Tax Hack - BTC vs. BTC borrowing \ stacker news ~bitcoin

1397 sats \ 37 comments \ @nyan 8 Jun bitcoin

Unfortunately, capital gains taxes are a reality for most of us. At the same I am getting the impression that more and more long term hodlers want to put their bitcoin to work. Some of us already live on a bitcoin standard and we are sitting on some sweet unrealized gains. Borrowing fiat against bitcoin is already quite widespread (and makes sense as it is a good trade even though interest rates are quite high) but as we are progressing along the adoption curve I am seeing more and more investment opportunities where we can directly invest with bitcoin (e.g. a startup with a great idea, a fund, etc.).

Ultimately, that is what the future (hopefully) looks like. We will use bitcoin more and more as a medium of exchange in our daily lives. Purchases must bring us either a lot of pleasure or investments need to outperform the baseline (which is the deflationary appreciation of bitcoin).

Long story short, using our bitcoin would trigger a tax event for many of us hence why borrowing bitcoin against bitcoin can make sense. I am thinking about setting up a trustless peer-to-peer service where fully collateralized bitcoin loans can be offered and taken. Interest rates would likely be much lower than taking out fiat (ultimately the free market decides) and the whole process would be fully trustless and non-custodial. Basically a win-win, the party lending BTC gets a practically risk free yield in exchange for locking their BTC up for a specific amount of time, the borrowing party avoids paying capital gains taxes when they want to use their bitcoin. Non-custodial and no KYC as it should be.

Wanted to feel out the pulse here if there is demand for such a service ;)

Yes, I would use that as a lender11.1%

Yes, I would use that as a borrower29.6%

No, my bitcoin stay where they are59.3%

27 votes \ poll ended

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179 sats \ 1 reply \ @freetx 8 Jun

Is the idea this?

Put up 1 BTC as collateral, borrow 1 BTC as loan
Spend the borrowed BTC
Keep loan open which eventually is cleared "some time in future" (wink wink)?

If so, why wouldn't that also work with just USD?

Remember that tax law is considered "substance over form" meaning that if a transaction has no value other than to avoid tax, it is disregarded.

21 sats \ 0 replies \ @nyan OP 8 Jun

Yes, that’s basically the idea. I already know that some centralized services are exactly doing that precisely because it seems to be a possibility for now. Of course may vary by jurisdiction. In any case, even with centralized services some people choose to take out BTC since their target investment will be done in BTC. And they nice thing about BTC only would be that it could be done completely on-chain and trustless.

200 sats \ 2 replies \ @supertestnet 8 Jun

I do not currently think trustless lending for USD or a stablecoin is possible on bitcoin. How do you plan to accomplish it?

I will note that Tony Klausing's "stable channels" project lets you opt into a USD "hedging" strategy on bitcoin where your counterparty can't steal your money, but they can just stop participating in the contract at any time. Since hedging is a form of "shorting," the other side of the trade is essentially "going long" on bitcoin, which is equivalent to taking out a USD-based loan and buying bitcoin with it.

0 sats \ 1 reply \ @nyan OP 8 Jun

I think it would be possible with USDT on Liquid and a cross chain swap, however, my proposal above is something different. You would borrow bitcoin against bitcoin. This can be done purely onchain and in a trustless manner.

0 sats \ 0 replies \ @supertestnet 8 Jun

Oh I see. Yes, this sounds similar to my loan shark project:

https://github.com/supertestnet/loan-shark/

142 sats \ 3 replies \ @Lux 8 Jun

people will rather become acrobats than stop being a taxpayer. never gonna learn

0 sats \ 2 replies \ @nyan OP 8 Jun

what do you mean? that people will not use such a service because the like paying taxes? taking a loan is a completely accepted and legal way to not pay taxes on capital gains.

121 sats \ 1 reply \ @Lux 8 Jun

taking a loan is a completely accepted and legal way to not pay taxes on capital gains.

so is not being a taxpayer

0 sats \ 0 replies \ @nyan OP 8 Jun

Haha, alright, granted ^^

41 sats \ 2 replies \ @dk 8 Jun

check out https://lava.xyz

trust-minimized borrowing and lending of bitcoin. they’ve done a lot of difficult technical work to make this possible.

it’s geared toward borrowing USD stablecoins collateralized by bitcoin, but the tech could probably be repurposed if it helped another use-case

21 sats \ 1 reply \ @nyan OP 8 Jun

Thank you, wasn’t aware of it! Will check it out. I think the BTC-BTC use case is simply just not that much on the radar atm since, without capital gains tax, it would make no sense at all ^^ taxes are really just distorting the market here a lot and which makes the otherwise irrational BTC-BTC case rational

10 sats \ 0 replies \ @dk 8 Jun

a BTC-BTC loan as you described would appear to me to have some risk of being considered as a transaction purely for tax avoidance and may be disregarded

i’m not giving tax advice, just sharing my perspective/guess

20 sats \ 6 replies \ @Undisciplined 8 Jun

I've wondered about this on occasion. Most people who DCA or otherwise regularly add to their stacks will usually have some that they acquired above the current exchange rate.

It seems like there could be a neat software innovation that spends in a way that minimizes capital gains owed.

69 sats \ 4 replies \ @quark 8 Jun

The FIFO rules(first in first out) don't give you much options to minimize capital gains. It is a nightmare. Maybe in some countries there are no FIFO rules. I don't know.

0 sats \ 3 replies \ @Undisciplined 8 Jun

That's what I wasn't sure about. If sats are perfectly fungible, like dollars or shares, then there's no getting around that.

Could you keep track of which specific bitcoin you're spending, though, and argue they are not perfectly fungible?

21 sats \ 2 replies \ @nyan OP 8 Jun

Finally something ordinals are good for hahaha

0 sats \ 1 reply \ @Undisciplined 8 Jun

exactly

I don't know the technical side of this stuff well enough to know if what I'm suggesting is even remotely feasible, but it seems like it could be if we're talking about uniquely identifiable units.

21 sats \ 0 replies \ @quark 8 Jun

interesting. I don't know if it would be feasible either. In theory yes. However I can imagine how it would go trying to explain it to a taxman inspector LOL

42 sats \ 0 replies \ @nyan OP 8 Jun

Nice thinking! Will be pondering that a bit!

91 sats \ 4 replies \ @DarthCoin 8 Jun

we are sitting on some sweet unrealized gains.

LOL such fiat mindset. NGMI

1 sat \ 3 replies \ @nyan OP 8 Jun

It’s a fact, not a mindset. If you want to invest your BTC into some business, you have a taxable event and in turn reduce your amount of BTC.

20 sats \ 2 replies \ @DarthCoin 8 Jun

what a bunch of bullshit crap you've just said. Your mind is worse than I thought, is really fucked up.

51 sats \ 1 reply \ @nyan OP 8 Jun

What is wrong with you dude ^^ you seem to have some issues

120 sats \ 0 replies \ @DarthCoin 8 Jun

Your are the loser, not me. More sats for me.

0 sats \ 0 replies \ @nyan OP 9 Jun

Thank you all very much for your votes and replies with your opinions. Given the feedback I will think again whether I am going to spend time on implementing this.

Have a nice Sunday all!

0 sats \ 0 replies \ @Hamstr 9 Jun

0 sats \ 0 replies \ @TheBTCManual 9 Jun

If i'm understanding correctly you want to borrow BTC to get BTC, so lets say you do 1 Bitcoin and take out 50 million sats to give yourself breathing room with 50% LTV, if bitcoin's price doubles how are you going to acquire the bitcoin to pay off the loan? Liquidation is the only option, because very few would have bitcoin playing around or the ablity to acquire 1 bitcoin within the duration.

So you taking the risk to cook 1 BTC to save how much on taxes?

The whole point of borrowing motive is to get fiat/stablecoin because your base case is you going short the fiat, and paying back with cheaper future fiat

0 sats \ 0 replies \ @OT 8 Jun

You will need to pay back that bitcoin at some point. And paying it back might be difficult if it continues to increase in value. The question is whether you will keep more Bitcoin doing it this way than just spending the lent out Bitcoin itself.

0 sats \ 0 replies \ @antic 8 Jun

I’m having trouble understanding why someone would borrow 1 BTC by putting 1 BTC into a lending contract instead of just using their 1 BTC for the enterprise (while not having to pay interest)…

0 sats \ 0 replies \ @0245bdaef2 8 Jun

You should look into unchained

0 sats \ 0 replies \ @SatsMate 8 Jun

I'm just keeping mine in cold storage, and not touchiing it.

0 sats \ 0 replies \ @MarsIronPI 8 Jun

I don’t have bitcoin to invest, but I like the idea. Thanks.

0 sats \ 0 replies \ @JesseJames 8 Jun

You can move your Bitcoin all you want (actually preferred to coinjoin and monero-ize it, is that a word? it is now...lol) and as long as you don't sell it no tax is involved. Use your head and lose you fiat thinking and you will be fine. We are all different, so YMMV.

0 sats \ 0 replies \ @Bitcoiner1 8 Jun

It's a good market to step in.

0 sats \ 0 replies \ @jgbtc 8 Jun

Why not both?

0 sats \ 1 reply \ @delta1 8 Jun

how does this differ from lend on hodlhodl?

https://lend.hodlhodl.com/

0 sats \ 0 replies \ @nyan OP 8 Jun

As far as I can tell, there you can only borrow other cryptocurrencies against bitcoin, not bitcoin vs. bitcoin. Therefore you also have an LTV and the lender has a default risk. Furthermore, you are dealing with other shitcoin chains.

What I describe above is pure bitcoin on-chain (and potentially lightning at a later stage). Bitcoin vs. bitcoin with the goal of deferring any capital gains tax to keep optimal compounding. There is no default risk, the interest rates would be likely much lower and everything is just relying on the security of the bitcoin blockchain and nothing else.