Can I sell my crypto to buy a house? A slippage story

If you’ve got significant crypto assets, it only makes sense to consider swapping some for real estate assets. Just sell some crypto and go buy a house with the cash—seems like a no-brainer, right?

One key factor—slippage—can significantly impact your game plan. Slippage in crypto trading is not just a minor inconvenience; it's a crucial aspect that can significantly affect the value of your large-scale transactions. From a top-level perspective, a poor crypto sale strategy can directly impact your home purchase capacity…and nobody wants slippage impacting their purchase performance.

There was slippage! What does this mean?

Slippage occurs when the final price of your crypto transaction differs from the expected price at the time of the order. For instance, you might plan to sell Bitcoin at $40,000, but due to market movements, the actual sale might occur at $39,800. This discrepancy is slippage. While accurate, this definition only scratches the surface of what slippage means in large-scale crypto sale transactions (such as when selling enough to buy a Central Park condo with your Bitcoin bounty.)

Let’s take a closer look!

The realities of large public crypto trades

The generic slippage definition suggests that market volatility could cause a price shift before your market trade executes—and of course that can happen. But the reality, at least in large crypto trades, is that your trade is causing the slippage. In most cases it’s temporary, but that short timeframe is really the only one that matters from your perspective. The larger the trade, the steeper the slippery curve…and the more money lost.

The slippage occurs because the large sell trade soaks up considerable instantaneous liquidity. Let’s walk through this liquidity situation with a silly—yet accurate—analogy: trick-or-treating at that awesome neighbor’s house where a huge bucket of candy has been left out for a self-serve Halloween experience.

A few definitions:

Market and Limit Orders

A market order executes immediately at the current market price. Imagine you want to sell Bitcoin quickly; a market order will match your sell with the highest available buy order. On the other hand, a limit order lets you set a specific price, like selling Bitcoin only when it hits $40,500. A limit order provides more control, but may not execute if the market doesn't reach your set price. Limits protect you from slippage, but they don’t solve the actual problem…since you’ll need to complete the trade to realize your real estate goals.

Limit orders set the prices at which market orders are executed. They make up the order book and essentially provide the “market” that market orders trade into. A sell limit order is filled when a buy order (either a market order or another limit order) is placed to purchase at the limit price or higher. However, for the limit order to be filled, it needs to be at the top of the book — meaning it needs to be the lowest price.

A limit order might not get filled if:

   - The market price never reaches the limit order's specified price.

   - There are other limit orders at a more competitive price that get filled first.

Placing a market sell order does open the door for slippage—and larger market orders will likely prove to be textbook slippage examples. Limit orders offer some protection, but in reality, a large sell limit order likely won’t be filled until the limit is lowered to the slippage-adjusted price. Limit orders do not change the fundamental  reality of market liquidity.

Liquidity

Liquidity in crypto trading refers to the ease with which a cryptocurrency can be bought or sold without causing a significant price change. High liquidity indicates a large volume of trading activity, allowing transactions to be executed quickly and with minimal price slippage. Low liquidity means fewer market participants and a higher likelihood of price volatility with larger orders.

Real-time liquidity is a key concept at play with larger sell orders because those larger orders require not just a price match, but a price-at-volume match. To complete a large-scale sell trade you’ll need significant amount of incoming buy orders. Otherwise you’ll need to be at the top of the order book (i.e., be the lowest asking price) by a larger margin.

Liquidity varies widely among different cryptocurrencies and platforms. The impacts of slippage are exacerbated in markets with lower liquidity (e.g., more obscure or low-volume currencies.)

Order Book

The order book is the heart and soul of a cryptocurrency exchange. It’s a list showing all the buy and sell limit orders for a specific cryptocurrency. It’s like a dance card showing who wants to dance (buy) and who’s available to dance (sell) – and at what price and quantity.

Back to trick-or-treating!

Every kid wants the top-shelf candy—the full-size chocolate bars—just like all crypto sellers are looking for the highest bids. Of course, that big bucket contains more than just Snickers…it’s got plenty of off-brand fillers, candy corn, and circus peanuts—a variety of candies to match the range of bid prices on the crypto book. 

And of course every kid has a different sized bag to fill…just as each order on the books is looking to sell a different quantity of the subject currency. In the real market, unlike a candy bucket, replenishment (liquidity) isn't just dependent on a generous neighbor (market maker) but on a multitude of factors like global events, trader sentiment, and economic indicators.

This huge candy bucket means happy kids and high liquidity, but what happens when someone shows up with a huge bag to fill? If they are thinking that it’s  Reese’s Pieces or nothing, they’re probably leaving with an empty bag.

If that bag must be filled…well, some circus peanuts will likely be involved. Maybe even regular peanuts!

As such, placing a huge sell order—even in highly-liquid markets such as Bitcoin and Ethereum—can yield some disappointing results…or worse: an empty bag.

Just as trick-or-treaters must adapt to the variety and quantity of candy available, traders must adjust their strategies according to market liquidity and order book depth.

As you navigate the complexities of large-scale crypto transactions and slippage, remember that services like RealOpen offer streamlined solutions and considerably higher returns. RealOpen is designed to handle large crypto sales efficiently, minimizing slippage, optimizing your returns, and eliminating friction associated with exchange fiat withdrawals. It’s an ideal way to swap your digital assets for tangible assets like real estate.

If you plan to buy a home with crypto, you have to  actually complete the selling transaction—and slippage can have a major impact if you don’t plan accordingly. You can’t buy property with peanuts.

You can learn more about buying real estate with crypto via RealOpen here: Buying real estate with crypto: shouldn’t this be easy?

Or head this way to get started: Create a RealOpen account