I would like to put some additional details.
Let's say I bought 1 BTC at $8k, and I am selling it for $10k.
My profit is $2k.
I have the option to declare $2k profit and pay taxes, or use it as collateral for a loan.
You mentioned that you're in the US. Selling the BTC back to USD is a taxable capital gains event. Continuing to hold the BTC (in the case of lending) is not. However, the receipt of interest payments
is taxable, generally at your ordinary tax rate.
So let's say I have to pay 35% taxes for the $2k profit.
If I can take a 1-year loan for 19% APR, it would be better to take a loan, correct?
You're comparing apples and oranges; they're both percentages but that's about all they have in common. You just made $2,000 profit
but didn't realize it. If you continue holding BTC (and lending it out) and it drops below $8,000 you will incur losses. In that case, if your intention was to preserve USD capital, selling and paying the 35% would be much better.
A better way to think about this:
If you're going to hold BTC regardless of price movements, are the (taxable) interest payments worth the counterparty risk of lending out the BTC? Presumably the interest receipts would be in BTC since that's the collateral -- so the goal is to
gain more BTC. The temporary USD capital gains/losses are a totally separate issue because you can't hedge or realize the USD value while you're locked into a loan contract.
Also, that 35% is the rate on the
net of all your trades in the year. You can keep reinvesting the profits from each trade into the next, so you don't need to think of it as a 35% tax on every single trade. So you should make an additional consideration: If you realize $2,000 profit now, you will have 25% more investment capital than you had before. You can keep compounding on that if you trade successfully -- which can earn much more money than interest payments on your principal.