Bitcoin-backed mortgages in Canada, is it a good idea?

[Free Market Capitalist]

I have to say this again: this is an idea that Saylor popularized—“Never sell your Bitcoin, borrow against it”—only to end up selling Bitcoin himself. It means following the model used by those with large fortunes—in other words, if you're going to buy a million-dollar house and want to use Bitcoin as collateral, the typical high net-worth individual would  have at least 20 million in Bitcoin. If they ask you for two or three million as collateral, you still have 17 left.

A mortgage typically lasts for ~ 30 years, that's a long time to use your BTC as a collateral. A lot can happen within that time with the price of BTC and the safety of your coins, and it's not nice to be in that situation. I don't like the idea of a BTC-backed loan, and i have said that a couple of times in this board, but i think the idea is worse when we are talking about a very long loan.

Imagine handing your BTC over to a third party for this long, what if they get hacked and lose your coins sometime along the line.

I don't really see the point of such a long-term loan either, but you're forgetting that you can pay off the loan at any time.

[Z-tight]

I wonder why most banks don't offer loans and mortgages, which are backed by gold as a collateral. Is Bitcoin becoming more preferred by the banks in comparison to gold?

Banks do actually offer loans backed by gold, or loans against jewelry, however, you'd have to check with your bank in your jurisdiction, to see if they have such offer for you. There are not too many banks offering loans backed by BTC, yeah we have read about a few though, but it is not enough to suggest that banks now prefer BTC to gold, lol, central banks hold large amounts of gold and use it as a reserve asset.

[Catenaccio]

Banks do actually offer loans backed by gold, or loans against jewelry, however, you'd have to check with your bank in your jurisdiction, to see if they have such offer for you. There are not too many banks offering loans backed by BTC, yeah we have read about a few though, but it is not enough to suggest that banks now prefer BTC to gold, lol, central banks hold large amounts of gold and use it as a reserve asset.

Gold or other precious metals, jewelry have much longer history than Bitcoin and these metal assets have good legal foundation for banks to accept. It's different with Bitcoin which was newborn with uncertain future and there was lack of legal foundation for banks to accept Bitcoin in any form, including Bitcoin-backed mortgages.

Bitcoin will still be behind gold in preference of banks because gold is older, has bigger market cap and gold is still more favorite by bank users and other people in the world. Bitcoin has good growth and success so far but it still need a long time to grow up more and bigger for reaching to gold level.

[Multani Boy]

Gold or other precious metals, jewelry have much longer history than Bitcoin and these metal assets have good legal foundation for banks to accept. It's different with Bitcoin which was newborn with uncertain future and there was lack of legal foundation for banks to accept Bitcoin in any form, including Bitcoin-backed mortgages.

Bitcoin will still be behind gold in preference of banks because gold is older, has bigger market cap and gold is still more favorite by bank users and other people in the world. Bitcoin has good growth and success so far but it still need a long time to grow up more and bigger for reaching to gold level.

Gold is a more practical option as well due to the asset being physically held by the bank and can be sold if there is a default. Bitcoin carries a risk of secure storage and price fluctuation. Whilst BTC may become more popular it does not necessarily make it a more appealing option in terms of collateral for all banks. There are also legal implications and the infrastructure for lending and risk management.

[Antidote47k]

Yes, there is some risk here. If BTC crashes and you cannot add more collateral to your position then you can lose your coins. This has happened many times now with crypto loans.
 However, it can be useful for some. They can purchase a house without having to sell their Bitcoin and pay taxes. As long as you have a low LTV and have some extra BTC to hand it isn’t completely mad.

It’s a great step for adoption. It gives another legitimate way to use Bitcoin.
 However, personally, I would only do this if I had a very low LTV and a large amount of safety margin. Most people should just be cautious when using this type of leverage.

It can avoid immediate tax but I wouldn’t categorize it as tax saving and more like a tax deferral. Since you’re borrowing against the btc it wouldn’t be considered a disposal of the coin so it wouldn’t trigger capital gains at the time of taking the loan. However if peradventure, you later chooses to sell the coin voluntarily to repay the loan it would still trigger a taxable gain, also if the lender liquidates the collateral to recover the debt, that can also constitute as a taxable disposal for the Canadian Revenue Agency treats crypto disposals as potentially taxable events.

So if the tax isn’t permanently avoided with the risk of still paying it if the lender liquidates your collateral while you still pay interest on the loan, fees and shoulder liquidation risk I’m really finding it hard to see much advantage in this arrangement. One has to calculate the potential avoided tax today and compare it against interest, fees and liquidation risk and any Possible tax consequences later on.

[ObeyKnock]

It can avoid immediate tax but I wouldn’t categorize it as tax saving and more like a tax deferral. Since you’re borrowing against the btc it wouldn’t be considered a disposal of the coin so it wouldn’t trigger capital gains at the time of taking the loan. However if peradventure, you later chooses to sell the coin voluntarily to repay the loan it would still trigger a taxable gain, also if the lender liquidates the collateral to recover the debt, that can also constitute as a taxable disposal for the Canadian Revenue Agency treats crypto disposals as potentially taxable events.

So if the tax isn’t permanently avoided with the risk of still paying it if the lender liquidates your collateral while you still pay interest on the loan, fees and shoulder liquidation risk I’m really finding it hard to see much advantage in this arrangement. One has to calculate the potential avoided tax today and compare it against interest, fees and liquidation risk and any Possible tax consequences later on.

Yes, it’s a deferral rather than a tax saving. The taxes can become due when the lender sells the Bitcoin or you sell it to payback the loan.
The real benefit here is the deferral. You get to keep the exposure to Bitcoin while delaying having to pay tax. This will depend on the exact figures and how long you intend to hold onto the loan, but will likely not be great for most people. Only consider if you have extremely strong belief in Bitcoin and a nice cushion.

[Stepstowealth]

A buyer could pledge a certain amount of Bitcoin as collateral, it could either cover the down payment only or the entire price of the house.

This should be good for the bitcoin community as it signals that acceptance is slowly coming in to place. Because if bitcoin can be used as a collateral for a house it means that its value has been accepted. But anyone in canada considering this has to make sure to read well about it to understand because although it is showing acceptance, it could be an easy way to distract you from your target of holding. If you are able to invest well and hold your bitcoin long enough for it to yield profit, you can afford a house.

[Hamza2424]

Well, the pros are even better, bro. There will be no tax on your profits this way, so you can say it's the most legal way to bypass tax liability. Also, if you can cover your expenses and earnings accordingly, then it's a good option. You only have to research this company further, like what if they use your coins and try to lend them out to another company that later pulls a rug?

Although I can see BitGo's $250 million insured cold storage feature they are using, so their policy makes sure they will not reuse your BTC for lending, yield farming, etc.

Although the cons are the same, the margin call and liquidation. And you know there is a term called LTV that matters because this is how they are going to value your coins to give you collateral. Don't think they will give you $100k in collateral because your BTC is worth this much. It depends on the LTV.

Seems like a good deal, but I rather stay away from mortgages because of interest.

[Churchillvv]

Is Bitcoin becoming more preferred by the banks in comparison to gold?

Of course no! That’s just where the market is going to and that serves right not to miss out since the number of people who hold bitcoins and probably won’t sell according to their country survey is high and loans has to be taken or mortgage, so if the preference has to step in not really that they can’t accept Gold but golds are held as reserve and that makes it very uncommon for people to have gold physical or as an asset in a private holding instead they hold it only as paper money held by another entity so that makes it difficult.

[Botnake]

A buyer could pledge a certain amount of Bitcoin as collateral, it could either cover the down payment only or the entire price of the house.

This should be good for the bitcoin community as it signals that acceptance is slowly coming in to place. Because if bitcoin can be used as a collateral for a house it means that its value has been accepted. But anyone in canada considering this has to make sure to read well about it to understand because although it is showing acceptance, it could be an easy way to distract you from your target of holding. If you are able to invest well and hold your bitcoin long enough for it to yield profit, you can afford a house.

However, one should know that acceptance should not mean losing your bitcoin in the end. Accepting bitcoin as a collateral may open a good opportunity for us, but it does not mean that it will be the perfect option for us. Everything still boils down into business, if you can't protect your bitcoin well, you will end up a loser while the bank instantly turns out to be the new owner. If you can save up in fiat for the amount of down payment, that would be a lot better, having bitcoin as a collateral will only be the last option.

[dzungmobile]

However, one should know that acceptance should not mean losing your bitcoin in the end. Accepting bitcoin as a collateral may open a good opportunity for us, but it does not mean that it will be the perfect option for us. Everything still boils down into business, if you can't protect your bitcoin well, you will end up a loser while the bank instantly turns out to be the new owner. If you can save up in fiat for the amount of down payment, that would be a lot better, having bitcoin as a collateral will only be the last option.

I view it similarly to leverages for trading on exchanges. You can say it opens good opportunity but honestly I don't view it this way. bitcoin is only your bitcoin if you hold and store it in your non custodial wallet, and secure that wallet properly. If you make an on chain transaction to move your bitcoin from a non custodial wallet to any online platform like exchanges or loan service providers, you begin to have risk.

Basically whenever there are risk factors for your bitcoin, it's no longer safe, and you will never be sure that your bitcoin will certainly be safe and you will get it back with full amount when you sent it to that platform.

[cryptoaddictchie]

Of course, there's still a risk since the price of Bitcoin could fall, and borrowers might be required to add more collateral or face liquidation depending on the agreed terms.

Does using as collateral doesnt locked out the price it was given during the process? Cause the burden might goes to the client side when bitcoin  falls and they required to add more collateral. Like when he used a collateral for financing with 1 bitcoin at $80k and now its $75k does it mean that they will need to add more $5k to match up the collateral? Thats maybe the disadvantage if crypto will be used in a lending real state compared to stable or fiat.

[hd49728]

Does using as collateral doesnt locked out the price it was given during the process? Cause the burden might goes to the client side when bitcoin  falls and they required to add more collateral. Like when he used a collateral for financing with 1 bitcoin at $80k and now its $75k does it mean that they will need to add more $5k to match up the collateral? Thats maybe the disadvantage if crypto will be used in a lending real state compared to stable or fiat.

Price is basically never locked. When you make a loan, and use something in this case bitcoin as a collateral, the loan provider that is either individual or a bank service, will have their own formula to assign your collateral a proper value. It's only a value at that time of starting your loan but the collateral asset will have price volatility, and it will affect your collateral value, then if price drops too much, there will be liquidation call.

It's true with every loan, on any platform, and it's only different in formulas used by different loan providers and platforms.

[cryptoaddictchie]

Price is basically never locked. When you make a loan, and use something in this case bitcoin as a collateral, the loan provider that is either individual or a bank service, will have their own formula to assign your collateral a proper value. It's only a value at that time of starting your loan but the collateral asset will have price volatility, and it will affect your collateral value, then if price drops too much, there will be liquidation call.

It's true with every loan, on any platform, and it's only different in formulas used by different loan providers and platforms.

Well thats something not good when you use a volatile asset for a collateral thats why I always prefer to use the stablecoin or fiat that even theres a slight change you know it wouldnt too far from the average price set even after a long period of time.

Most collaterals are houses and cars even at bank which also volatile but since crypto is introduced as accepted in Canada this might be a game changer and the lending company should be lenient when doing a formula for this. Cause unlike houses as collateral or property this has more volatile in nature.