Borrow fiat with your Bitcoin and never sell

[Cannabijoy]

Public Service Announcement:


Where that road leads:  Liquidation.

For example, from someone who started out exactly with the oh-so-clever idea that you state in OP—with lower leverage than you think to use, “in case the price drops”:

Now, I want to kill myself... or at least, take up alcoholism as a hobby.

(Someone, please quote me.)

https://i.imgur.com/yDYL8Uy.png

Later, after worse wreckage:

Finding that loose change helped so much:  $48.82 is now a lot of money to me.

My finances have become dollhouse-sized.

https://live.staticflickr.com/159/370515222_dfed969473.jpg
Image:  A dollhouse handmade by someone’s grandfather (Dave Parker, 2007).  Surely a mansion, compared to what my scaled-down finances can afford.

A few months ago, as I nurtured my growing BTC long-term savings and a zoo of alts, I was throwing around $10k and $40k chunks of stablecoins.

[...]

I am now the proud owner of 0.0495 BTC plus a handful of sats, with a liquidation price a little bit under $19.2k.  If Bitcoin somehow breaks below $20k, the whole account is so small that I can hold a dollhouse yard sale of miniaturized alt-dust to raise $50; another $50 infusion would push my liquidation price down by >$1,100.  Eventually, I will get around to freeing my itty-bitty dollhouse bitcoins from the encumbering debt of around $853.  Meanwhile, I can hold a dollhouse tea party.

$48.82 is now a lot of money to me.  Finding that loose change helped so much.

This person was apparently borrowing against their Bitcoin in order to purchase more Bitcoin. This sounds like a terrible idea, because if the price of Bitcoin drops, then you’ve lost value in the equity of your original Bitcoin, and you’re paying a higher price for the new Bitcoin because you have to pay off the loan.

A few months ago, I bought on margin between $35k and $43k.  Some things went wrong, with complications from other transactions; leverage wound up higher than planned, but still at what seemed a "safe" level.  Then, I held through $48k because I do not want to sell any BTC, ever.

I was one of the idiots trying to increase LTH BTC by leveraging BTC to buy more BTC in the dip, then slowly repaying the margin loan from other income.  (Plus doing some of that "borrow against your BTC!" stuff for other purposes; this is the succinct version.)

That's similar to what Saylor does.  Why shouldn't I do it?  Oh, yes, because Saylor has access to lending terms that are not insane.

Exchange margin accounts make loans on the worst possible terms:  If the fuzzy-notional price of an oracle (not even the real market order-book price) dips even one microdollar below exactly $x for even one microsecond, then a robot instantly trashes your collateral.  Sells down, market-dumps - with liquidation penalty.

This is not something I would recommend doing at all. However, I never want to sell my Bitcoin. I want to leave it to my children, and teach them about money and why they should buy Bitcoin.

You never sell the family gold, and you never sell the family farm. My dad sold a farm in exchange for an acre with a house; and now that farm is worth 30x what he sold it for, and his acre is maybe worth 3x after 20 years. I don’t want to make that same mistake.

[davis196]

This seems like a risky idea.
1.There are interest rate hikes so the fiat loans are going to get more expensive.
2.Bitcoin is highly volatile and if the Bitcoin price drops severely you will have to add more BTC to the collateral or the lender will declare your default, sell your collateral and demand more money from you to in order to cover the rest of the loan.
3.If you plan to buy real estate, there is a real estate price bubble in many counties around the world(I don't know your country). There interest rate hikes and the upcoming recession might hit the real estate market. Good luck owning a real estate with decreasing value while having to repay a loan.

[Mauser]

I don’t have enough Bitcoin (yet) to borrow for anything significant, but this is my ultimate plan. When I get enough Bitcoin, I would borrow no more than half its worth (in case the price drops), and then I would still have Bitcoin along with whatever property I buy with the borrowed money.

I am not sure if this works, you want to borrow Fiat money against Bitcoins. Will you over the bank bitcoins as collateral or the apartment you are buying? If the property is the collateral it might work, because I don't think the bank would accept bitcoins at the moment, the price dropped to much this year. Taking out a loan to buy a property is a good idea if you can afford it. I am assuming you are planning on living in the property yourself, or do you want to rent it out? If you live in it yourself then you need to make sure you have a steady income each months to cover the expenses and the interest payments on the loan. Another factor is that we have very high inflation right now, all the new loans will be much more expensive. And if the loan needs to be refinanced in the future you need to expect much higher payments.

[Silberman]

Also remember that once you borrow fiat, you are giving the lender opportunity to make way much money using your collateral (Bitcoin) on top of charging you very high interest rates. If anything goes wrong and you default the loan, your valuable Bitcoins are gone.

I would rather sell a small portion of my bitcoins for survival, while I keep the rest for the future.

The OP is planning for a very risky move, I mean even if he were to find a bank which allowed him to use his bitcoin as collateral for a loan, things are never that simple, we know the price of bitcoin can be very unstable so if at some point the price of his bitcoin went so low that it was barely enough to pay the debt and the interest rates then the banks will force him to sell for a bad price, he will have to pay capital gain taxes and will lose all his bitcoin, so such a move is simply too difficult to execute for the average investor in this market.

[glendall]

are you crazy
ready who will believe in your commitment, it's crazy in my opinion, as far as I know if you borrow money, you must have interest and payment due in how many months or even years, but you guarantee your btc without any clarity on the price your btc will be lost
it's better to sell as much as you need , than borrow money even though we have money in bitcoin, don't make it difficult for yourself to defend something whose certainty is not clear

[Nrcewker]

I don't get you. Based on what I understood you're planning to borrow fiat once you've got enough bitcoin. Does this mean you're planning to borrow money placing bitcoin as the collateral. For borrowed money you need to pay regular interest.

Maybe this can turn to be effective, if the borrowed money is invested on something that brings you regular income.

The OP only means how he will make profit, and hence sharing us his ultimate strategy to make money.
BTW op you mentioned that if you sell your Bitcoins, then you need to pay tax for it. But I would say why to sell your Bitcoins at exchanges? Do P2P trade and save money from taxes.
Moreover the plan is great to listen, but risky to execute.
Nevertheless,  OP if you ever successfully complete this strategy of yours, then do let us know here in this thread.
We are waiting for you to get rich.

[sunsilk]

This is viable if you have other source of income that can support to pay your debt whatever is the market's situation. But I won't do this strategy and I know how it feels hard to sell your bitcoin when you're in need.

Yet, borrowing and using your bitcoin as collateral or you're asking for a loan so that you'll save your bitcoin is going to add your responsibility because of the interest that you'll get.

On the otherhand, it's okay to sell and have it saved on a stablecoin and wait until the price drops so you can buy again.

whatever the OP is planning here, as you have suggested, much better if the OP has other means so in case of need, he can use it and not touch his satoshis. hard to get a loan and if you are just relying on this as source of funds, more then likely you will be on tight budget and sell it at a loss. this is why it is not a smart move if you are just having your satoshis and no other source of funds to take care of your other expenses.

Many experiences have we heard that this won't end up better.

It seems a sound plan to execute but when he's on the actual thing, he'll surely meet those problems that he didn't anticipated when he was planning to do this.

All things are easy to think of when it's come to borrowing and buying bitcoin but these two are not that really a good combination to be done.

[Fatunad]

This is viable if you have other source of income that can support to pay your debt whatever is the market's situation. But I won't do this strategy and I know how it feels hard to sell your bitcoin when you're in need.

Yet, borrowing and using your bitcoin as collateral or you're asking for a loan so that you'll save your bitcoin is going to add your responsibility because of the interest that you'll get.

On the otherhand, it's okay to sell and have it saved on a stablecoin and wait until the price drops so you can buy again.

whatever the OP is planning here, as you have suggested, much better if the OP has other means so in case of need, he can use it and not touch his satoshis. hard to get a loan and if you are just relying on this as source of funds, more then likely you will be on tight budget and sell it at a loss. this is why it is not a smart move if you are just having your satoshis and no other source of funds to take care of your other expenses.

Many experiences have we heard that this won't end up better.

It seems a sound plan to execute but when he's on the actual thing, he'll surely meet those problems that he didn't anticipated when he was planning to do this.

All things are easy to think of when it's come to borrowing and buying bitcoin but these two are not that really a good combination to be done.

Borrow only when you are in need or emergencies but of course you should really be that mindful and realize or do make out questions for yourself if you could able to pay those borrowed amounts
that you have done on due time? If not then never ever consider this option as this would really create bigger problems in the future.If you are investing with bitcoin then invest on something
which you can afford to lose and as much as possible never ever consider on taking up some loan as this would really be creating huge problem instead on making profits.
Make use of fiat on daily transactions and invest on bitcoin and hold for long  term on extra money that you do have.

[laurenB7742]

The risk is that if you don't pay the interest, your collateral will also disappear, in which case I would do it the way @Bitcoin_Arena mentioned. I will also sell some bitcoins to cover work expenses, and then I will find a way to buy back those sold bitcoins when I can afford it. The market is still there and the opportunity to own bitcoin has never gone away so there is no need to mortgage assets while we can sell them.

Not only the interest that needs to be paid but also the borrowed amount. I think it's also possible to pay for the interest first? I heard it last time, when our neighbour borrow a cash but I heard they pay the interest first. Maybe that can work better so that the next time you pay it will now look smaller and you are motivated to pay it on time.

The only way that your collateral could disappear is when you fail to pay the loan or also called as default. If you bought your bitcoins on a price which is lower than your selling price then its fine to sell it and get some profits but we can always sell whenever there is a good pump. That way we will never run out of cash and there is no need to borrow money anymore.

I don't see a difference when it comes to paying interest before or after, as paying interest first means your initial loan amount will be less and that will make it difficult for you because you don't have enough money to take care of your business.

I don't welcome mortgage loans, especially with volatile assets like bitcoin. We invest bitcoin to serve life not we serve bitcoin so selling some I won't take too seriously.

[bitzizzix]

If you are new to bitcoin and don't know the risks involved then don't borrow money to invest and if you know the risks then you can borrow and invest, are you able to bear the risks that will be faced because bitcoin or other cryptocurrencies are very risky investments.
although bitcoin will promise for a long period of time that takes years whether you are ready or have other income for your loan payments, and if there is it is up to you too because in reality you will not encounter any unexpected problems that will stress you out.
So it's okay to borrow money for any investment, either way, it's better gradually or you'll just lose money you can afford to lose without running into financial problems.
And if you can't wait to buy bitcoin in bulk, you can sell something expensive (not a place to live) to invest without involving a third person, only you and the bitcoin are involved.

[sunsilk]

Many experiences have we heard that this won't end up better.

It seems a sound plan to execute but when he's on the actual thing, he'll surely meet those problems that he didn't anticipated when he was planning to do this.

All things are easy to think of when it's come to borrowing and buying bitcoin but these two are not that really a good combination to be done.

Borrow only when you are in need or emergencies but of course you should really be that mindful and realize or do make out questions for yourself if you could able to pay those borrowed amounts
that you have done on due time? If not then never ever consider this option as this would really create bigger problems in the future.If you are investing with bitcoin then invest on something
which you can afford to lose and as much as possible never ever consider on taking up some loan as this would really be creating huge problem instead on making profits.
Make use of fiat on daily transactions and invest on bitcoin and hold for long  term on extra money that you do have.

Well, there's a likely that if he's in dire situation he'll sell what he got from holding and that's what he's going to use for paying his debts.

This option is for someone who can really confidently pay his debts with other sources that he's got. But if this is the only wealth that he's got, the bitcoins that he's holding.

It's hard to imagine that he'll be forced to sell his bitcoins just to pay those debts someday.

[Kakmakr]

Ok, now tell me one thing....

What happens if the Bitcoin price dumps and it goes into a "recovery" phase for 3 to 4 years ....as it did before? Then you have to pay interest on the borrowed FIAT for 3 to 4 years. 

Not just that.... the interest that you paid on the borrowed capital ....also lose accumulated interest that you could have received, if it was in a Bank. There is also no guarantee that the price will recover to a new all-time-high. 

[jaberwock]

Also remember that once you borrow fiat, you are giving the lender opportunity to make way much money using your collateral (Bitcoin) on top of charging you very high interest rates. If anything goes wrong and you default the loan, your valuable Bitcoins are gone.

I would rather sell a small portion of my bitcoins for survival, while I keep the rest for the future.

The OP is planning for a very risky move, I mean even if he were to find a bank which allowed him to use his bitcoin as collateral for a loan, things are never that simple, we know the price of bitcoin can be very unstable so if at some point the price of his bitcoin went so low that it was barely enough to pay the debt and the interest rates then the banks will force him to sell for a bad price, he will have to pay capital gain taxes and will lose all his bitcoin, so such a move is simply too difficult to execute for the average investor in this market.

We have exactly that in crypto as well. You pay let's say 120 dollars worth of ethereum, to get 100 dollars worth of bitcoin, and that 120 dollars worth of ETH is collateral. Meaning if the price drops and you lose some, then they have the right to liquidate you and you will have to live with the loss. The higher collateral you are willing to spend, the more money you will be making, and that is how people are approaching this at the time.

Crypto collateral loans are not good, they are not giving you the fair rates plus they are not actually loans because if you have enough collateral, that ain't really a loan. Loan is what you get when you have no other money.

[TheUltraElite]

This seems like a smarter move than to sell the Bitcoin for fiat money. If I sell, then I have to pay capital gains tax. When the cash is borrowed, there is no tax.

If you live in a country where bitcoin is openly used to buy everyday stuff then good for you, but then buying stuff will gradually end up attracting taxes too. Now you cant live without paying for your food and water, so whats the point you are trying to make? Good and services tax exist in countries.

Since I still have the Bitcoin, then I will gain when the price rises. If I only have fiat, the “price” will always go down because of inflation.

Surely you will gain, but that is a gain on paper, not in reality unless you sell. If your objective is to evade taxation by using bitcoin then you are in the wrong place.

I hope Bitcoin will eventually replace the fiat system, but until then, the market for cash favors borrowers over savers. This seems like a win-win situation.

Bitcoin has its pros and cons just like fiat, in the ideal scenario they are supposed to work complementing each other.

Does anyone else plan on doing this?

I am sure others have had "pipe-dreams" like yours before this and failed after realizing their mistake.

[kryptqnick]

Op, are you living in the USA? 'Cause I think the scheme of borrowing instead of selling is very specific to the US where loans are extremely common, and where there's such a thing as a sell tax which one avoids by never selling the asset. If you're comfortable with this system and you live in the US, it might be alright. I personally would never do that because I come from a culture where loans are very rare and risky, and people just buy what they can afford and don't borrow unless there's absolutely no other way.

[uneng]

It's simply better to avoid needing to borrow money because I don't want to have to sell my bitcoins, but I also don't want to have to pay interest to the bank over loans and unfortunatelly we can't predict how much percentage profit bitcoin is going to generate us in a year time period. Fluctuations can be positive, negative or nothing at all, therefore you are forced to prepare a 'Plan B' to repay your loan anyway.

[BIT-BENDER]

If you ask me OP I think you didn’t think this through. Let’s say I follow your instructions and decide to borrow Fiat using Bitcoin and at the point of be running the process bitcoin is 20k dollars and that’s I get 20k dollars Fiat. Let’s say at the time of repayment bitcoin goes up to to 30k how would the transaction be, and if who I borrowed the money from is knowledgeable about crypto-currency then it would be a major problem.

[Slow death]

I had to read it many times to understand what is the point of you making a loan when you already have money that you invested in bitcoin and you can use it? I have a question:

The day you took your money and decided to buy bitcoin, what was your deal with it? your goal was to buy bitcoin and make hodl and never spend that bitcoin and you die without spending the bitcoin? was that your goal? or was your goal to buy bitcoin and hodl until it increased a lot and then you spent it in the real world?

when we make an investment the objective is to make a profit and then we use that profit, and we continue to invest and then we use the profit, always keeping the principal to generate more profit. it makes no sense to make a loan when you could sell a part of your bitcoins and leave another part until you had a big increase to make more profit

[coolcoinz]

It could be a tragic end when there is a bear market and more than half of BTC value drops. If the lender is not reassuring I guess this will work. Isn't something like this already in a Defi platform?

I wouldn't be getting into a loan if I have BTC. What I can suggest is to keep your coins and when ATH, you sell. That's what you should do and then wait for the bear market to come as it always does. You can do whatever you plan with that fiat.

This is what big companies are doing and why they recently got in trouble when the price crashed.
They took loans with their bitcoin as collateral, but when the price halved the lenders demanded more collateral, which the companies couldn't provide because their investors and sales dwindled.

As for you, the average user, taking a loan with bitcoin collateral is not a bad idea, as long as you don't use all of it. Say, I'd take one now for the equivalent of 2 BTC, while holding 10 BTC. The price could go lower, but even if it went below 10k USD, which will I'm willing to bet will not happen, I'd still be completely safe.

[TelolettOm]

I don't get you. Based on what I understood you're planning to borrow fiat once you've got enough bitcoin. Does this mean you're planning to borrow money placing bitcoin as the collateral. For borrowed money you need to pay regular interest.

Maybe this can turn to be effective, if the borrowed money is invested on something that brings you regular income.

Yes, if I need something, I would borrow the money instead of selling the Bitcoin to purchase it. Michael Saylor talks about this. If I have to pay 5% interest, but Bitcoin’s price raises over 5% a year, then I would be making money. If I sell the Bitcoin for fiat, then inflation will eat up that money. This is apparently what everyone from Elon Musk to Donald Trump does. They don’t actually have any money. They just have property, and borrow against the property because the property is more valuable than the cash.

owh I see your point. so you prefer to borrow money than sell your Bitcoin if there is something urgent to get money?
well, this is your own plan and I cannot blame you. everybody has individual thinking.
but for me, I will try my best to stay away from loans. I prefer to sell my asset if something happen with me and need much money than borrowing money for loans moreover in bank. because I need to pay for the debts and interest. additionally, I maybe feel worried if having loans, I cannot life calmly. that is why I prefer not to have loans. better to sell my assets and then I can collect money again to add my investment.