Ignorant question: why would I put down a collateral value worth twice my loan principle?
Wouldn't it make more sense to just sell the collateral needed? The sales taxes are similar to the loan APR, and you'd KYC yourself either way
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Replies (13)
Taxes. No taxes on loans against assets.
If the collateral isn't a registered vehicle, or real estate, don't report the sale. You can't be forced to operate in public instead of private.
Long-term cap gains taxes are 15%, versus APR is 13%. Taking on custodian risk for 200% of your needed collateral to save net 2% doesn't make sense.
Feel like I am missing a key piece
Upside of holding the collateral instead of selling if you think the bull run hasn’t even started
If you sell more than $10k at a time the bank will notify IRS and youll be expected to report on your tax return
If its btc the cagr is 26%+ the longer you hold it. Figure offers 10% apr at 50% ltv. No payments if you wanted.
I like assets you can borrow against. Some more than others cause I couldn't borrow against my home. No job and super great terms.
The answer depends. Probably not a 1 size fits all.
If you sell, thank you for the sats.
If you hodl, thank you for the price pumps.
Because you don't sell. If price go up, take collateral back off the table. Taxes are more than a dollar amount. It's a huge headache.
This is the correct answer.
It is also typically cheaper to pay the APR than it is to pay cap gains.
13% APR on 100k loan @ 50% LTV means put down 1.818 BTC for the 100k disbursement. Total interest on the 1 year loan is $7,180.73. Loan interest payments are also tax deductible.
If you sold .91 BTC to get the 100k cash then you would owe 15% of your gain. So if your cost basis was less than $52,000 you would pay more in cap gains than interest.
If you took a loan against your sats one year ago exactly you would be up 75%, and that’s the real reason why people borrow against their stack vs selling.
Sounds like the maff checks out.
Sure. Its subjecting 1.818 BTC to custodian risk to save a small difference between APR and cap gains.
I guess my point is thats alot of risk for a very small reward.
The appeal is to possibly capture the 26%+ CAGR of the collateral, assuming the custodian risk doesn't harm anything.
Idt most Celsius users expected Celsius to freeze withdrawals when it did.
The .91 BTC that would’ve been sold saw an increase in value from $56,420 ($62,000 x .91) to $100,100 ($110,00 x .91). A difference of $43,680 in the past year. That’s the main reason why people borrow against their bitcoin. But there is not guarantee on those results.
There are multi-sig lending platforms that ensure at minimum the lender cannot control funds without the borrowers keys.
I'd much rather pay interest to a private company than involve the IRS in anything.