🤑 Borrowing against your bitcoin? From today's issue of FIRE BTC, here are my abbreviated thoughts on leveraging your BTC stack 👇
When pursuing FIRE, we spend years stacking assets like stocks and bitcoin to reach a savings portfolio goal to sustain our ongoing expenses. Once obtained, the standard and most simple way to live off your portfolio is to sell these assets slowly, at about 4% per year (the 4% rule).
Is there another option? Maybe.
An exciting and interesting idea is to borrow against your bitcoin instead.
Borrowing against the assets you own to buy more assets enables you to take advantage of unavoidable dollar debasement.
Doing so allows you to access dollars now, while delaying the sale until the end of the loan term.
The hope is that bitcoin’s value continues its relentless march higher, above and beyond the rate of fees and interest needed to service the loan.
A few thoughts and best practices:
🔸 Before taking on any debt, make sure you have a plan for the interest payments. This could be from other income sources, selling a small portion of the bitcoin, or paying interest from the loan proceeds.
🔸 Just as important as paying the interest is being able to maintain the margin requirements for the loan. You don’t want to be a forced seller at a low price, so it’s imperative that you have a plan to maintain the collateral position of the loan during price drawdowns.
🔸 Look for fiat financing first. The fiat world is built on debt, and there are plenty of other options available for loans that will likely have better terms than a bitcoin-backed alternative.
🔸 Be conservative. Consider borrowing against your bitcoin only after its value is large enough where you only need to leverage a small portion of your overall stack to meet your needs.
🔸 Understand your counterparty risk. Borrowing against your bitcoin means giving up full control over it. Whether from malicious intent or mismanagement-turned-bankruptcy, many people have been burned because they did not understand the counterparty risk they were exposed to.
🔸 The banks are (probably) coming. When the banking industry comes to play, they will bring massive amounts of capital for lending against bitcoin, which should drive down rates and make loan terms more competitive.
I’m an advocate for leveraging the fiat financial system to get wealthier more quickly. I believe bitcoin will usher in a world less reliant on debt. Until then, we might as well embrace it.
Want to read the full post? You can find it here 👇
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🤑 Borrowing Against Your Bitcoin
FIRE BTC Issue #12 - My thoughts on leveraging your BTC stack
