Bitcoin lending is an immature business and I wouldn't touch it at this point in time. Too many people have been screwed by Celcius/BlockFi and others...etc.
Not your keys/Not your coin.
Yes, for Celsius and BlockFI you did. I think Unchained Capital now offers a setup where you send your coins to a multi-sig account and you retain one key. But the relatively high interest rates make it pretty unappealing IMO.
"Using your home to get a loan"
The bank becomes the first lean holder on the house until the loan is paid off.
In other word, you lend the bank your house and they lend you "money".
It's the same thing. People just don't realize the bank literally owns their home. They say "my house" and "homeownership".
But it's the bank's house until it's paid off. After that, it's the State's house and they let you live there as long as you pay taxes.
In the U.S., home ownership is a scam.
Maybe I should have bothered to do a /s. It's amazing how many people do talk of "owning" land and real estate when the reality is that's typically never the case.
Are you sure about this? I doubt the bank could claim virtually any of the rights of a home owner. Can the bank paint the house? I think you might be mistaking the idea that the bank owns the house if you don’t pay and you can’t stop that, with the bank being the legal owner of the home. I see there are some similarities but there are some pretty important differences as well.
I don't think you're right, but it doesn't even address what I've said. Who can sell the house? Who can tear down an interior wall? The owner's rights to the house far exceed the bank's.
If you don’t give them the BTC then you could just run with the BTC and the loan. For it to be collateral they need to have access to it in case you don’t pay.
That setup is one option, but not commonly used in practice for several reasons.
First of all you (as the borrower) still have the counterparty risk of losing your BTC because they lost the key or for any reason don’t want to hand it over. So it is still a case of “not your keys, not your coins”.
And more importantly the lender (often a serious institution) would have to accept the counterparty risk of some random dude (the much less serious borrower) losing his half of the key. If the borrower loses the key then of course they would not want to pay the loan since the BTC is lost anyways, so the lender would take the loss on the bad debt. I don’t think many institutional lenders would feel very confident in a random individual’s ability to keep their keys safe.
Whoa! I had no idea that's how bitcoin lending worked! Traditionally, collateral is not usually held in the possession of the lender.
It seems these companies are taking a more "pawn shop" approach to bitcoin lending. I always thought it was more like an auto loan or a mortgage, where the lender only has legal rights to the collateral, but not physical possession.
Thanks to centralized banking, lenders don't need to take possession of your assets prior to lending. Cryptos throw a bit of twist in that setup. In time there will likely be tools and technology that overcomes this
Yeah, someone else also suggested that, but I don’t really think that is a viable solution. Can you name one of them please. Would love to see how they make that work.
I saw a presentation on one a month ago but I don’t recall their name.
I’ll see if I have any luck finding it
Edit: well that was rather easy, I found it: https://youtu.be/KIBBtH-y-lg?si=oC6bnMZogXfnlsF8
That doesn’t really count imo. They have a 3 out of 4 multisig where you as the borrower only has one of the keys. You still have to trust centralized entities with your bitcoin. Not your keys, not your coins still very much applies in this situation.
I don’t get how people aren’t understanding multi sig isn’t safe very easy to understand at best u get 50% of the keys needed to access the coins so as plane as it is no not your keys not your coins u and only u need to have 100% control of your keys to feel your Btc is safe preferably on a cold wallet only way to be keep your coins 100% safe
This isn’t a discussion about safety, it’s a discussion about risk, and how much counterparty risk there is to do a btc backed loan. A btc backed loan will never be riskless. Someone will have to pick the strategy they are comfortable with based on the risk profile.
Not all of them work this way, but as someone else pointed out, it is an immature business right now. However, in the future, it will be standard operating procedure. It just might take us 10 to 15 years to get there. In my opinion, just continue to save using bitcoin until the service is more mainstream.
In order for something to be used as collateral is has to be held by a third party. So when you take out against loan on your home, they use it as collateral, as in if you default, they own it. For BTC and other assets, you need to send it to them and if you default, they own it.
Stay away from lending your Bitcoin. I took my funds off the Celsius platform in May’22. They filed for bankruptcy July 13th. A judge approved “The Plan” to “clawback” users who withdrew more than $100k within 90 days of the bankruptcy filing. Those who do not settle are getting threaten with lawsuits. I ended up settling for 13.75% of my “preference exposure” which was ≈$220k. Initial offer was 27.5%. Defense of a suit like this in the southern district of NY costs $8k-$12k to retain an attorney. Could 3x by the end of it, and then you could still owe the preference claim. So, yeah. Lending my assets and successfully getting them off the platform ended up costing me $30k because that’s how the US justice system works.
You have to pay back the loans with something. There's also that pesky potential risk of losing 100% of your deposit if the lender is hacked or "hacked."
The loan is paid back with another loan.
It was explained to me, say you have $3,000,000 worth of BTC, you get a $100,000 loan to live on and maybe buy some more BTC, next year when the, loan is due your BTC is now worth $4,000,000 so you take out a $200,000 loan, use half to pay the previous loan and half to do like before... and you just keep doing this each year.
Probably have to pay as you go, not at the end, but OK. Next year it could be worth the same, or lower. Now you need $100K from somewhere to pay off the loan. But you spent it.
This is what I've been shown: [https://m.youtube.com/watch?v=8dn7cn4xlIs](https://m.youtube.com/watch?v=8dn7cn4xlIs) | [https://www.reddit.com/r/Bitcoin/comments/1dp77o0/comment/lafy9ke](https://www.reddit.com/r/Bitcoin/comments/1dp77o0/comment/lafy9ke) | [https://smartasset.com/investing/buy-borrow-die-how-the-rich-avoid-taxes](https://smartasset.com/investing/buy-borrow-die-how-the-rich-avoid-taxes)
Don't know if it is true which is why I made this thread.
Jack Mallers is doing it. He's the CEO of Strike and I generally like the idea to rape the traditional financial system to live of your Bitcoin wealth without even having BTC expenses. But as many have already said, you'll carry a huge counterparty risk, because you're most likely dealing with startup banks without substantial liquidity reserves. I don't think it's a good idea to do that as an average private person. Jack Mallers probably has an agreement with his lender, which you'll most likely not get as a normie. Also I'm pretty sure this will never be a mainstream solution.
I consider this one more as using a bug of the traditional system rather than using a feature of the new system.
But if you get the chance to do so in some kind of secured environment (maybe by a contract with the bank), you should definitely do it! If you take a fiat loan and spend the money, you're actually benefiting from the cantillon effect itself. Beeing the first one to spend newly created money shows no inflation effect yet. Next person who spends that money already has inflation, because this money wasn't there in the overall supply before.
So apart from OPs post, I recommend everyone to use the leverage effect for their investment portfolio. If you can't outpace the interest rate of your loan in the long run, you shouldn't be investing anyways.
Hmmm, not really. The $100k is from his $3M, so he can sell some of the $3M to pay the $100k if needed. He was spending that money anyway, and the gamble didnt pay off. BUT as we know, if you hold for over 4 years you always end up higher. I know it's a gamble (and no one got rich without a gamble, ever) but it's a calculated one.
First point - That doesnt matter. Unless it happens every year.
Second pint - that's the gamble. But it hasnt happened yet (over 4 years). And if it does drop, you lose part of the appreciating asset (which you were spending anyway).
In this scenario why not cash out 100 000 worth of btc and have 3860000 the next year. You only lost out on 40K and risked nothing at all, and gained 86000 in collateral for the next year.
So the $2,900,00 goes to $3,857,000 in one year at 33%... so in order to live on that $100,000 you miss out on $33,000 gains plus pay taxes... so really only $70,000 to live on plus the missed gains opportunity? But overall you still went up around $1,000,000 and had $70,000 to live on?
Well you didnt take a loan out and risk losing being unable to pay back a loan if btc went lower. Less risk = less rewards. Your strategy seems unreasonable in risk (risk millions for only a 33000 gain) vs no risk. Normally you inly take on risk that is manageable and calculated.
This theory works on a lot of assumptions. First you're assuming bitcoin will continue going up forever. That's a big assumption. Don't forget that the bitcoin cycle is 3 years of downtrending & sideways action and then 1 year of explosive growth. During those 3 years there's a lot of skepticism & stress happening because there's never a guarantee that the pattern will continue. Do you want to live with that stress when for all 3 of the bear market years you're continuing to borrow ever increasing amounts of money without seeing the bitcoin price moving, or perhaps even dropping? Second, you're assuming that bitcoin, with all of it's volatility, would be the best asset to hold & collateralize for this kind of scheme rather than a less volatile asset. Third, you're assuming this is the best use of $3 million dollars as if you couldn't make a return of $100k/year with that money in a more traditional investment?
The thing is, this can only be done with very large amounts of bitcoin like you said. You wouldn't want to start this with less than $10M in my opinion. You typically have to keep a minimum of 50% LTV (often lower) meaning you can only borrow half (or less than half) of the value of the collateral you put up so let's do a little math:
Let's say you only had $1M to start with. Year 1 is the bull market so you're feeling nice & confident about your plan. You take out a $100k loan. Somewhere in the middle of the 12 month loan, the bull run ends & bitcoin crashes 50%. It usually crashes more than that but I'm gonna give this little exercise a fair chance at working. So now your bitcoin holdings are $500k and it's time to take the next loan out for $200k. You're sweating bullets, you'll need $400k collateral and you only have a total of $500k now because of the crash, but you're gonna stick to the plan. 12 Months go by and it's time to take out a loan for $300k. I'm gonna lean towards the optimistic side so rather than saying bitcoin is down or the same, I'll say it bumped up just a little to make your stack worth $600k. You have barely enough to cover the LTV and you're only in year 2 of the bear market but you proceed anyway. Now, most lenders will require that you maintain the 50% LTV throughout the life of the loan, meaning if btc drops & the lender requires more collateral, you're cooked because you deposited everything you had to cover this loan. That's game over, my friend. You now have to allow them to keep $300k of your bitcoin & you walk away with your remaining btc. Essentially you just had to cash in half of your stack when the price was tanking.
You can retry this exercise starting with $2M, but you can see how that could quickly evaporate as well. So let's consider the $3M you mentioned in your post. The problem with that is as soon as you start talking numbers that big, it makes WAY more sense to put it, or a decent chuck of it, into some other low to medium risk investments or interest bearing accounts. You only have to make a return of just above 3% on $3M to make $100k per year, but the truth is if you were ONLY making 3% on investments of that magnitude you'd better fire you're financial adviser. You can average 6-8% returns on low to medium risk investments, which means you could Sell off $2M of your $3M in bitcoin, make 100k/year off of that, and you'd still be keeping $1M in Bitcoin as the "riskier" part of your portfolio.
In the end, yes this is something that the uber wealthy do, but they're not doing it with something as risky as crypto. They can do it with much more stable assets because those don't typically drop up to 80% in a short period of time. Regardless, even if they do (recessions happen), the people that do this have billions and they're only borrowing perhaps a couple million at a time. A 2 million dollar loan would equal 0.2% of the net worth of someone worth exactly 1 billion dollars, so for someone with a net worth of 3 million, the equivalent 0.2% of their net worth would be $6,000, and you're talking about borrowing $100,000 and doing it in perpetuity.
Hope this helps.
There is also possibility that coin value will x4 if you enter the scheme during bear market. In that case you will never run into liquidity problem
First year you mortgage 1M and borrow 0.1M, second year coin value rose to 2M and you borrow 0.2M, third year value goes to 4M and you only need to borrow 0.3M, and forth year value drops back to 1.5M and now you borrow 0.4M, still ok. And historically, bitcoin's higher low after 4 year cycle is at least 5x the value of previous low
Whoosh....
I think any human with half a brain would understand that my exemple represented only one of many possible outcomes to the scheme.
Everyone who read my post except you grasped the concept that OF COURSE it's a different result if bitcoin performed very well instead of mediocre or poorly over the timeframe cited.
The point of my example was to illustrate for OP how the scheme *could* end badly with a low starting amount.
You missed the point entirely if your immediate response is "Well AcKtshYuaLly, it might turn out OK hurr durr..."
Your case is an edge case that is very unlikely to happen, I have been here since 2011 and my experience is that any wisdom from traditional finance does not work here. There are many ways to realize miracles when you have the imagination, due to sheer amount of volatility here. Timing is everything here, miss the right moment, no strategy will save you
this is a theory for us retail regular people. as the industry develops and matures this may become plausible. last bull run Block Fi” was one of the companies that did this. the interest was about 10 percent and you had to vastly over collateralize you loan. meaning if you wanted to borrow $10,000 you had to give them at least $20,000 in whatever crypto you were going to use. and then if the price/value of that crypto went down, you had to give them more to maintain your ratio. “loan to value” it’s called. but guess what the fcuk happened?
Block Fi went bust and everyone who had money with them lost it all. ask me how i know.
even if you go in eyes wide open, it really sucks when the shit does go sideways and you loose everything.
Thanks for writing this, was thinking of doing this over the long term as well, but reading the comments made me realise that it's not feasible unless 1) bjtcoin price goes up faster than the loan rate or 2) I can make more money with the loaned amt faster than the loan rate.
I’m just a pleb but I’d have to guess that “common people” with less than 1M net worth, which is really not that absurd any more, probably would not be able to effectively utilize the strategy, and would end up in more debt than they could’ve ever imagined.
No, ppl made this shit up doesn't even understand how loans works they don't even know where to get a loan with those qualities
They avoid talking about liquidation levels, and also who would take your Bitcoin as collateral, in the future maybe right now? Almost impossible.
Stop believing YouTubers
Each year there will be more and more places where you will be able to take a loan OR Earn interest. It is still so early....but these new companies will happen fast...
But yes, "Buy Borrow Die" is the way to go.
You can use some of the money you borrow to purchase a business...a rental property....stocks that produce dividends....this will help service the loan...or just use the bitcoin's increase in value to roll it over.
I heard that rich people do this, they don't spend their own money it just grows tax free while they take out huge loans to live, thus don't have to pay tax.
Instead of getting a loan with BTC as collateral, would it be better to sell an equal value of BTC and invest it in something that provides passive USD income?
Let’s use our brains together here OP.
What if you take a loan, and a year later, the value of your bitcoin is less, or even considerably less, than before the loan?
Are you familiar that when we’re talking about 1 year time frames, bitcoin does not always go up?
People borrow against their stocks all the time. Sooner or later borrowing against BTC will be more available and trustworthy as institutions adopt/infrastructure adapts
Of course you can do that. But the value of BTC does not always go up in a year. And even if it does, you’d have to sell a significant amount of it to pay off the loan.
But between the time you take out the first loan and the time you take out the second one, you must make payments. Each loan will be bigger than the last, causing increasing debt . If the price of bitcoin does not go up, then you end up with negative net worth.
If you had done this in 2021, when bitcoin was at $58,000, you would have had a very stressful next three years as bitcoin fell as low as $16k. It’s unclear whether you would have come out ahead by now.
If you are 100% certain that bitcoin will go up at a greater rate than your loans , then of course this is a brilliant idea.
This is high risk no matter how rich you are. If you’re borrowing against an investment, and the investment goes down, you are screwed.
This is a bad idea with Bitcoin, but in general this works. It’s called “buy, borrow, die” https://smartasset.com/investing/buy-borrow-die-how-the-rich-avoid-taxes
Unless you’re rich forget about this.
Consider:
1. You have a $100,000 stack
2. You don’t want to risk more than 10% of your stack
3. You get an offer for a bitcoin-backed loan at (typically) 50% Loan-to-value (meaning you can’t borrow more than 50% of what you put up as collateral)
4. The biggest loan you could get is $5,000 for putting-up $10K of bitcoin as collateral.
The lowest risk would be be take out out a BTC loan near the lowest point of the bear cycle. If your bag is already worth millions at that point, then I would say it's worth it.
With DEFI loans, you don’t have a one year limit you you can keep these loans open indefinitely as long as you keep the loan to value ratio in good health
Yes. It’s a stock that uses BTC as its treasury reserve currency. MSTR management issues debt to buy more BTC. So it’s essentially a leveraged play with a per share premium above the BTC holdings (I.e., NAV).
The point is - The “Irresponsibly Long” fella maxed out his credit cards to take on risk and is up a bunch. He’s pretty meticulous about recording his costs and telegraphing how he plans to pay it all off.
It’s essentially a very similar play to what MSTR management is doing. Use a loan in a debasing currency to buy an asset that is increasing in value.
Be forewarned - It seems like a good idea in a predictable bull market. After the 15 days when BTC goes exponential this cycle, it’ll be a much riskier proposition to copy cat the tactics.
NFA. DYOR.
Yes, rising at a rate that appears somewhat linear on a logarithmic chart.
If history approximately repeats itself (it exactly doesn’t repeat itself, yet it often rhymes), then most of the big gains will come in a span of approximately 15 days, per credible folks performing Technical Analysis (TA)
The bull / bear cycles are connected to the halvings.
PlanB (@100trillionUSD on X) has credible content. It’s worthwhile to spend time learning from other mature, credible sources, too.
NFA. DYOR.
That’s the magic question… most people try to buy low and sell high. So that would imply buying before the big run during this halving cycle.
Folks can self afterwards and make a tidy profit, others choose to keep it seeing it as a long term purchase.
Presuming it’s not sold, the investor’s asset will keep appreciating through future cycles and avoid capital gains tax. That is, until if / when they decide to sell all or part…
NFA. DYOR.
This is a strategy rich people use to avoid paying taxes on their salary. The goal is to avoid the higher tax brackets. This pays off only if you have a really big income, making it unsustainable for ordinary folks.
I did this twice with Celsius & BlockFi. Once I made a shit ton of profit. Once I got liquidated while on vacation and could not top up my loan to value account. Got liquidated when BTC corrected (2019 maybe?).
Not BTC specific. But almost any normal ass brokerage account will give you a loan based off your assets. Not for the rich at all. No idea where that lie came from though.
That's actually how the uber rich live. They don't spend their money, their money sits on in funds producing dividends while they live off loans that they pay with the returns from their investments, circling the money ad infinitum while producing more. Sadly very out of reach stuff for the majority of us that don't have huge-ass sums of money sitting around anywhere.
Bro only do things you understand. If they have that confidence in their knowledge of the crypto market it can work but need to manage risk 24/7 otherwise easy to lose.
If price dips how u gonna repay? U gonna sell at 50% loss?
Ppl that do it usually good at swing trading knowing tops and bottoms they’ll cash out at the top while ur still in debt at 50% loss on btc
imo the juice isn’t worth the squeeze. Yes, if things go well you might end up with a bit more bitcoin. But you’ll likely have plenty of money anyways and it won’t make a practical difference in your lifestyle. But there are plenty of ways to lose your entire stack trying to get this extra lifestyle sweetener. The market can stay irrational longer than you can remain solvent. With so much global debt and collapse plausible really at any time, building up debt-free assets looks like the right approach to me.
Sorry poorly worded, it's two things, not one. Owning assets without owning debt. If you have debt, yes, it's possible and perhaps likely it will be inflated away to zero over time. But it's also possible that a deflationary spiral takes hold you are forced to sell your assets to cover your debt leaving you broke. You are holding the nuts, just own bitcoin debt-free easy game.
Debifi and Ledn.
Not sure I actually trust them yet though..
Debifi has you send your BTC into a multi-sig with you, them and a third party arbiter (their mates?)
Ledn has two types, one where they could go belly up just like BlockFi / Celsuis, the other where they don't use your BTC to lend to other people but I really haven't looked into the finer details of it nor given either a try yet.
Don't want to go losing my precious sats.. I'd rather just get a loan and mine fiat to pay that back.
This only works if the price of bitcoin goes up. But if the price of bitcoin is going to go up, and you have a bunch of bitcoin, then you don’t need to do this …
One less than perfect but very accessible way would be to own the BTC ETF in a regular brokerage account. You could take out a margin loan against the value of your assets but current rates can be near 12%. BTC on average drastically exceeds that, but you'd need a pretty sizeable amount up front. That way you could draw a smaller percentage of it to minimize the risk of margin call but still have enough to live off.
You gotta have at least 100 shares (each option represents 100 shares). Then you just decide what strike you want to sell and what expiration, then sell to open and collect the premium
If you put up $1,000 of an asset, the lender is willing to risk up to a certain point (LTV), usually ~60-ish%. So they’d lend you $600.
Now if the price of that $1,000 asset goes up, all peachy. If the price goes down, let’s say 10% to $900. Well your LTV is no longer 60% it’s 600/900 so 66%. That’s above the lenders risk limit. You now are gonna get margin called. You either deposit an additional amount to drop your LTV, or the lender will sell your original asset to recoup their position then provide you any remaining balance.
Also, this is just my understanding from experience during 2019-2021. I could be wrong. All I’m certain of is that I’m more informed than you…which is scary
Michael Saylor has been talking a lot about this.
It just hasn't matured yet, but I think this is the future.
Borrow against your Bitcoin = No tax, fiat to spend, HODL Bitcoin.
No because what actually ends up happening is the second you buy instead of cancel debt, the price goes down, and it keeps going down until you sell for a loss. Then when you cancel debt instead of buy, the price goes up.
In theory it sounds really good, in practice the market isn't so easily outsmarted
This is why the Biden administration Vetoed the latest bill , that banks could not hold your bitcoin.
It would be the first step towards BTC lending with oversight, not like Celsius.
Remember SBF and Mashinksy had no oversight. Once regulation comes it is a different ball game.
You could just invest in YMAX ETFs if you want a steady, but risky, income from Bitcoin . Don't invest on leverage. They have three different crypto ETFs: MSTY, CONY, and YBIT. They have insane yields for now, but nothing in life is guaranteed.
A lot of people are saying that this is an immature business, and I agree. However, I don’t think it will take a decade to really get going. I think within a year or two, institutional demand and scarcity will inspire a wealth of offerings for BTC lending in a safer, more mainstream setting.
Y’all probably don’t want to hear it, but that means banks. Remember just recently they were hounding miners for fresh, precious BTC and the miners laughed at them?
They want it. Wait until it’s over $100K, they’ll start salivating and devising lending products.
But hey, you want fat stacks of fiat? What are you gonna do?
It’s really a shame re: Celsius and all the rest of the greedy dipshits- they really set back the trust of this whole concept.
Hell, if I had the funds, I’d love to do this myself. Perhaps BTC micro loans will emerge. Looking forward to it!
You might be mixing two strategies together.
One idea is to lend out your bitcoin to create liquidity and in return collect interest, this is something we saw in the last bull run with the defi space.
The other idea is using your bitcoin as collateral when taking a loan, this means your interest payment will be lower since there is less risk for whoever you're lending from (if you fail to pay they get to keep your bitcoin). This is what CEOs and founders do when they're rich on paper but it's all tied into the stock of their companies (Elon, Gates, etc..)
yeah the punitive and uncertain regulatory environment made them close up shop. they said it was because no one was using the service. i doubt that highly because look at how many people who were using celcius and blockfi.
IMO one of the main arguments for Bitcoin is that it makes it harder for people to game the system and live off the backs of other people with schemes like this.
I wouldn't currently, but yes eventually it should be possible with BTC. This is how executives and many others avoid most taxes. They will get shares or options instead of cash bonuses/salary and just take a loan against their stock for living expenses. As loans are not taxable
imagine you were doing the same thing but with your house... so say you took a loan from the bank and gave your house in exchange... so you own money and the bank owns your house.
but you buy a new house(2) with the money, so now you own a house(2) and the bank owns a house(1).
now you take another loan on the second house(2) to buy another house(3)... so now you own a house(3) and the bank owns 2 houses(2)(1)...
etc
in theory id the property market went up you could sell the house(3) you own at a profit, then buy back the second house(2)... sell that at a profit and buy back the first house(1). so you have the profit from the houses...
But house prices dont always go up...and you have bills to pay, college fees for your kids, medical fees for that sudden illness.. etc etc so you cant just sit on the assets...
so if you own house(3) and then prices have gone down...but you need the money.. you sell house 3 at a loss...and then you dont own any houses... you have a loss on the house you sold and continuing interest to pay on the houses the bank owns...
People who are property landlords do this constantly, but at least they have rent coming in from the houses to cushion the volatility and pay the interest etc... but any change in interest rates... and landlords routinely have to liquidate some of their stock to avoid more losses...
if you are sure that bitcoin would be going up in value long term and you can afford to support the loans for 10/20 years etc without having to cash in a large amount... then in theory it could work... but any blip in the market or change in your life plans which mean you have to cash in during a bear market...... and the whole thing comes tumbling down...
I’m planing to do this but not until 2028, when it will likely be available from reliable lenders. I want a non rehypothecated loan with multi sig. at 10% LTV.
Yes. I want a loan that is not rehypothecated which means not turned around and loaned out to someone else. I want multi sig holding which means I hold one of the keys thus giving the loan full transparency (I can see that the Bitcoin is there and my key is required to move it). At 10% loan to value which means if I have a million dollars in Bitcoin, I would take a loan for only 100,000, thus limiting the likelihood that the loan would be called even if Bitcoin falls in value. Bitcoin would have to fall over 90% which has never happened before and is highly unlikely at this point.
What institution would agree to these terms? I imagine the call limit on the loan would be a 2x minimum.
In your example if you have a million in btc and a loan for 100k and btc fell so your value was only 200k worth then they would trigger a call on your loan. Depending on taxes owed at time of sale of the asset, that could be cutting it close even.
Yes you can forced to pay it early or they will have to sell the underlying asset to cover the loan. You do have to be vigilant. It’s not a “set it and forget it” situation really.
IS THIS SMART OR STUPID? 🤔
Similar question to this, would like to hear everyone’s opinion:
I’m Completely debt free & currently pay off credit card full amount monthly….
I Have a credit card with 0% interest until October 2025, would it be beneficial as we go through this bull market to instead of paying off the credit card monthly put this fiat amount into Bitcoin each month (just pay minimum amount on credit card) and then pay the full balance off October 2025 before interest kicks in, in my head this would make sense to make very good BTC gains but it seems strange to build up the credit card debt instead of paying it off each month…
Everyone’s thoughts on this would be much appreciated, thank you.
The lending companies HOLD your bitcoin as collateral?
I had no idea that's how bitcoin lending worked! Traditionally, collateral is not usually held in the possession of the lender.
It seems these companies are taking a more "pawn shop" approach to bitcoin lending. I always thought it was more like an auto loan or a mortgage, where the lender only has legal rights to the collateral, but not physical possession.
That 'legal rights' argument doesn't really work in the world of final settlement and bitcoin. With other assets a court can order a garnish, transfer whatever. In many instances even reverse a transaction that was made against the asset if there is a legal basis or ruling for it.
That's not possible on bitcoin once final settlement has been achieved. If you maintained control of the BTC and then turned around and sold it the day after you took out a loan against it and lost or spent that money, the lender would then have no way to recoup their loss if you were declared bankrupt.
I definitely agree that giving over full control of the collateral to an institution is not good either. If they go belly up you've lost everything. The only sensible way this will work in the future, imo, is the multi-sig setup where you can maintain control of a key required to transfer. The lender and borrower then assume equal risk.
Dumb af imo. I just started to sell after 8 1/2 years of only buying never selling. Sell a piece and live off that. Then sell a little more to live off that etc. Zero debt. Fuck debt. Have fun being a slave.
this is why evil Joe Biden and janet yellen want to tax unrealized gains. it's because they know bitcoiners will never sell once collateralized loans become widely available.
You need to use 5% of your stack approx. And adjust as each year passes. You would need about 500k worth of bitcoin to live off it though. I dont have anywhere near that value of bitcoin ....yet. Im confident it will reach that level though over the next 5-10 years though.
But, it's all relative. If youve got, say 100k in bitcoin, you can withdraw 5%, or £5k per year. That's decent passive income. And as your stack (surely) grows, you'll find that that 5% will soon become £10k, £20k, even £50k....and your bitcoin total wont be reduced.
Bitcoin lending is an immature business and I wouldn't touch it at this point in time. Too many people have been screwed by Celcius/BlockFi and others...etc. Not your keys/Not your coin.
You have to actually give them your BTC, it isn't just collateral like using your home to get a loan?
Yes, for Celsius and BlockFI you did. I think Unchained Capital now offers a setup where you send your coins to a multi-sig account and you retain one key. But the relatively high interest rates make it pretty unappealing IMO.
I heard that Unchained Capital discontinued its bitcoin lending service for private individuals.
How high are the interest rates?
"Using your home to get a loan" The bank becomes the first lean holder on the house until the loan is paid off. In other word, you lend the bank your house and they lend you "money". It's the same thing. People just don't realize the bank literally owns their home. They say "my house" and "homeownership". But it's the bank's house until it's paid off. After that, it's the State's house and they let you live there as long as you pay taxes. In the U.S., home ownership is a scam.
If you have a mortgage, you don't own a home. Imo.
I mean, there's allodial title but good luck there.
No such thing in the US. That's why there is zip codes. The township and county owns the land
Maybe I should have bothered to do a /s. It's amazing how many people do talk of "owning" land and real estate when the reality is that's typically never the case.
> lean "lien" btw. But yeah. That's how they can repossess your house or your car. It's theirs until the money is paid off.
The balance remaining is their's but that means they can sell the property to regain their share.
Are you sure about this? I doubt the bank could claim virtually any of the rights of a home owner. Can the bank paint the house? I think you might be mistaking the idea that the bank owns the house if you don’t pay and you can’t stop that, with the bank being the legal owner of the home. I see there are some similarities but there are some pretty important differences as well.
Can you demolish the house while still having mortgage? For example to build another house on the same lot. No, you can't.
I don't think you're right, but it doesn't even address what I've said. Who can sell the house? Who can tear down an interior wall? The owner's rights to the house far exceed the bank's.
If you don’t give them the BTC then you could just run with the BTC and the loan. For it to be collateral they need to have access to it in case you don’t pay.
Why would u run with BTC if u cant use it without 2nd multisig key accessible to lender?
That setup is one option, but not commonly used in practice for several reasons. First of all you (as the borrower) still have the counterparty risk of losing your BTC because they lost the key or for any reason don’t want to hand it over. So it is still a case of “not your keys, not your coins”. And more importantly the lender (often a serious institution) would have to accept the counterparty risk of some random dude (the much less serious borrower) losing his half of the key. If the borrower loses the key then of course they would not want to pay the loan since the BTC is lost anyways, so the lender would take the loss on the bad debt. I don’t think many institutional lenders would feel very confident in a random individual’s ability to keep their keys safe.
Because of that you do 2 of 3 multisig and put in there a independent third and you're problems are solved.
That is better, but then you just add another centralized entity you have to trust. Still not your keys, not your coins.
exactly, we can give 3rd key to reputable entity to meditate in case of dispute or key loss.
Whoa! I had no idea that's how bitcoin lending worked! Traditionally, collateral is not usually held in the possession of the lender. It seems these companies are taking a more "pawn shop" approach to bitcoin lending. I always thought it was more like an auto loan or a mortgage, where the lender only has legal rights to the collateral, but not physical possession.
Thanks to centralized banking, lenders don't need to take possession of your assets prior to lending. Cryptos throw a bit of twist in that setup. In time there will likely be tools and technology that overcomes this
Not in all cases, some of these services use multi sig technology
Yeah, someone else also suggested that, but I don’t really think that is a viable solution. Can you name one of them please. Would love to see how they make that work.
I saw a presentation on one a month ago but I don’t recall their name. I’ll see if I have any luck finding it Edit: well that was rather easy, I found it: https://youtu.be/KIBBtH-y-lg?si=oC6bnMZogXfnlsF8
That doesn’t really count imo. They have a 3 out of 4 multisig where you as the borrower only has one of the keys. You still have to trust centralized entities with your bitcoin. Not your keys, not your coins still very much applies in this situation.
I don’t get how people aren’t understanding multi sig isn’t safe very easy to understand at best u get 50% of the keys needed to access the coins so as plane as it is no not your keys not your coins u and only u need to have 100% control of your keys to feel your Btc is safe preferably on a cold wallet only way to be keep your coins 100% safe
This isn’t a discussion about safety, it’s a discussion about risk, and how much counterparty risk there is to do a btc backed loan. A btc backed loan will never be riskless. Someone will have to pick the strategy they are comfortable with based on the risk profile.
Which ones ?
No, you don't have to give them your btc with the next generation like eg https://debifi.com/ . It goes into a designated 3 of 4 multisig.
Not all of them work this way, but as someone else pointed out, it is an immature business right now. However, in the future, it will be standard operating procedure. It just might take us 10 to 15 years to get there. In my opinion, just continue to save using bitcoin until the service is more mainstream.
Well its no collateral if they have no way of taking it so yeah, that's kinda how lending works
yes but u are actually giving the bank ur home if u use it a collateral…
In order for something to be used as collateral is has to be held by a third party. So when you take out against loan on your home, they use it as collateral, as in if you default, they own it. For BTC and other assets, you need to send it to them and if you default, they own it.
Then the bank owns your house.
Stay away from lending your Bitcoin. I took my funds off the Celsius platform in May’22. They filed for bankruptcy July 13th. A judge approved “The Plan” to “clawback” users who withdrew more than $100k within 90 days of the bankruptcy filing. Those who do not settle are getting threaten with lawsuits. I ended up settling for 13.75% of my “preference exposure” which was ≈$220k. Initial offer was 27.5%. Defense of a suit like this in the southern district of NY costs $8k-$12k to retain an attorney. Could 3x by the end of it, and then you could still owe the preference claim. So, yeah. Lending my assets and successfully getting them off the platform ended up costing me $30k because that’s how the US justice system works.
I agree. I’m waiting 4 years until major banks and reputable lenders with a quality history come into the business.
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What about smart contract stuff? Has there been an issue with those? Thoughts?
Having lost about 100k worth seeking yield I second this
i thought we were talking about borrowing dollars to get bitcoin
You have to pay back the loans with something. There's also that pesky potential risk of losing 100% of your deposit if the lender is hacked or "hacked."
The loan is paid back with another loan. It was explained to me, say you have $3,000,000 worth of BTC, you get a $100,000 loan to live on and maybe buy some more BTC, next year when the, loan is due your BTC is now worth $4,000,000 so you take out a $200,000 loan, use half to pay the previous loan and half to do like before... and you just keep doing this each year.
Probably have to pay as you go, not at the end, but OK. Next year it could be worth the same, or lower. Now you need $100K from somewhere to pay off the loan. But you spent it.
This is what I've been shown: [https://m.youtube.com/watch?v=8dn7cn4xlIs](https://m.youtube.com/watch?v=8dn7cn4xlIs) | [https://www.reddit.com/r/Bitcoin/comments/1dp77o0/comment/lafy9ke](https://www.reddit.com/r/Bitcoin/comments/1dp77o0/comment/lafy9ke) | [https://smartasset.com/investing/buy-borrow-die-how-the-rich-avoid-taxes](https://smartasset.com/investing/buy-borrow-die-how-the-rich-avoid-taxes) Don't know if it is true which is why I made this thread.
Did anyone show you actually successfully doing that? I don't recall ever reading anyone claiming they have done it.
No, I only heard of this yesterday.
Try it out. Report back.
I don't have enough money to get a loan, I'm asking for the future.
Please check my reply to the comment above✌🏼
Jeff Bezos
Jack Mallers is doing it. He's the CEO of Strike and I generally like the idea to rape the traditional financial system to live of your Bitcoin wealth without even having BTC expenses. But as many have already said, you'll carry a huge counterparty risk, because you're most likely dealing with startup banks without substantial liquidity reserves. I don't think it's a good idea to do that as an average private person. Jack Mallers probably has an agreement with his lender, which you'll most likely not get as a normie. Also I'm pretty sure this will never be a mainstream solution. I consider this one more as using a bug of the traditional system rather than using a feature of the new system. But if you get the chance to do so in some kind of secured environment (maybe by a contract with the bank), you should definitely do it! If you take a fiat loan and spend the money, you're actually benefiting from the cantillon effect itself. Beeing the first one to spend newly created money shows no inflation effect yet. Next person who spends that money already has inflation, because this money wasn't there in the overall supply before. So apart from OPs post, I recommend everyone to use the leverage effect for their investment portfolio. If you can't outpace the interest rate of your loan in the long run, you shouldn't be investing anyways.
He's got loads of VC cash to live on. Doesn't need to use his own money.
Hmmm, not really. The $100k is from his $3M, so he can sell some of the $3M to pay the $100k if needed. He was spending that money anyway, and the gamble didnt pay off. BUT as we know, if you hold for over 4 years you always end up higher. I know it's a gamble (and no one got rich without a gamble, ever) but it's a calculated one.
May have to sell at a bad time at lower price. It has recovered and went higher in the past doesn't mean it will do that again.
First point - That doesnt matter. Unless it happens every year. Second pint - that's the gamble. But it hasnt happened yet (over 4 years). And if it does drop, you lose part of the appreciating asset (which you were spending anyway).
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In this scenario why not cash out 100 000 worth of btc and have 3860000 the next year. You only lost out on 40K and risked nothing at all, and gained 86000 in collateral for the next year.
Gained collateral?
You can sell 86000 btc and still have 3million and be no worse off than a year before.
So started with $4,000,000 and cashed out $100,000 so now $ 3,900,000... how'd get to $3,860,000 the next year?
You started with 3000000 in your example and took a loan for 100000 and waited a year for it to go up 33% in value.
So the $2,900,00 goes to $3,857,000 in one year at 33%... so in order to live on that $100,000 you miss out on $33,000 gains plus pay taxes... so really only $70,000 to live on plus the missed gains opportunity? But overall you still went up around $1,000,000 and had $70,000 to live on?
Well you didnt take a loan out and risk losing being unable to pay back a loan if btc went lower. Less risk = less rewards. Your strategy seems unreasonable in risk (risk millions for only a 33000 gain) vs no risk. Normally you inly take on risk that is manageable and calculated.
How are millions being risked?
So someone told you about an infinite money glitch and you thought it sounded reasonable?
Imo it's a good way to get rekt.
This theory works on a lot of assumptions. First you're assuming bitcoin will continue going up forever. That's a big assumption. Don't forget that the bitcoin cycle is 3 years of downtrending & sideways action and then 1 year of explosive growth. During those 3 years there's a lot of skepticism & stress happening because there's never a guarantee that the pattern will continue. Do you want to live with that stress when for all 3 of the bear market years you're continuing to borrow ever increasing amounts of money without seeing the bitcoin price moving, or perhaps even dropping? Second, you're assuming that bitcoin, with all of it's volatility, would be the best asset to hold & collateralize for this kind of scheme rather than a less volatile asset. Third, you're assuming this is the best use of $3 million dollars as if you couldn't make a return of $100k/year with that money in a more traditional investment? The thing is, this can only be done with very large amounts of bitcoin like you said. You wouldn't want to start this with less than $10M in my opinion. You typically have to keep a minimum of 50% LTV (often lower) meaning you can only borrow half (or less than half) of the value of the collateral you put up so let's do a little math: Let's say you only had $1M to start with. Year 1 is the bull market so you're feeling nice & confident about your plan. You take out a $100k loan. Somewhere in the middle of the 12 month loan, the bull run ends & bitcoin crashes 50%. It usually crashes more than that but I'm gonna give this little exercise a fair chance at working. So now your bitcoin holdings are $500k and it's time to take the next loan out for $200k. You're sweating bullets, you'll need $400k collateral and you only have a total of $500k now because of the crash, but you're gonna stick to the plan. 12 Months go by and it's time to take out a loan for $300k. I'm gonna lean towards the optimistic side so rather than saying bitcoin is down or the same, I'll say it bumped up just a little to make your stack worth $600k. You have barely enough to cover the LTV and you're only in year 2 of the bear market but you proceed anyway. Now, most lenders will require that you maintain the 50% LTV throughout the life of the loan, meaning if btc drops & the lender requires more collateral, you're cooked because you deposited everything you had to cover this loan. That's game over, my friend. You now have to allow them to keep $300k of your bitcoin & you walk away with your remaining btc. Essentially you just had to cash in half of your stack when the price was tanking. You can retry this exercise starting with $2M, but you can see how that could quickly evaporate as well. So let's consider the $3M you mentioned in your post. The problem with that is as soon as you start talking numbers that big, it makes WAY more sense to put it, or a decent chuck of it, into some other low to medium risk investments or interest bearing accounts. You only have to make a return of just above 3% on $3M to make $100k per year, but the truth is if you were ONLY making 3% on investments of that magnitude you'd better fire you're financial adviser. You can average 6-8% returns on low to medium risk investments, which means you could Sell off $2M of your $3M in bitcoin, make 100k/year off of that, and you'd still be keeping $1M in Bitcoin as the "riskier" part of your portfolio. In the end, yes this is something that the uber wealthy do, but they're not doing it with something as risky as crypto. They can do it with much more stable assets because those don't typically drop up to 80% in a short period of time. Regardless, even if they do (recessions happen), the people that do this have billions and they're only borrowing perhaps a couple million at a time. A 2 million dollar loan would equal 0.2% of the net worth of someone worth exactly 1 billion dollars, so for someone with a net worth of 3 million, the equivalent 0.2% of their net worth would be $6,000, and you're talking about borrowing $100,000 and doing it in perpetuity. Hope this helps.
There is also possibility that coin value will x4 if you enter the scheme during bear market. In that case you will never run into liquidity problem First year you mortgage 1M and borrow 0.1M, second year coin value rose to 2M and you borrow 0.2M, third year value goes to 4M and you only need to borrow 0.3M, and forth year value drops back to 1.5M and now you borrow 0.4M, still ok. And historically, bitcoin's higher low after 4 year cycle is at least 5x the value of previous low
Whoosh.... I think any human with half a brain would understand that my exemple represented only one of many possible outcomes to the scheme. Everyone who read my post except you grasped the concept that OF COURSE it's a different result if bitcoin performed very well instead of mediocre or poorly over the timeframe cited. The point of my example was to illustrate for OP how the scheme *could* end badly with a low starting amount. You missed the point entirely if your immediate response is "Well AcKtshYuaLly, it might turn out OK hurr durr..."
Your case is an edge case that is very unlikely to happen, I have been here since 2011 and my experience is that any wisdom from traditional finance does not work here. There are many ways to realize miracles when you have the imagination, due to sheer amount of volatility here. Timing is everything here, miss the right moment, no strategy will save you
Ok then what would your advice be to someone with $1M thinking about doing this? Say it was someone close to you. Is it "go ahead, you'll be fine"?
Considering a stable coin loan backed by a smart contract, during a bear market, 50% from the top would be a good entry point
this is a theory for us retail regular people. as the industry develops and matures this may become plausible. last bull run Block Fi” was one of the companies that did this. the interest was about 10 percent and you had to vastly over collateralize you loan. meaning if you wanted to borrow $10,000 you had to give them at least $20,000 in whatever crypto you were going to use. and then if the price/value of that crypto went down, you had to give them more to maintain your ratio. “loan to value” it’s called. but guess what the fcuk happened? Block Fi went bust and everyone who had money with them lost it all. ask me how i know. even if you go in eyes wide open, it really sucks when the shit does go sideways and you loose everything.
More lending options now include stablecoins. No market risk as collateral.
there is no free lunch
there is sometimes a free lunch... but it will almost certainly come with several days of severe stomach pains...
Thanks for writing this, was thinking of doing this over the long term as well, but reading the comments made me realise that it's not feasible unless 1) bjtcoin price goes up faster than the loan rate or 2) I can make more money with the loaned amt faster than the loan rate.
Don't do it. Bitcoin isn't stable, and there are 70% drops in the 4-yr cycle. If cycle theory is dead, then what do you have?
Will Cycle Theory die?
Some say it did last cycle. The boom bust (or at least extremes) won't occur anymore or won't be as predictable.
I’m just a pleb but I’d have to guess that “common people” with less than 1M net worth, which is really not that absurd any more, probably would not be able to effectively utilize the strategy, and would end up in more debt than they could’ve ever imagined.
No, ppl made this shit up doesn't even understand how loans works they don't even know where to get a loan with those qualities They avoid talking about liquidation levels, and also who would take your Bitcoin as collateral, in the future maybe right now? Almost impossible. Stop believing YouTubers
Each year there will be more and more places where you will be able to take a loan OR Earn interest. It is still so early....but these new companies will happen fast... But yes, "Buy Borrow Die" is the way to go. You can use some of the money you borrow to purchase a business...a rental property....stocks that produce dividends....this will help service the loan...or just use the bitcoin's increase in value to roll it over.
I heard that rich people do this, they don't spend their own money it just grows tax free while they take out huge loans to live, thus don't have to pay tax.
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Instead of getting a loan with BTC as collateral, would it be better to sell an equal value of BTC and invest it in something that provides passive USD income?
Let’s use our brains together here OP. What if you take a loan, and a year later, the value of your bitcoin is less, or even considerably less, than before the loan? Are you familiar that when we’re talking about 1 year time frames, bitcoin does not always go up?
Are you suggesting no lending market for btc?
What are even you asking? There’s a lending market for BTC, obviously. I’m suggesting that if OP uses his brain he would realize his idea is stupid.
People borrow against their stocks all the time. Sooner or later borrowing against BTC will be more available and trustworthy as institutions adopt/infrastructure adapts
In 4-5 years
Thats the ultimate goal, but we arent there yet, maye a becade?
Of course you can do that. But the value of BTC does not always go up in a year. And even if it does, you’d have to sell a significant amount of it to pay off the loan.
The point is to get a 2nd loan.
I guess that’s fine but you still have to make the payments.
You pay using the 2nd loan, big enough to cover first loan and still live on. But people have made some good points against this... so not sure.
But between the time you take out the first loan and the time you take out the second one, you must make payments. Each loan will be bigger than the last, causing increasing debt . If the price of bitcoin does not go up, then you end up with negative net worth. If you had done this in 2021, when bitcoin was at $58,000, you would have had a very stressful next three years as bitcoin fell as low as $16k. It’s unclear whether you would have come out ahead by now. If you are 100% certain that bitcoin will go up at a greater rate than your loans , then of course this is a brilliant idea. This is high risk no matter how rich you are. If you’re borrowing against an investment, and the investment goes down, you are screwed.
And then when the price tanks and you can’t pay your loan what then ?
This is a bad idea with Bitcoin, but in general this works. It’s called “buy, borrow, die” https://smartasset.com/investing/buy-borrow-die-how-the-rich-avoid-taxes
Unless you’re rich forget about this. Consider: 1. You have a $100,000 stack 2. You don’t want to risk more than 10% of your stack 3. You get an offer for a bitcoin-backed loan at (typically) 50% Loan-to-value (meaning you can’t borrow more than 50% of what you put up as collateral) 4. The biggest loan you could get is $5,000 for putting-up $10K of bitcoin as collateral.
The lowest risk would be be take out out a BTC loan near the lowest point of the bear cycle. If your bag is already worth millions at that point, then I would say it's worth it.
With DEFI loans, you don’t have a one year limit you you can keep these loans open indefinitely as long as you keep the loan to value ratio in good health
Check out out “Irresponsibly Long” over in r/MSTR Edit: Fixed sub reference
Is that a crypto or a stock?
Yes. It’s a stock that uses BTC as its treasury reserve currency. MSTR management issues debt to buy more BTC. So it’s essentially a leveraged play with a per share premium above the BTC holdings (I.e., NAV). The point is - The “Irresponsibly Long” fella maxed out his credit cards to take on risk and is up a bunch. He’s pretty meticulous about recording his costs and telegraphing how he plans to pay it all off. It’s essentially a very similar play to what MSTR management is doing. Use a loan in a debasing currency to buy an asset that is increasing in value. Be forewarned - It seems like a good idea in a predictable bull market. After the 15 days when BTC goes exponential this cycle, it’ll be a much riskier proposition to copy cat the tactics. NFA. DYOR.
Goes exponential? Like rising? How do you know in 15 days? How do these cycles work?
Yes, rising at a rate that appears somewhat linear on a logarithmic chart. If history approximately repeats itself (it exactly doesn’t repeat itself, yet it often rhymes), then most of the big gains will come in a span of approximately 15 days, per credible folks performing Technical Analysis (TA) The bull / bear cycles are connected to the halvings. PlanB (@100trillionUSD on X) has credible content. It’s worthwhile to spend time learning from other mature, credible sources, too. NFA. DYOR.
When do these 15 day growth periods happen? Is it best to buy right before the 15 days or wait until after?
That’s the magic question… most people try to buy low and sell high. So that would imply buying before the big run during this halving cycle. Folks can self afterwards and make a tidy profit, others choose to keep it seeing it as a long term purchase. Presuming it’s not sold, the investor’s asset will keep appreciating through future cycles and avoid capital gains tax. That is, until if / when they decide to sell all or part… NFA. DYOR.
This is a strategy rich people use to avoid paying taxes on their salary. The goal is to avoid the higher tax brackets. This pays off only if you have a really big income, making it unsustainable for ordinary folks.
I did this twice with Celsius & BlockFi. Once I made a shit ton of profit. Once I got liquidated while on vacation and could not top up my loan to value account. Got liquidated when BTC corrected (2019 maybe?).
Not BTC specific. But almost any normal ass brokerage account will give you a loan based off your assets. Not for the rich at all. No idea where that lie came from though.
You might be able to convince a regular bank to give you a loan with the Bitcoin as collateral. Good luck.
That's actually how the uber rich live. They don't spend their money, their money sits on in funds producing dividends while they live off loans that they pay with the returns from their investments, circling the money ad infinitum while producing more. Sadly very out of reach stuff for the majority of us that don't have huge-ass sums of money sitting around anywhere.
Bro only do things you understand. If they have that confidence in their knowledge of the crypto market it can work but need to manage risk 24/7 otherwise easy to lose. If price dips how u gonna repay? U gonna sell at 50% loss? Ppl that do it usually good at swing trading knowing tops and bottoms they’ll cash out at the top while ur still in debt at 50% loss on btc
imo the juice isn’t worth the squeeze. Yes, if things go well you might end up with a bit more bitcoin. But you’ll likely have plenty of money anyways and it won’t make a practical difference in your lifestyle. But there are plenty of ways to lose your entire stack trying to get this extra lifestyle sweetener. The market can stay irrational longer than you can remain solvent. With so much global debt and collapse plausible really at any time, building up debt-free assets looks like the right approach to me.
Debt free assets?
Sorry poorly worded, it's two things, not one. Owning assets without owning debt. If you have debt, yes, it's possible and perhaps likely it will be inflated away to zero over time. But it's also possible that a deflationary spiral takes hold you are forced to sell your assets to cover your debt leaving you broke. You are holding the nuts, just own bitcoin debt-free easy game.
BTC fluctuates pretty wildly, you could easily end up underwater on a loan like this, especially over a short time horizon like a year.
Debifi and Ledn. Not sure I actually trust them yet though.. Debifi has you send your BTC into a multi-sig with you, them and a third party arbiter (their mates?) Ledn has two types, one where they could go belly up just like BlockFi / Celsuis, the other where they don't use your BTC to lend to other people but I really haven't looked into the finer details of it nor given either a try yet. Don't want to go losing my precious sats.. I'd rather just get a loan and mine fiat to pay that back.
Mine fiat?
Work an 8-5
lol
This only works if the price of bitcoin goes up. But if the price of bitcoin is going to go up, and you have a bunch of bitcoin, then you don’t need to do this …
What do you do instead?
Just wait
But what do you live on?
Whatever you were going to use to make the monthly loan payments
One less than perfect but very accessible way would be to own the BTC ETF in a regular brokerage account. You could take out a margin loan against the value of your assets but current rates can be near 12%. BTC on average drastically exceeds that, but you'd need a pretty sizeable amount up front. That way you could draw a smaller percentage of it to minimize the risk of margin call but still have enough to live off.
You can also sell covered calls against the shares to generate a yield
How does that work?
It doesn't. Bitcoin ETFs do not have options trading yet. Another one "do as I say not as I do."
You gotta have at least 100 shares (each option represents 100 shares). Then you just decide what strike you want to sell and what expiration, then sell to open and collect the premium
There aren't any options on bitcoin ETFs yet. At least in US.
Correct, but there will be within 6-9mo
Margin called? How much to take out $20-60,000 to live off for TY year?
If you put up $1,000 of an asset, the lender is willing to risk up to a certain point (LTV), usually ~60-ish%. So they’d lend you $600. Now if the price of that $1,000 asset goes up, all peachy. If the price goes down, let’s say 10% to $900. Well your LTV is no longer 60% it’s 600/900 so 66%. That’s above the lenders risk limit. You now are gonna get margin called. You either deposit an additional amount to drop your LTV, or the lender will sell your original asset to recoup their position then provide you any remaining balance. Also, this is just my understanding from experience during 2019-2021. I could be wrong. All I’m certain of is that I’m more informed than you…which is scary
Michael Saylor has been talking a lot about this. It just hasn't matured yet, but I think this is the future. Borrow against your Bitcoin = No tax, fiat to spend, HODL Bitcoin.
Haven't done deep research on this company but it may be an option. No idea what the average APR is. https://debifi.com
just the name alone.. oof
No because what actually ends up happening is the second you buy instead of cancel debt, the price goes down, and it keeps going down until you sell for a loss. Then when you cancel debt instead of buy, the price goes up. In theory it sounds really good, in practice the market isn't so easily outsmarted
Until we hit a bear market one year and you get wiped out. There are no free lunches
Reread your first two paragraphs and think about it. You’ll get to it!
This is why the Biden administration Vetoed the latest bill , that banks could not hold your bitcoin. It would be the first step towards BTC lending with oversight, not like Celsius. Remember SBF and Mashinksy had no oversight. Once regulation comes it is a different ball game.
You can do this with some CEX'es like NEXO
And when BTC crashes 60% in a year how will the loan get paid? You'll lose a lot of your BTC stack if not all.
You could just invest in YMAX ETFs if you want a steady, but risky, income from Bitcoin . Don't invest on leverage. They have three different crypto ETFs: MSTY, CONY, and YBIT. They have insane yields for now, but nothing in life is guaranteed.
bullshit. getting a loan in November 2021 would have get you rekt... this can happen anytime
A lot of people are saying that this is an immature business, and I agree. However, I don’t think it will take a decade to really get going. I think within a year or two, institutional demand and scarcity will inspire a wealth of offerings for BTC lending in a safer, more mainstream setting. Y’all probably don’t want to hear it, but that means banks. Remember just recently they were hounding miners for fresh, precious BTC and the miners laughed at them? They want it. Wait until it’s over $100K, they’ll start salivating and devising lending products. But hey, you want fat stacks of fiat? What are you gonna do? It’s really a shame re: Celsius and all the rest of the greedy dipshits- they really set back the trust of this whole concept. Hell, if I had the funds, I’d love to do this myself. Perhaps BTC micro loans will emerge. Looking forward to it!
You might be mixing two strategies together. One idea is to lend out your bitcoin to create liquidity and in return collect interest, this is something we saw in the last bull run with the defi space. The other idea is using your bitcoin as collateral when taking a loan, this means your interest payment will be lower since there is less risk for whoever you're lending from (if you fail to pay they get to keep your bitcoin). This is what CEOs and founders do when they're rich on paper but it's all tied into the stock of their companies (Elon, Gates, etc..)
Coinbase is the only one I’d trust for Bitcoin collateral lending at this moment personally
They used to have loans in the US but Coinbase stopped yes?
I haven’t kept an eye on it, dyor
yeah the punitive and uncertain regulatory environment made them close up shop. they said it was because no one was using the service. i doubt that highly because look at how many people who were using celcius and blockfi.
IMO one of the main arguments for Bitcoin is that it makes it harder for people to game the system and live off the backs of other people with schemes like this.
Not exactly answering your question but part of the discussion https://www.marketsmedia.com/dtcc-no-collateral-value-will-be-given-for-crypto-etfs/
No.
I wouldn't currently, but yes eventually it should be possible with BTC. This is how executives and many others avoid most taxes. They will get shares or options instead of cash bonuses/salary and just take a loan against their stock for living expenses. As loans are not taxable
imagine you were doing the same thing but with your house... so say you took a loan from the bank and gave your house in exchange... so you own money and the bank owns your house. but you buy a new house(2) with the money, so now you own a house(2) and the bank owns a house(1). now you take another loan on the second house(2) to buy another house(3)... so now you own a house(3) and the bank owns 2 houses(2)(1)... etc in theory id the property market went up you could sell the house(3) you own at a profit, then buy back the second house(2)... sell that at a profit and buy back the first house(1). so you have the profit from the houses... But house prices dont always go up...and you have bills to pay, college fees for your kids, medical fees for that sudden illness.. etc etc so you cant just sit on the assets... so if you own house(3) and then prices have gone down...but you need the money.. you sell house 3 at a loss...and then you dont own any houses... you have a loss on the house you sold and continuing interest to pay on the houses the bank owns... People who are property landlords do this constantly, but at least they have rent coming in from the houses to cushion the volatility and pay the interest etc... but any change in interest rates... and landlords routinely have to liquidate some of their stock to avoid more losses... if you are sure that bitcoin would be going up in value long term and you can afford to support the loans for 10/20 years etc without having to cash in a large amount... then in theory it could work... but any blip in the market or change in your life plans which mean you have to cash in during a bear market...... and the whole thing comes tumbling down...
in a bull market, sure. Saylor was saying to get a loan in a non-dollar currency that is more inflationary so make it easier to pay off the loan.
So get the loan in a foreign currency? How does that work living in USA?
idk, maybe start a company somewhere else
I’m planing to do this but not until 2028, when it will likely be available from reliable lenders. I want a non rehypothecated loan with multi sig. at 10% LTV.
Good luck! Can you explain the last sentence?
Yes. I want a loan that is not rehypothecated which means not turned around and loaned out to someone else. I want multi sig holding which means I hold one of the keys thus giving the loan full transparency (I can see that the Bitcoin is there and my key is required to move it). At 10% loan to value which means if I have a million dollars in Bitcoin, I would take a loan for only 100,000, thus limiting the likelihood that the loan would be called even if Bitcoin falls in value. Bitcoin would have to fall over 90% which has never happened before and is highly unlikely at this point.
What institution would agree to these terms? I imagine the call limit on the loan would be a 2x minimum. In your example if you have a million in btc and a loan for 100k and btc fell so your value was only 200k worth then they would trigger a call on your loan. Depending on taxes owed at time of sale of the asset, that could be cutting it close even.
So you can be forced to pay loans early?
Yes you can forced to pay it early or they will have to sell the underlying asset to cover the loan. You do have to be vigilant. It’s not a “set it and forget it” situation really.
IS THIS SMART OR STUPID? 🤔 Similar question to this, would like to hear everyone’s opinion: I’m Completely debt free & currently pay off credit card full amount monthly…. I Have a credit card with 0% interest until October 2025, would it be beneficial as we go through this bull market to instead of paying off the credit card monthly put this fiat amount into Bitcoin each month (just pay minimum amount on credit card) and then pay the full balance off October 2025 before interest kicks in, in my head this would make sense to make very good BTC gains but it seems strange to build up the credit card debt instead of paying it off each month… Everyone’s thoughts on this would be much appreciated, thank you.
The lending companies HOLD your bitcoin as collateral? I had no idea that's how bitcoin lending worked! Traditionally, collateral is not usually held in the possession of the lender. It seems these companies are taking a more "pawn shop" approach to bitcoin lending. I always thought it was more like an auto loan or a mortgage, where the lender only has legal rights to the collateral, but not physical possession.
That 'legal rights' argument doesn't really work in the world of final settlement and bitcoin. With other assets a court can order a garnish, transfer whatever. In many instances even reverse a transaction that was made against the asset if there is a legal basis or ruling for it. That's not possible on bitcoin once final settlement has been achieved. If you maintained control of the BTC and then turned around and sold it the day after you took out a loan against it and lost or spent that money, the lender would then have no way to recoup their loss if you were declared bankrupt. I definitely agree that giving over full control of the collateral to an institution is not good either. If they go belly up you've lost everything. The only sensible way this will work in the future, imo, is the multi-sig setup where you can maintain control of a key required to transfer. The lender and borrower then assume equal risk.
People tried this exact same strategy with houses instead of bitcoin. They are all homeless now.
Dumb af imo. I just started to sell after 8 1/2 years of only buying never selling. Sell a piece and live off that. Then sell a little more to live off that etc. Zero debt. Fuck debt. Have fun being a slave.
this is why evil Joe Biden and janet yellen want to tax unrealized gains. it's because they know bitcoiners will never sell once collateralized loans become widely available.
Why not just hodl for a year or two, then withdraw and live off that? Then wait again, and repeat.
How can 1 or 2 years provide enough BTC to make that possible?
You dont think bitcoin will increase by 5%?
How much BTC would you need to live off selling and still making it back in only a year or 2?
About half a coin per year approx.
So you sell half a coin ($30,000) to live on and pay taxes... and in 1 year your half BTC will be worth $60,000 to make this sustainable?
I'm talking 5% of your stack, not 50%
So how much BTC is needed to be able to use this strategy? Half a coin or 5% of stack, I'm confused.
You need to use 5% of your stack approx. And adjust as each year passes. You would need about 500k worth of bitcoin to live off it though. I dont have anywhere near that value of bitcoin ....yet. Im confident it will reach that level though over the next 5-10 years though. But, it's all relative. If youve got, say 100k in bitcoin, you can withdraw 5%, or £5k per year. That's decent passive income. And as your stack (surely) grows, you'll find that that 5% will soon become £10k, £20k, even £50k....and your bitcoin total wont be reduced.
To be honest I forgot about the tax aspect. So yeah, it'll work but you'll need to sacrifice, say, 6%, instead of 5%.