The growing appeal of crypto in contracts

by Zain Jaffer

In mid-January 2024, reports came out that an Argentinian tenant and landlord had agreed on a $100/month rental contract using Bitcoin. This came on the heels of the election of libertarian President Javier Milei, who is friendly to Bitcoin and cryptocurrencies, and not a fan of central banks and fiat currencies to say the least.

Officially speaking, there may be some issues if this is done with legal contracts and agreements in other countries unless there are amendments to existing laws that require the use of legal tender. 

However, this already happens more frequently in unofficial setups than most people might think. Many workers are now being paid in Bitcoin and other cryptocurrencies. There are no published reports yet but ownership transfers of assets are likely happening with Bitcoin and crypto as the medium of payment, similar to unofficial barter agreements.

What is the driver? There are several, but a major one is the global devaluation of fiat currencies because of inflation. The 2020 COVID pandemic caused most governments worldwide to print money to give to their citizens without commerce and trade, to avoid widespread hunger and unrest. 

This overprinting resulted in a major expansion of the global money supply circulating with the general public. In the United States, this is typically measured through their M2 money supply, which has dipped somewhat because of quantitative tightening and high interest rates over the past few quarters. 

As of January 2024, inflation has yet to reach the target 2% level. In fact, it had increased slightly for the previous month, which weakens the case for lowering rates early in 2024.

People are starting to realize how inflation robs their wealth over time. Bitcoin counteracts this because of its fixed supply of 21 million. Companies can issue more stock if they want to raise more money. Miners can mine more gold and silver from the ground when prices rise. Governments can print more bonds to borrow more money from the public. 

But in the case of Bitcoin, the demand does not dictate the supply. It remains fixed. If you remember your Economics 101 course, having a fixed supply with exploding demand will result in a massive price increase.

Add to that, the US Financial Accounting Standards Board (FASB) recently moved to allow mark-to-market fair value accounting for companies and businesses who want to carry digital assets on their balance sheets. Previously, if a digital asset’s price dropped, it needed to be recorded as a loss. However, the same did not apply if the price rose. The newest mandate now allows the recording of value increases for digital assets, making it more palatable for companies and businesses to put it in their balance sheets.

The unofficial use of Bitcoin for contracts and transactions is already gaining traction. However, making it official on real notarized contracts for ownership transfers may take legislative changes. But given the growing appeal of Bitcoin and crypto, it could be a matter of time before this becomes widely acceptable and legal.

Author Bio

Zain Jaffer is an accomplished entrepreneur and investor, actively involved in a range of investments including real estate, technology start-ups, private equity, and digital assets through his family office, Zain Ventures. He also supports underrepresented causes and underserved communities through the Zain Jaffer Foundation.