Why Borrow Against Your Bitcoin?
Sooner or later you will wonder how to take profit from your Bitcoin investment:
Should I buy it low and sell it high or hodl it forever and borrow against it?
Take Profit Strategies
Buy Low, Sell High (BLSH)
Buy low, sell high is a strategy where you buy Bitcoin at a low price and sell it at a higher price. This strategy can be difficult as prices reflect emotions and psychology and are difficult to predict.
HODL&Borrow (H&B)
HODL Bitcoin and borrow against it is a strategy involves accumulating Bitcoin and never selling it, while occasionally borrowing stablecoins against your Bitcoin collateral. As long as you keep the loan healthy, this strategy can be safe.
HODL&Borrow
vs
Buy Low, Sell High
1
Liquidity
With both strategies, you can take profit. However, the main difference is that when you borrow, you still get to keep your Bitcoin.
When you sell your Bitcoin, you never know when or if you will get the chance to buy back those Bitcoins that you sold.
Buy Low, Sell High (BLSH)
To take profit, you need to wait for the price to increase more than when you bought the Bitcoin. Only then you can sell the Bitcoin and take profit. After a sell transaction, you will be left with fewer Bitcoins.
HODL&Borrow (H&B)
In this strategy, you can start living off your Bitcoin right away after purchasing it. Simply borrow stablecoins against it, and as long as the loan is healthy and the Bitcoin price increases, you can borrow additional stablecoins.
2
Scarce
There are only 21 million Bitcoins that will ever be created.
With Buy Low, Sell High (BLSH) you need professional skills as a crypto trader in a volatile market (and even professional traders lose it all).
BLSH could be a gamble if you are not a professional crypto trader, because you never know when the market will run away from you after you sell your Bitcoin.
With HODL&Borrow (H&B) as long as the loan is healthy, you get to keep your Bitcoin forever and enjoy its price peaks year-over-year by borrowing against it. You will still be there with a stack of Bitcoins when the value surpasses $1 million.
3
Taxation
Selling Bitcoin is a taxable event in most countries, and the resulting capital gains taxes can reduce your profits by more than 50%. In contrast, taking out a loan against your Bitcoin holdings is a tax-free event, meaning you won't owe any taxes on the loan proceeds.
Conclusion
Borrowing against crypto assets can give you access to liquidity without having to sell your coins and incur capital gains taxes.
Selling your crypto assets can provide you with immediate liquidity, but you may miss out on future gains and be subject to capital gains taxes of up to 50% or more.