How to Take Profits Without Selling Bitcoin (BTC)

Key Takeaways

• Bitcoin-backed loans let you borrow cash without selling Bitcoin, avoiding taxes and keeping its future growth potential.
• Crypto-linked cards let you spend money borrowed against Bitcoin without paying taxes or selling your Bitcoin.
• Saving your regular Bitcoin investment instead of buying more helps build cash reserves while keeping your Bitcoin.
• Balloon loans let you keep your Bitcoin long-term by only paying interest and deferring the main repayment.

Bitcoin HODLers face a recurring dilemma: how to unlock the value of individual holdings without parting with the digital gold the individual spent years accumulating.

Selling Bitcoin outright feels counterintuitive, especially with its scarcity and potential for future appreciation. As Bitcoin crosses $100K, this challenge becomes even more pressing.

This article explores sophisticated strategies for accessing Bitcoin’s value without selling, blending personal finance techniques, crypto-specific tools, and institutional practices to maintain your stack while funding your needs.

The Case for Not Selling Bitcoin

Bitcoin’s unique value proposition lies in its deflationary supply cap, making it an asset unlike traditional fiat currencies. Every Bitcoin spent or sold is potentially one that cannot be replaced at a favorable price. 

For those who view Bitcoin as a long-term store-of-value, akin to gold, strategies to preserve it while benefiting from its potential are the goal of the investor.

Why Selling Bitcoin Can Hurt

• Missed appreciation: Bitcoin’s historical performance suggests high returns over time. Selling now could mean forgoing future gains.
• Tax liabilities: Realizing profits triggers capital gains taxes in most jurisdictions, reducing the net proceeds.
• Market timing risks: Selling during a downturn or before a major bull run could leave the individual regretting the decision. In the reddit post below whilst selling the Bitcoin can pay off expenses, it might be difficult to get back that Bitcoin spent.

Key Strategies for Unlocking Bitcoin’s Value Without Selling

Bitcoin-Backed Loans

Borrowing against Bitcoin is popular for those who want to preserve holdings. Crypto lending platforms allow users to pledge Bitcoin as collateral and receive fiat or stablecoins in return.

How It Works

• Bitcoin collateral: Platforms like Unchained Capital or Ledn offer loans with Bitcoin as collateral and savings technology .
• Loan-to-value (LTC): The loan-to-value (LTV) ratio, typically 40%-70%, determines how much fiat you can borrow.
• Interest payments: Monthly interest payments are required, but the principal remains untouched.

Advantages

• No tax event: No tax event since you’re not selling.
• Upside: The individual should look to retain Bitcoin’s potential upside.
• Large purchases: Funds can be used for large purchases like real estate or investments.

Risks

• Volatility: Volatility can trigger margin calls if Bitcoin’s value drops below the collateral threshold.
• Interest rates: High-interest rates, often 10-15%, can be burdensome if not carefully managed.

Stablecoin Loans and Crypto-Linked Cards

Some platforms allow you to borrow stablecoins (e.g., USDT or USDC) against Bitcoin and use crypto-linked debit or credit cards for daily spending.

Example: X borrows $2,400 in stablecoins to buy a guitar. He loads the stablecoins onto a crypto-linked card and makes the purchase. Over time, he repays the loan using his monthly savings or by refinancing.

Why Stablecoin Loans Works

• Convenience: Eliminates the need to convert Bitcoin to fiat.
• Legal: No capital gains tax.
• Small expenses: Supports regular expenses without diminishing your Bitcoin position.

Redirect DCA Savings

For long-term hodlers practicing dollar-cost averaging (DCA), redirecting new funds to a savings account instead of Bitcoin is a zero-cost way to build fiat reserves.

Case Study: X stopped buying Bitcoin with $100/month for two years, saving $2,400. While he delayed his purchase, he avoided interest payments, margin calls, and taxes, keeping his Bitcoin bag intact.

Institutional Leverage: The MicroStrategy Approach

Institutions like MicroStrategy strategically leverage debt to acquire Bitcoin, driven by CEO Michael Saylor‘s strong belief in its long-term potential for appreciation.

What Individuals Can Learn

• Low interest loans: Secure low-interest loans if possible (e.g., crypto-backed loans).
• Income-generating opportunities: Strategically leverage Bitcoin to invest in appreciating assets or income-generating opportunities.
• Consider risks: Bitcoin’s price volatility can impact repayment ability and collateral value.

Advanced Techniques for Long-Term Wealth Preservation

Generational Wealth with Balloon Loans

A more sophisticated approach involves balloon loans, where only interest is paid monthly, and the principal is due at the end of the term. A balloon loan is a financial arrangement where the borrower pays only the interest on the loan each month, deferring the repayment of the full principal amount to the end of the loan term. 

This structure can be particularly appealing to Bitcoin holders who want to unlock liquidity without selling their holdings.

How It Works

• Borrow: Borrow a large amount against Bitcoin, keeping LTV conservative.
• Pay monthly: Pay monthly interest using either income or Bitcoin’s price appreciation.
• Hold Bitcoin: Refinance or extend the loan at the end of the term, preserving Bitcoin for future generations.

Benefits

• Look elsewhere: Avoid selling Bitcoin indefinitely.
• Generational wealth: Pass Bitcoin to heirs while debts can often die with you, depending on jurisdiction.

Caveat: Requires meticulous financial planning to avoid overleveraging or market downturns.

Trading Altcoins During Market Downturns

In volatile markets, some traders strategically trading altcoins to increase their Bitcoin holdings, taking advantage of price fluctuations between Bitcoin and alternative cryptocurrencies.

Methodology

• Watch only ALTs/BTC tickers: When Bitcoin’s price drops, altcoins often fall further in BTC terms.
• Set BTC limit buys for strong ALTs: Accumulate strong altcoins at low BTC valuation points.
• Sell ALT into BTC post panic: Sell altcoins during a recovery will gain more Bitcoin for the individual and would have used the panic to gain more Bitcoin..

Warning: This requires advanced technical analysis skills and market knowledge. It’s not recommended for beginner traders.

Hybrid Strategy: Step-by-Step Guide to Spending Without Selling

Imagine you want to purchase a house worth $600,000 with a $60,000 down payment. Here’s how a hybrid strategy might work:

1. Bitcoin down payment: Use a Bitcoin-backed loan for the down payment, minimizing the LTV.
2. Fiat loan repayments: Fund monthly loan repayments with fiat income or partial refinancing.
3. Pay loan for 4-5 years:  If Bitcoin appreciates the individual can use a small portion of the Bitcoin to pay off the entire loan principal after 4-6 years or refinance the loan.
4. Larger Hodl stack: A strategy like this should, in theory, retain a majority of the Bitcoin while securing the asset needed like a property.

Conclusion

Every strategy carries risks, and timing is critical. Borrowing against Bitcoin during a bull market might offer the most leverage, but you must plan for downturns. Conversely, using fiat income to repay loans or build reserves during bear markets can protect your position.

Bitcoin’s scarcity and potential for appreciation make selling a last resort. By employing hybrid strategies and leveraging emerging financial tools, you can spend, invest, and grow without compromising your Bitcoin stash.

FAQs