A new report from Weiss Ratings, published on May 2, warns that mortgages backed by cryptocurrencies “spell trouble” for the housing market. Editor Jon D. Markman described the strategy as “interesting” but stressed that under current market conditions, “investors should be skeptical.”
Crypto-Backed Mortgages: A Familiar Pattern
Markman singled out Milo, a Florida-based digital bank that allows mortgage investors to use digital currencies as collateral. He compared this trend to the risky home loans sold during the 2007-2008 financial crisis. “Pooling risky home loans, then selling them to unsuspecting asset managers, was the recipe for the Great Recession of 2009,” Markman wrote. He explained that as long as housing prices kept climbing, borrowers could refinance and everyone got paid — including bondholders. But when prices imploded, millions of low-credit-score borrowers defaulted, triggering a global meltdown.
Higher Interest Rates and the Housing Market
The report also examines the impact of the Federal Reserve’s recent rate hikes. Higher interest rates significantly raise monthly mortgage costs, and Markman believes they will eventually lower home prices. He flagged Milo’s plans as particularly dangerous in this environment. Milo is not alone: Abra recently partnered with Propy to offer similar crypto-backed home loans. Markman warns that the volatility of crypto assets, combined with rising rates, could create a perfect storm for default cascades.
Correlation and Broader Risks
Despite rising rates, financial stocks have underperformed this year. Many analysts now see cryptocurrencies becoming more correlated with equities. Markman, however, does not dismiss all crypto risk. “This isn’t to say all crypto risk is bad,” he concluded. “Just not in the housing sense. No matter what the markets are doing, the potential to succeed in cryptocurrencies is real.” He emphasized that the key distinction lies between investment risk and leverage risk — the latter can directly threaten household balance sheets.
Weiss Ratings has a history of independent, contrarian analysis. This report serves as a cautionary note for borrowers and lenders alike: until crypto assets are fully integrated into mainstream finance and exhibit stable collateral behavior, using them to back mortgages may expose the system to the same vulnerabilities that caused the 2008 crisis. The debate continues, with proponents arguing that crypto-backed loans unlock liquidity without forcing asset sales, while critics point to the risk of margin calls and forced liquidations during downturns.