27 Feb Mechanics of borrowing against bitcoin
So now that Michael Saylor is our new god I have found myself in a couple of conversations about never selling, and borrowing against Bitcoin. A few things that people have been saying here don’t seem to make sense to me, and I have got stuck in circular arguments with evangelists too many times not to seek further clarification.
So I’d like someone who has actually done it explain some of the real world mechanics and advantages to me.
Say I want to borrow $1 million to buy a house, a regular home loan needs to be paid monthly and you need to have an income that is sufficient to cover the repayments. Holding Bitcoin does nothing for you in this case unless you sell it.
Putting some or all of your BTC up as collateral is the next step. But the loan repayments still need to be accounted for, so all I can hope for in this case by offering collateral, is to get a slightly lower interest rate? This also puts the BTC at risk if the price drops so extra collateral might be needed, or you face getting liquidated. Point is this is a risk that needs to be managed.
I have been stuck in arguments with people who insist that the answer is to take out a second loan to pay off the first one but anyone with half a brain can see that at some point the loan needs to be repaid, and leveraging the hell out of everything you own is a great way to bankrupt yourself.
From what I can tell, this idea of borrowing against your bitcoin is not the silver bullet to tapping into this huge source of money that people seem to think it is. The only people able to do that are ones who already have a large enough income to service the loan to begin with.
If you find yourself in a position where you’re holding a life changing amount of BTC then I cannot see a way of capitalising on it in full without selling at least some of it.
What am I missing here? Please educate me before I get capital gain taxed to death!