The world of cryptocurrency has transformed how we think about wealth and investment. But for many Bitcoin holders, one question often arises: how can I access liquidity without selling my cryptocurrency and losing potential future gains? The good news is that you don’t have to sell your Bitcoin or crypto to get access to cash.
There are regulated lenders available who offer innovative solutions tailored for Bitcoin holders. Here, we’ll explore two excellent options that allow you to borrow against your Bitcoin while retaining ownership of your assets.
Why Borrow Against Bitcoin?
Selling Bitcoin comes with several disadvantages. First, you lose your position in the market, missing out on potential future price appreciation. Second, selling Bitcoin can trigger capital gains taxes, reducing the net value of your holdings.
Borrowing against your Bitcoin offers a better alternative by allowing you to unlock liquidity while still benefiting from its long-term value.
Option 1: Margin Lending on a Digital Asset Custody Platform
The first option involves using a digital asset custody platform that functions like a “digital asset bank.” Here’s how it works:
Custody and Borrowing
You transfer your Bitcoin to the platform, where it is securely held in custody. Think of this platform as a bank for your digital assets. Once your Bitcoin is in custody, you can borrow against it, typically at a loan-to-value (LTV) ratio of 30-40%.
How It Works
This borrowing structure functions much like a revolving overdraft facility. You can withdraw funds up to your approved limit, repay them as needed, and redraw funds as required. This flexibility makes it ideal for managing cash flow or covering short-term expenses such as household purchases or unexpected costs.
The Catch: Margin Calls
One important consideration is the potential for margin calls. If the value of Bitcoin decreases significantly, the platform may require you to add more collateral or repay part of the loan to maintain your borrowing ratio. While this poses a risk, it can be mitigated by carefully managing the amount you borrow and monitoring market conditions.
Who Is It For?
This option is best suited for individuals who want a flexible borrowing solution and are comfortable managing market risks. It’s particularly appealing to those with a long-term view of their Bitcoin holdings and who want to avoid selling during market dips.
Option 2: Single Stock Lending
The second option is single stock lending, a more structured and longer-term borrowing solution. This involves using your Bitcoin as collateral for a loan, with more favorable terms for professional investors.
How It Works
With single stock lending, you transfer your Bitcoin to the lender, who holds it in custody. In return, the lender provides you with a loan, typically at a higher loan-to-value ratio of up to 70%. This means you can unlock a larger percentage of your Bitcoin’s value compared to margin lending.
Loan Terms and Costs
- Loan-to-Value: Up to 70% of your Bitcoin’s value.
- Loan Duration: Terms range from 18 months to 3 years, making it ideal for medium-term financial planning.
- Fees and Rates: Expect fees of up to 2% and interest rates ranging between 3.5% and 4.25%, depending on your financial circumstances.
Minimum Transaction Size
This option typically requires a minimum loan amount of $250,000, making it more suitable for professional investors or high-net-worth individuals looking to unlock significant liquidity.
Who Is It For?
Single stock lending is an excellent option for those who need larger amounts of cash and are comfortable locking up their Bitcoin for a set period. It’s particularly appealing for professional investors or those looking to fund significant projects or investments.
Key Benefits of Borrowing Against Bitcoin
- Retain Ownership: By borrowing instead of selling, you keep your Bitcoin and continue to benefit from any future price appreciation.
- Tax Efficiency: Borrowing doesn’t trigger capital gains taxes, allowing you to maximize the value of your holdings.
- Access to Cash: Whether you need funds for personal expenses, investments, or business opportunities, these lending solutions provide liquidity without compromising your crypto portfolio.
- Flexible Options: With two distinct lending models, you can choose the option that best fits your financial needs and goals.
Important Considerations
Before diving into crypto-backed borrowing, it’s essential to keep the following points in mind:
- Regulation: Both lending options are offered by regulated providers, ensuring security and compliance with legal standards.
- Market Volatility: Be prepared for the impact of Bitcoin’s price fluctuations, especially when dealing with margin calls.
- Documentation: For both options, you’ll need to provide identification and complete a thorough application process to ensure compliance with anti-money laundering (AML) and know-your-customer (KYC) regulations.
- Plan Ahead: Make sure you have a clear plan for repaying the loan, including a budget for interest payments over the loan term.
Which Option Is Right for You?
Choosing between margin lending and single stock lending depends on your financial situation, borrowing needs, and risk tolerance.
**Choose Margin Lending
