephen Pair’s insinuation that payment processing challenges are the key thing that stand in the way of speedy property completions, not legal contracts, searches, onward selling/buying chains or cash financing constraints. Cute.
Then there is the BitPay dimension itself.
As readers probably remember from the first flush of bitcoinmania during the 2013-2015 era, stories of merchants enthusiastically “accepting” bitcoin were a dime a dozen during the period.
The fad nevertheless collapsed for two reasons.
First, it became brazenly clear merchants weren’t really accepting bitcoin as much as employing the services of “payment processors” like BitPay. The latter were the ones taking all the liquidity and exchange risk in these transactions not the merchants. Merchants, to the contrary, were still receiving good old fashioned currencies like dollars, pounds or euros, same as they ever were.
The bitcoin “adoption” narrative was soon exposed as a ruse; employed solely for cheap publicity reasons in the hope bitcoin-themed column inches would drive new business for merchants or help promote their brands to new audiences.
After a while, stories of yet another merchant not really accepting bitcoin began to get tiresome. And after a while still, merchants dropping BitPay because of disappointing sales became the far more common tale — not that this got a fraction of the same publicity.
Second, by about 2016, the cost advantage BitPay had over traditional operators by offering “free and unlimited payment processing for merchants” was no longer tenable due to spiking bitcoin processing costs. BitPay now charges a 1 per cent processing fee on every transaction and “higher fees for high-risk industries”.
Whether the core processing business is profitable on that basis is still unclear. FT Alphaville sources say the company operates a not-insignificant OTC trading operation, implying exchange risk and liquidity is managed in-house. If that’s the case, BitPay may or may not be benefiting (or drawing risk) from speculation for the purpose of propping up the profitability of the core business.
As for what constitutes “higher risk industries” one must assume these represent industries prone to large-scale single transactions, which pose a far greater liquidity threat to BitPay’s model than small transactions. It’s doubtful, after all, the risk could relate to KYC or AML irregularities, since offering to process these for a higher fee would be, err, openly corrupt. Then again, this is bitcoin. Who knows.
Either way, large scale luxury property transactions in tax havens like Dubai would likely qualify as “higher risk”, so we wouldn’t be surprised if higher-than-usual fees apply to the Mone business case.
Not that we can be sure, because we never got a chance to ask the Baroness directly.
To wit, it’s worth pointing out the backstory here.
On August 23, we received a call from one of Baroness Mone’s press representatives offering us the Dubai story on embargoed terms. If we were game, the PR let on, Lady Mone would be available for interviews at the Dorchester on x date (along, we presume, with all the other media).
Strangely, the PR did not seem too familiar with our pre-existing bitcoin or ICO coverage.
Upon pointing out the baroness would do well to familiarise herself with our ICOmedy series before meeting us, we were assured not to worry. Lady Mone would be more than happy to defend her business venture and stand up to tough questions.
And yet, when we tried to anchor down the terms of the interview (for example, we wanted to do it on video), Lady Mone suddenly became “unavailable”.
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