A colleague and I recently spoke with a group of real estate industry accounting and finance leaders at a conference. Our topic was blockchain. A primer on what blockchain is and why industry leaders should care. He gained two great things from the event and his interaction with the participants. First, the level of literacy in general regarding blockchain is rather low. It’s fine, but not fine for long. Second, participants seemed to understand that there are babies in cryptocurrency tubs. In other words, the recent crypto exchange failures weren’t seen as an indictment of technology.
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I have spoken in front of this group several times over the past few years and it was nice to speak with them again about blockchain applications in the industry. For example, in Deloitte’s Commercial Real Estate Outlook survey, many of those surveyed indicated that they were either researching in early-stage development or testing things like tokenizing assets, accepting cryptocurrencies as a form of rent payment, or smart contracts. I heard it is in operation. We will try not to repeat what we have already said, but the point is that we are encouraged by the interest and energy behind blockchain-related solutions in the industry.
However, let’s consider how the recent crypto exchange failures will affect the future of the token. The SEC had already increased scrutiny and enforcement of tokens (arguably, all cryptocurrencies are a form of token) with several high-profile enforcement actions and position statements by its chair during 2022. Last year, the SEC nearly doubled its team responsible for investigating security law violations and enforcement related to “crypto assets and cyber.” In September, SEC Chairman Gary Gensler restated his position that “the majority of cryptocurrency tokens are securities.” He goes on to say about tokens: This asset class is rife with fraud, scams, and abuse in certain applications. ”
Conclusion? The SEC will very likely continue to increase its attention to and enforcement of existing security laws that apply to tokens. For anyone interested in accepting crypto as a form of rent payment, or currently accepting crypto payments, I don’t know of any company that keeps that crypto on their books. There is no risk of loss of value or being treated as a security as they are sometimes converted to US dollars. Regarding asset tokenization, the SEC simply states that these tokens are a form of security and are subject to already defined security policies, guidelines and laws designed to protect investors. .
A strong and well-defined regulatory environment and associated enforcement are key to moving from the “Wild West” to the stable and credible securities environment we enjoy today. Equally important for the maturity of digital securities.
John D’Angelo Managing Director and Real Estate Solutions Leader at Deloitte, where he designs solutions that address client challenges and move the industry forward. With over 30 years of experience as a management consultant in the global real estate industry, John has helped leading companies in the real estate industry leverage technology and use data to optimize and transform their operations.
Read the February 2023 issue of CPE.