Nope. It’s called a collateralized loan, and is one of the fun tricks that show how absurd and illogical income taxation really is.

You seem certain that the IRS has never considered this possibility before.

This is exactly how tax laws (ridiculously) work, at least in the USA.

It uses the same “trick” billionaire CEOs use when they borrow against their shares to fund spending, instead of selling some shares and calling it “income”.

It's not an exchange. It's a loan with a collateral. It's only an "exchange" if you get liquidated, which means that you were forced to sell it at a loss.

Doesn't this assume you only get liquidated below your initial purchase price?

With something as volatile as cryptocurrency it's not exactly a crazy idea that you'd buy at say $30k, take a loan at $60k and get liquidated at $50k and get stuck with a big tax bill

Yes but in that case you did enjoy 20k of capital gains and so it makes sense* to pay tax on the 20k gain. There is no issue.

Depends on jurisdiction. In Poland the official government stance now is that only exchange into fiat is taxable. (which is absurd, but I won’t be the one to complain)