The Tax Case for BTC Loans: A Concrete Example

Most people know that selling BTC triggers a capital gains event. But not everyone realizes that a BTC-backed loan does not — and the math on when that matters is more nuanced than most advisors admit. Our guide on borrowing versus selling covers the full framework.

Let me use a real scenario that I've walked through with a dozen people over the past two years.

The scenario

You own 2 BTC purchased at an average cost basis of $30,000. BTC is now at $105,000. You need $100,000 for a business opportunity. You have a 37% marginal income tax rate and a 20% long-term capital gains rate.

Option A: Sell 0.95 BTC

Proceeds: ~$100,000. Capital gain: ~$71,500. Federal + state tax (assuming 40% blended rate): ~$28,600 owed this year. Net cash available: ~$71,400. Remaining BTC: 1.05 BTC.

Option B: Borrow against 1 BTC at 50% LTV via Unchained (quote-only APR)

Loan: $52,500 (50% of $105,000). Annual interest: ~$6,300. No capital gains event. Net cash available: $52,500 (but pay ~$525/month in interest). Remaining BTC: 1 BTC.

The break-even analysis

In year 1: Selling costs ~$28,600 in taxes. Borrowing costs ~$6,300 in interest. Borrowing wins by $22,300.

In year 4: Borrowing has cost ~$25,200 in cumulative interest. Selling's tax bill was a one-time $28,600. By year 5, selling starts to look cheaper — if BTC has not appreciated.

But if BTC doubles again to $210,000: The 0.95 BTC you sold would be worth $199,500. You missed $99,500 in appreciation. Your $28,600 tax bill looks cheap. The borrower's 1 BTC is now worth $210,000. Understanding LTV and liquidation risk is critical — if BTC drops instead of doubles, your collateral could be at risk.

Further Reading

The rule of thumb

Borrowing makes mathematical sense when: you believe BTC will appreciate significantly AND you have a specific liquidity need AND you can comfortably service the interest payments. For lifestyle spending or speculative plays — selling is often cleaner.