There's "really no point" in cashing out returns of 1000%?

If I had put 100k in, my coins would be worth 1M. Even if my taxes were 30%, I'd be walking away with 730k. That's an astronomical gain.

Sure, but you can borrow 730k and still hold on to the asset, why not do it?

Because if your coins go down to $100k, you're going to get margin called on your borrow. Given the volatility of crypto, you wouldnt want to borrow more than 10% of your funds.

Yes, you have to be carefully not to get margin-called, from what I've seen most people that have over 10M+$, tend to borrow up to 25-30% of their collateral's value (for example[1], this person borrowed 82M$ using 228M$ worth of collateral).

1: https://defiexplore.com/cdp/9167

There is no way to be "careful not to get margin-called", since crypto markets are heavily manipulated in order to force margin calls. Trading on margin on crypto markets is a fool's game.

You're making me think that maybe I shouldn't have sold puts on DOGE, levered myself up 20x, and wait for it to go to the moon. There's no way I can lose!

Notice that borrowing != trading on margin, you can certainly buy back into the asset, but you can also do lots of other things with the money. You can be careful with your borrowing, like the example I gave, in that case, Bitcoin would need to drop by 50% before that person get's liquidated and even if that happens, they still have the 82M$ in cash.

>> You can be careful with your borrowing, like the example I gave, in that case, Bitcoin would need to drop by 50% before that person get's liquidated and even if that happens, they still have the 82M$ in cash.

Not quite...now you still owe capital gains tax on the forced liquidation price (minus cost basis)! So perhaps a large part of your $82M draw goes into taxes.

At least in a bull market, it seems safe to assume that an asset like BTC or ETH will not suddenly decrease by over 50%.

It is definitely not safe to assume anything in the incredibly corrupt and manipulated cryptocurrency markets.

Because you might lose that 730K, since you’re still exposed to a very volatile market.

The 730k is already in bank account, you'd only lose the collateral in case of liquidation, but that doesn't matter because your alternative was to sell it altogether.

You can’t use the 730k then but you are now accruing interest on it, so what’s the point in having it?

So I have 730k in bank account, but instead of using it, I borrow 730k and spend that money (how do you even decide "which" money you are spending anyways, it's all money) and pay interest on the loan? Why would I do that?

Not sure I understand what you mean, you only have 1 730k which you've borrowed. Interest rates are a drop in the bucket (~4%) compared to ~25-40% tax rates and that's ignoring asset appreciation (BTC averages ~300% YoY). If you use something like makerdao, you won't even have to pay a single cent of the debt back as long as you borrow conservatively and don't need your collateral back.

This assumes BTC goes up every year tho

Because there will be an annual interest rate to borrow and there is always margin call risk given the vol of crypto

If you think that asset is going to go down, you'd rather just sell it than borrow against it, no?

A fine is a tax for doing bad.

A tax is a fine for doing well.

A tax is a subscription fee for the privileges of citizenship. There are many millions of people who would happily become "subscribers" in return for becoming US citizens.

Hmm,i wonder why i as a non immigrant don't qualify for this citizenship even after paying all taxes, including FICA

Do you earn your money from that system?

Salary taxation usually means you are earning your dollars by being part of a functioning society.

There are billions of people who would happily become "subscribers" to a US job market, even if the offer required that 50% of their income was ritually burned for no benefit to the “subscriber”.

Now capital gains are perhaps a different argument…

Do you use roads, sidewalks and other public infrastructure? If so you should pay into the system.

Failing/refusing to pay a subscription fee does not, generally, result in you getting thrown in a cage with rapists and murderers.

> Failing/refusing to pay a subscription fee does not, generally, result in you getting thrown in a cage with rapists and murderers.

If you fail to pay the subscription fee for your gym, but break in to use the equipment anyway, it might.

To take the analogy a step further, a gym subscription is optional. Paying taxes is not.

> To take the analogy a step further, a gym subscription is optional. Paying taxes is not.

You're pushing the analogy too far. You're not an autarky, there's plenty of stuff you have to pay for that isn't optional (e.g. food, shelter, etc.).

Sometimes local mobs force you to pay them protection money. If you don't pay, they will take your property or even commit violence against you, exactly like the state. If you do pay, they will provide valuable services to you such as making sure you don't get robbed. Do you feel it would be reasonable to call this a "subscription fee"?

A tax is (a tax for doing bad) for doing well?

You may have a tautology to clean up there, bud.

If you try to apply the Peano Axioms on pithy aphorisms, you're gonna have a bad time.

At the expense of the pot calling the kettle black, this comment epitomizes behavior that I don't like to see on HN: the condescending and incorrect use of technical jargon in an internet argument that adds no new insight. In what way whatsoever are the natural numbers relevant to the post, let alone parent comment?

Please rethink signal-boosting off-topic comments in the future.

>Nowadays, I see a lot of people just borrowing against their holdings to avoid triggering taxes

That seems excessively risky. Let's say you borrowed some USD using bitcoin as collateral, and bitcoin drops. Then what? Presumably you've already spent the money so now you're in debt and can't pay it off because your bitcoin holdings have dropped.

They are probably talking about on chain borrowing on Ethereum using Maker or Compound or one of many other similar contracts. In this case, if the price of crypto drops to the point that the amount you borrowed is more than the crypto you put up for collateral, you either need to put more crypto into your position to keep it collateralized, or the position will be liquidated, losing you the crypto and triggering the capital gains taxes you were trying to avoid.

It'll get liquidated if it drops by say 30%, but that's what you would have paid in taxes anyways. You get the same amount of cash either way.

Well, now you have to pay 28% in taxes on the liquidated value rather than 30% on the full value. You don't actually get the same amount.

If you had X, you would pay 0.3X in taxes - if you got liquidated at 0.7X, you pay (0.7X * ~0.28 = 0.2X in taxes). So in this case your net goes from 0.7X to 0.5X, not stays the same.

What you can do is get a hedge (short via futures or options) on your long position to flatten yourself against the market (or part of your position) - basically creating synthetic dollars, and then take out a loan against that. The only problem is margin maintenance on the futures position or rolling the option for however long you need the loan for (Likely you would do this option if you want to spread out liquidating your crypto over multiple years for more favorable tax treatment).

>It'll get liquidated if it drops by say 30%,

Doesn't this trigger a taxable event? If not it seems like it's pretty easy to bypass taxes by borrowing against your bitcoin and then liquidating it if it drops 1%. In addition to that, since it's a loan, you're theoretically stuck paying interest on it forever. Assuming 5% APR, you'd reach break-even in about 5 years.

Well if you use something like maker, you can keep the loan open for pretty much forever and not pay a single dime of interest as long as you don't want your collateral back and make sure to not get liquidated. Ideally, you borrow a little conservatively to avoid liquidation.

This whole thing only really works if you're a crypto bull. If you think crypto is here to stay and will go to the moon then yeah, there's no problem borrowing against it, since you expect its value to go up. However, if you're a crypto bear or want to derisk your holdings, this is a terrible idea because you still have exposure to the price of crypto. Selling on the other hand, eliminates your exposure entirely.

If you made 1000+% holding on to crypto (and not selling at any earlier point in time), you're presumably a crypto bull, right?

It eliminates your exposure at the cost of ~25-35% (depending on where you live and potentially up to ~45% if Biden's plan passes), so it only makes sense if you're certain that the market will drop by more than that.

>It eliminates your exposure at the cost of ~25-35%

No it doesn't. Eliminating the exposure would mean your net worth would stay the same regardless of whether it goes up or down. That's the case if you sold your bitcoins, but not if you took out a loan.

The super annoying thing about the Biden plan is that it retroactively affects stuff that happened this year that people weren't planning for. It should be a law that any changes to tax policy kick in the fiscal year after the law is passed.

That's not an annoying thing, that's the whole feature. The point is to prevent people from avoiding the tax - if the tax was announced and not applied retroactively, people would change their behavior to avoid it (or sell right before the tax was raised). That's precisely what you want to avoid to be fair to everyone.

The point of a tax is to redistribute the money a government thinks should be redistributed to account for externalities in the market (and support social / infrastructure programs).

yeah but most taxes don't change from year to year. Moreover, if your year zero advantage is "the point" then, why isn't biden announcing the tax changes in november and ramming them through?

> The point of a tax is to redistribute the money a government thinks should be redistributed to account for externalities in the market

That is not the point of a tax. The point of a tax is to raise revenue for government programs. That includes bombing children on the other side of the world, financing explorations to space, bailing out boeing and goldman sachs, etc. Nowhere in tax law does it say "redistribute to account for externalities in the market". Just because you dream something ought to be so, does not make it so, now or ever.

Well, even more technically, the point of taxes (and QT) is to remove liquidity from the system when inflation gets overheated (since we can print money / have the FED monetize the deficit to pay for our spending if we need to).

Isn't that a bit defeatist? It's like admitting that people will find ways around it. It'll only work in the first year when it's introduced.

Why would you be in crypto if you're a crypto bear?

wouldn't you have to pay taxes on the 70% left over and you wouldn't have enough to service the debt?

Yes, so ideally, you wouldn't borrow so much to be margin called, it's over-collaterized, so you'll always have enough to service the debt.

Would you go 3x Margin Long on the S&P 500 and then take out a loan against that to buy things? Because that's basically what you are doing if you take out a long against your crypto holdings. I would be very, very careful about touching it.

This strategy, but applied to developing nation currencies and the dollar has ruined many an economy (ruble crisis, euro crisis, Asian currency crisis, etc). When your obligations are in a different currency than your assets, it's danger zone. People become blind to risk in a bull market - crypto can certainly drop 90+% and wipe out anything you have borrowed against it.

> Nowadays, I see a lot of people just borrowing against their holdings

Perverse incentives setting us up for disaster. I don't really care about crypto until it becomes heavily leveraged, after which it's basically 2008 again.

It’s unlikely ever to be a 2008 like event. Mortgages were considered safe investments so banks leveraged to invest.

No credible bank is going to leverage to speculate on crypto. They might create products to let their customers do it, but they’ll make sure their books have little exposure.

They are selling shovels; not panning for gold.

Unfortunately, it's even worse on some exchanges that offer up to 125x leverage to people who might not even understand what they're doing properly. That's why you see flash crashes every once in a while, couple weeks back there was billions of dollars liquidated.

> Or that they had lowered crypto tax rates a little because it's highly risky anyways.

That'd be a fun principle applied to stocks. Pay less in capital gains as more leverage is employed. That's a wacky feedback loop to throw into any market.