For Bitcoin holders sitting on substantial gains, cashing out comes with an unwelcome companion: a hefty tax bill.

If you bought Bitcoin at $20,000 and it's now worth $68,000, selling means the IRS takes its cut, potentially up to 37% for high earners when combining federal and state taxes and that $48,000 gain could shrink by nearly $18,000 before you see a dime.

But there's a strategy wealthy investors have used for generations: using loans to borrow against appreciated assets instead of selling them.

For Bitcoin holders, cryptocurrency loans let you access cash while keeping your Bitcoin and deferring taxes indefinitely.

Why Selling Bitcoin Triggers Taxes (And Crypto Loans Don't)

When you sell Bitcoin for more than you paid, the IRS views that as a taxable event as you've "realized" a capital gain.

And the rates aren't friendly:

Short-term gains (under one year) are taxed as ordinary income up to 37% while long-term gains face 0%, 15%, or 20% depending on income, plus potential state taxes and the 3.8% Net Investment Income Tax for high earners.

Crypto backed loans, however, are not taxable events.

When you take out a crypto loan to borrow against Bitcoin, you're receiving loan proceeds, not selling an asset. The IRS doesn't consider borrowed money as income because you have an obligation to repay it.

This fundamental distinction lets you access your Bitcoin's value without recognizing any gains for tax purposes.

The Real Cost of Selling vs. Bitcoin Backed Loans: A Simple Example

Imagine you bought 1 Bitcoin at $30,000. It's now worth $68,000 and you need $27,000 for a business opportunity or investment.

Option 1: Sell Bitcoin

• Sell 0.40 BTC = $27,000 received

• Capital gain: $15,200 (0.40 BTC × $38,000 gain per BTC)

• Tax owed (20% long-term + 3.8% NIIT): ~$3,620

• After-tax proceeds: ~$23,380

• Bitcoin remaining: 0.60 BTC

To actually net $27,000 after taxes, you'd need to sell roughly 0.48 BTC, giving up even more upside potential.

Option 2: Borrow Against Bitcoin with Crypto Loans

• Use 1 BTC as collateral for $27,000 cryptocurrency loan (with a conservative 40% LTV)

• Loan proceeds: $27,000 (tax-free)

• Capital gains tax: $0

• Bitcoin remaining: 1 BTC (held as collateral)

• Interest rate: 11.84% APR (Arch's current rate for loans $5k-$250k)

Over one year, you'd pay approximately $3,200 in interest, less than the $3,620 you'd pay in taxes by selling.

But what matters is that if Bitcoin appreciates to $120,000, you've retained $24,960 in upside that would have been lost if you sold 0.48 BTC.

And that appreciation alone far exceeds the cost of borrowing.

The "Buy, Borrow, Die" Strategy with Bitcoin Loans

The wealthy have long used this approach with stocks and real estate. Today Bitcoin holders can use the same strategy with crypto loans:

1. Buy appreciating assets and hold them long-term

2. Borrow against those assets when you need liquidity, avoiding capital gains taxes

3. Die with assets still in your estate, where heirs receive a "step-up in basis" to current market value, erasing all capital gains tax liability

This isn't tax avoidance, it's perfectly legal and built into the U.S. tax code.

When you borrow against Bitcoin through cryptocurrency loans and continue holding, you defer taxes indefinitely.

If Bitcoin continues appreciating, you can pay off the loan with other income, take out a new loan, or pass the Bitcoin to heirs who inherit it tax-free.

What to Look for in a Bitcoin Lending Partner

Not all platforms offering crypto loans are created equal, especially given the industry's turbulent history. When evaluating where to borrow against your Bitcoin, these factors should guide your decision:

• Safety and custody: Your Bitcoin should be held in qualified custody with bankruptcy-remote structures. We've never lost client funds and maintain qualified custody with Anchorage Digital, ensuring your collateral stays separate from our operations. This isn't just good practice, it's the foundation of trust.

• Transparent terms: The best platforms providing bitcoin backed loans offer clear, upfront pricing with no hidden fees. We offer Bitcoin loans starting at 8.4% APR with loan-to-value ratios up to 60%. What you see is what you get.

• Flexibility: Tax planning requires adapting to changing circumstances. We offer 12-month loan terms with unlimited rollovers and the ability to upsize your loan in two clicks. Whether your needs evolve or Bitcoin's price changes, you can adjust your strategy without friction.

• Service quality: When dealing with significant assets and tax implications, responsive support matters. We maintain a 4.9/5 Trustpilot rating with clients consistently noting same-day funding and personalized guidance, close to an instant crypto loan experience without sacrificing safety.

While some platforms advertise crypto loans without collateral, these typically come with extremely high interest rates or are often scams.

Legitimate bitcoin backed loans require collateral to protect both lender and borrower. The difference is how that collateral is handled.

We make the process seamless and secure: your Bitcoin stays protected in qualified custody while you access the liquidity you need.

Understanding the Trade-offs of Crypto Loans

Using cryptocurrency loans to borrow against Bitcoin isn't without considerations.

You're paying interest on the loan and if Bitcoin's price drops significantly, you may face a margin call requiring additional collateral.

But conservative loan-to-value ratios provide substantial safety margins. We recommend borrowing at 30-40% LTV rather than the maximum 60%.

Here's why that matters when you lend bitcoin as collateral:

• At 30% LTV: Bitcoin would need to drop 58% before you hit liquidation

• At 40% LTV: Bitcoin would need to drop 50% before you hit liquidation

• At 60% LTV: Bitcoin would need to drop just 17% before you hit liquidation

The interest you pay should be weighed against the taxes you avoid and the upside you preserve.

For long-term Bitcoin believers, the math strongly favors Bitcoin-backed loans.

You maintain your position, avoid immediate taxes, and potentially benefit from continued appreciation that far exceeds the cost of borrowing, especially when you borrow conservatively.

Your Capital, Your Choice

Bitcoin holders today have access to the same sophisticated tax strategies that the wealthy have used for decades with traditional assets.

Using crypto loans to borrow against your Bitcoin is about using the tools available within the tax code to preserve your wealth and maintain your conviction in Bitcoin's long-term value.

We built Arch for Bitcoin holders who take their financial strategy seriously. Transparent custody, flexible bitcoin loans, and white-glove service designed to be your partner not just for this transaction but for life.

Whether you're exploring tax-efficient liquidity options with cryptocurrency loans or want to understand how borrowing fits your specific situation, our team is here to provide clarity without pressure.

About Arch

Arch is building a next-gen wealth management platform for individuals holding alternative assets. Our flagship product is the crypto-backed loan, which allows you to securely and affordably borrow against your crypto. We also offer access to bank-grade custody, trading and staking services.

Disclaimer: This article is for informational purposes only and does not constitute investment advice. Cryptocurrency investments are volatile and risky. Always conduct your own research before making investment decisions.