{"id":100731,"date":"2019-04-04T11:50:17","date_gmt":"2019-04-04T18:50:17","guid":{"rendered":"https:\/\/cryptoslate.com\/?p=100731"},"modified":"2026-04-29T11:17:56","modified_gmt":"2026-04-29T10:17:56","slug":"how-some-traders-avoid-bitcoin-taxes-using-crypto-loans","status":"publish","type":"post","link":"https:\/\/cryptoslate.com\/how-some-traders-avoid-bitcoin-taxes-using-crypto-loans\/","title":{"rendered":"How some traders avoid bitcoin taxes using crypto loans"},"content":{"rendered":"<p>Some traders are using cryptocurrency as collateral to secure loans, allowing them to keep their <a href=\"\/coins\/bitcoin\/\">bitcoin<\/a> and get cash while avoiding capital gains tax. Due to the popularity of the option, the crypto loan industry has been growing rapidly.<\/p>\n<h2>Crypto Loans and Tax Implications<\/h2>\n<p>The ups and downs that have been synonymous with the crypto market ever since its inception don't seem to affect the lending industry. According to a <a href=\"https:\/\/www.bloomberg.com\/news\/articles\/2019-04-02\/crypto-lenders-push-no-tax-perk-of-leveraging-bitcoin-for-cash\">report<\/a> from Bloomberg, there has been a steady increase in the number of people using various cryptocurrencies, primarily bitcoin and ether, as collateral to borrow money.<\/p>\n<p>The Apr. 2nd report pointed to Edgar Fernandez, a former Wall Street trader who used some of his <a href=\"https:\/\/cryptoslate.com\/coins\/bitcoin\/\">Bitcoin<\/a> as collateral to borrow nearly $100,000. The move allowed him to keep his cryptocurrency without needing to pay capital gains tax on the newly acquired cash, potentially giving the trader more options to trade on margin\u00a0(by purchasing more cryptocurrency) or pay off higher-interest debt.<\/p>\n<p>This is due to the fact that the Internal Revenue Service (IRS) in the US sees digital coins as capital assets (or in some cases commodities) like stocks and property, not as currency. Cryptocurrency lenders also are not subject to the same level of oversight by the US Securities and Exchange Commission (SEC) or the Commodity Futures Trading Commission (CFTC).<\/p>\n<figure id=\"attachment_43227\" aria-describedby=\"caption-attachment-43227\" style=\"width: 300px\" class=\"wp-caption alignright\"><img loading=\"lazy\" decoding=\"async\" class=\"size-medium wp-image-43227\" src=\"https:\/\/cryptoslate.com\/wp-content\/uploads\/2018\/04\/crypto-taxes-social-300x158.jpg\" alt=\"The Investor\u2019s Guide to Cryptocurrency Taxes\" width=\"300\" height=\"158\" srcset=\"https:\/\/cryptoslate.com\/wp-content\/uploads\/2018\/04\/crypto-taxes-social-300x158.jpg 300w, https:\/\/cryptoslate.com\/wp-content\/uploads\/2018\/04\/crypto-taxes-social-768x403.jpg 768w, https:\/\/cryptoslate.com\/wp-content\/uploads\/2018\/04\/crypto-taxes-social-1024x538.jpg 1024w, https:\/\/cryptoslate.com\/wp-content\/uploads\/2018\/04\/crypto-taxes-social.jpg 1200w\" sizes=\"(max-width: 300px) 100vw, 300px\" \/><figcaption id=\"caption-attachment-43227\" class=\"wp-caption-text\">Related:\u00a0<a href=\"https:\/\/cryptoslate.com\/cryptocurrency-taxes\/\">The Investor\u2019s Guide to Cryptocurrency Taxes<\/a><\/figcaption><\/figure>\n<p>In the US, this is also important when waiting for <a href=\"https:\/\/cryptoslate.com\/cryptocurrency-taxes\/\">long-term capital gains<\/a>\u00a0to apply to an asset. If a trader holds their bitcoin for a year or more, then they are eligible for the substantially lower long-term capital gains rate instead of getting taxed at the short-term capital gains rate.<\/p>\n<p>The critical factor: using loans (likely) does not reset the waiting period for long-term capital gains, allowing savvy investors to access the cash locked up in their investment.<\/p>\n<p>Typically, lenders require 20 to 60 percent more cryptocurrency as collateral to protect them against crypto's volatility. Loan amounts range anywhere from $500 to $2 million with durations as long as a year, with interest rates varying from a few percentage points to 16 percent, the report found.<\/p>\n<p>One risk of these loans, however, is sudden liquidation in the event of a market crash. If the underlying cryptocurrency suddenly becomes less valuable, then part of the crypto is liquidated in a <a href=\"https:\/\/www.investopedia.com\/terms\/m\/margincall.asp\">margin call<\/a> to maintain the ratio of collateral to debt.<\/p>\n<h2>Cryptocurrency Lending is a &#8216;Wild West'<\/h2>\n<p>While <a href=\"https:\/\/cryptoslate.com\/mike-novogratz-leads-investment-in-crypto-lending-predicts-800-billion-market-cap\/\">cryptocurrency lending<\/a> is anything but mainstream, the industry is incredibly profitable. Genesis Capital, an affiliate at Genesis Trading, said it handed out more than $1.1 billion in cash loans against cryptocurrencies in 2018 alone.<\/p>\n<figure id=\"attachment_70565\" aria-describedby=\"caption-attachment-70565\" style=\"width: 300px\" class=\"wp-caption alignleft\"><img loading=\"lazy\" decoding=\"async\" class=\"size-medium wp-image-70565\" src=\"https:\/\/cryptoslate.com\/wp-content\/uploads\/2018\/07\/mike-novogratz-billion-market-cap-social-300x158.jpg\" alt=\"Mike Novogratz Leads Investment in Crypto Lending, Predicts $800 Billion Market Cap\" width=\"300\" height=\"158\" \/><figcaption id=\"caption-attachment-70565\" class=\"wp-caption-text\">Related: <a href=\"https:\/\/cryptoslate.com\/mike-novogratz-leads-investment-in-crypto-lending-predicts-800-billion-market-cap\/\">Mike Novogratz Leads Investment in Crypto Lending, Predicts $800 Billion Market Cap<\/a><\/figcaption><\/figure>\n<p>The Jersey city-based cryptocurrency lender said its total volume doubled in the last quarter of 2018 compared to its previous two quarters.<\/p>\n<p>However, despite an increased number of transaction, many experts call the digital-currency lending world a \u201cWild West.\u201d Limited oversight of the industry (and a number of dubious overseas options) has left many concerned about the potential for bad actors in the sector.<\/p>\n<p>Yet, these risks have not stopped demand. Many seemingly &#8220;large&#8221; crypto lenders have popped out of nowhere, including <a href=\"https:\/\/blockfi.com\/\">BlockFi<\/a>, <a href=\"https:\/\/compound.finance\/\">Compound Finance<\/a>, <a href=\"https:\/\/saltlending.com\/\">SALT Lending<\/a>, and others.<\/p>\n<p>Many of these lenders have sprawling overseas \u2018affiliates,\u2019 and can sometimes be opaque about where or how they store a borrower\u2019s digital currency\u2014important details considering the prevalence of hacking, Bloomberg said.<\/p>\n<figure id=\"attachment_100746\" aria-describedby=\"caption-attachment-100746\" style=\"width: 300px\" class=\"wp-caption alignright\"><img loading=\"lazy\" decoding=\"async\" class=\"size-medium wp-image-100746\" src=\"https:\/\/cryptoslate.com\/wp-content\/uploads\/2019\/04\/makerdao-eth-lockup-300x188.jpg\" alt=\"\" width=\"300\" height=\"188\" srcset=\"https:\/\/cryptoslate.com\/wp-content\/uploads\/2019\/04\/makerdao-eth-lockup-300x188.jpg 300w, https:\/\/cryptoslate.com\/wp-content\/uploads\/2019\/04\/makerdao-eth-lockup-768x481.jpg 768w, https:\/\/cryptoslate.com\/wp-content\/uploads\/2019\/04\/makerdao-eth-lockup.jpg 964w\" sizes=\"(max-width: 300px) 100vw, 300px\" \/><figcaption id=\"caption-attachment-100746\" class=\"wp-caption-text\">MakerDAO has resulted in the lockup of over 2% of the total ETH supply. (Source: MakerDAO Data Portal)<\/figcaption><\/figure>\n<p>Aside from these highly centralized crypto lending companies, there are also low-cost decentralized alternatives. One of those lenders, \u00a0<a href=\"https:\/\/cryptoslate.com\/coins\/maker\/\">MakerDAO<\/a>, is a decentralized autonomous organization that uses a series of smart contracts, in conjunction with oracles, to allow Ethereum holders to <a href=\"https:\/\/cryptoslate.com\/makerdao-votes-to-raises-ethereum-backed-loan-interest-rate-by-2-0-percentage-points\/\">borrow up to 60 percent<\/a> of the value of their <a href=\"\/\">ETH<\/a> at an APR of <a href=\"https:\/\/cryptoslate.com\/makerdao-voters-support-raising-ethereum-backed-loan-interest-rates-to-7-5-percent\/\">7.5 percent<\/a>.<\/p>\n<p>Pat Larsen, the co-founder, and chief executive officer of <a href=\"https:\/\/cryptoslate.com\/companies\/zenledger\/\">ZenLedger<\/a>, said the business was extremely risky, as these companies deal with highly volatile assets. That said, if a bitcoin holder needs to pay off debt but doesn\u2019t want to sell\u2014or wants to wait for long-term capital gains to kick in\u2014then a loan is an option worth considering.<\/p>\n<p><em>This article is not financial or tax advice. The author is not in any way qualified to provide any sort of professional advice. Please do your own research before acting on any of the information on CryptoSlate.<\/em><\/p>\n","protected":false},"excerpt":{"rendered":"<p>Some traders are using cryptocurrency as collateral to secure loans, allowing them to keep their bitcoin and get cash while avoiding capital gains tax. Due to the popularity of the option, the crypto loan industry has been growing rapidly. Crypto Loans and Tax Implications The ups and downs that have been synonymous with the crypto [&hellip;]<\/p>\n","protected":false},"author":106,"featured_media":100732,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[60035,5790,6849],"tags":[],"prediction_market_topic":[],"post_folder":[],"acf":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO Premium plugin v21.9 (Yoast SEO v21.9.1) - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>How some traders avoid bitcoin taxes using crypto loans<\/title>\n<meta name=\"description\" content=\"Some traders are using cryptocurrency as collateral to secure loans, allowing them to keep their bitcoin and get cash while avoiding capital gains tax.\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/cryptoslate.com\/how-some-traders-avoid-bitcoin-taxes-using-crypto-loans\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"How some traders avoid bitcoin taxes using crypto loans\" \/>\n<meta property=\"og:description\" content=\"Some traders are using cryptocurrency as collateral to secure loans, allowing them to keep their bitcoin and get cash while avoiding capital gains tax.\" \/>\n<meta property=\"og:url\" content=\"https:\/\/cryptoslate.com\/how-some-traders-avoid-bitcoin-taxes-using-crypto-loans\/\" \/>\n<meta property=\"og:site_name\" content=\"CryptoSlate\" \/>\n<meta property=\"article:published_time\" content=\"2019-04-04T18:50:17+00:00\" \/>\n<meta property=\"article:modified_time\" content=\"2026-04-29T10:17:56+00:00\" \/>\n<meta property=\"og:image\" content=\"https:\/\/cryptoslate.com\/wp-content\/uploads\/2019\/04\/bitcoin-crypto-loans-social.jpg\" \/>\n\t<meta property=\"og:image:width\" content=\"1200\" \/>\n\t<meta property=\"og:image:height\" content=\"630\" \/>\n\t<meta property=\"og:image:type\" content=\"image\/jpeg\" \/>\n<meta name=\"author\" content=\"Priyeshu Garg\" \/>\n<meta name=\"twitter:card\" content=\"summary_large_image\" \/>\n<meta name=\"twitter:title\" content=\"How some traders avoid bitcoin taxes using crypto loans\" \/>\n<meta name=\"twitter:creator\" content=\"@cryptoslate\" \/>\n<meta name=\"twitter:site\" content=\"@cryptoslate\" \/>\n<meta name=\"twitter:label1\" content=\"Written by\" \/>\n\t<meta name=\"twitter:data1\" content=\"Priyeshu Garg\" \/>\n\t<meta name=\"twitter:label2\" content=\"Est. reading time\" \/>\n\t<meta name=\"twitter:data2\" content=\"5 minutes\" \/>\n<script type=\"application\/ld+json\" class=\"yoast-schema-graph\">{\"@context\":\"https:\/\/schema.org\",\"@graph\":[{\"@type\":\"NewsArticle\",\"@id\":\"https:\/\/cryptoslate.com\/how-some-traders-avoid-bitcoin-taxes-using-crypto-loans\/#article\",\"isPartOf\":{\"@id\":\"https:\/\/cryptoslate.com\/how-some-traders-avoid-bitcoin-taxes-using-crypto-loans\/\"},\"author\":{\"@type\":\"Person\",\"@id\":\"https:\/\/cryptoslate.com\/author\/priyeshu-garg\/#person\",\"name\":\"Priyeshu Garg\",\"url\":\"https:\/\/cryptoslate.com\/author\/priyeshu-garg\/\",\"mainEntityOfPage\":{\"@id\":\"https:\/\/cryptoslate.com\/author\/priyeshu-garg\/\"},\"image\":{\"@type\":\"ImageObject\",\"@id\":\"https:\/\/cryptoslate.com\/author\/priyeshu-garg\/#authorimage\",\"url\":\"https:\/\/cryptoslate.com\/wp-content\/uploads\/2020\/08\/author-priyeshu-garg-300x300.jpg\",\"contentUrl\":\"https:\/\/cryptoslate.com\/wp-content\/uploads\/2020\/08\/author-priyeshu-garg-300x300.jpg\",\"caption\":\"Priyeshu Garg\"},\"jobTitle\":\"Analyst\",\"description\":\"Priyeshu is a software engineer who is passionate about machine learning and blockchain technology. 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