One of the most expensive moments in any Bitcoin holder’s journey is the sale. Not because selling is wrong, but because in most countries the moment you sell, you hand a slice of your gains to the tax authority — and you also give up any further upside on the coins you sold. There is a well-established alternative that sophisticated holders have used for decades with stocks, real estate, and now Bitcoin: borrow against the asset instead of selling it.
This article explains, in plain terms, why selling Bitcoin is usually a taxable event, why borrowing against it generally is not, and how a non-custodial loan on Merum fits that picture. It is written to be responsible and honest. Borrowing defers and avoids triggering a sale — it is not a scheme to evade tax you owe. And because tax law is intricate and jurisdiction-specific, everything here is general information, not advice.
Key takeaway: Selling Bitcoin realizes a capital gain and is taxable in most jurisdictions. Taking out a loan secured by Bitcoin is generally not a disposal, so it usually does not trigger that tax — you raise cash today and defer the taxable event until you actually sell. This defers tax legally; it does not erase a gain you eventually realize.
The taxable-event problem with selling
In the United States and most of the world, Bitcoin is treated as property or a capital asset. When you dispose of a capital asset — by selling it, swapping it for another asset, or spending it — you realize a capital gain or loss equal to the difference between what you receive and your cost basis (what you originally paid). That realized gain is what gets taxed.
The consequences are easy to underestimate:
- You owe tax in the year of the sale, whether or not you reinvest the proceeds.
- Long-term versus short-term matters. In the US, assets held over a year get preferential long-term capital gains rates; held a year or less, gains are taxed as ordinary income, which can be dramatically higher.
- You permanently end your exposure to the coins you sold. If Bitcoin rises afterward, you do not participate.
So a holder who needs liquidity faces a double cost: an immediate tax bill and the opportunity cost of selling an asset they wanted to keep. Borrowing addresses both.
How collateralized loans are treated
The core principle is straightforward and widely accepted: receiving loan proceeds is not income, and pledging an asset as collateral is not a disposal of that asset. When you borrow, you receive money you are obligated to pay back — it is a liability, not a gain. You still own your Bitcoin; you have simply encumbered it.
The US framing
Under longstanding US tax principles, loan proceeds are not taxable income because the obligation to repay offsets the cash received. Pledging property as security for a loan is generally not a “realization event,” so it does not by itself create a capital gain. This is exactly why the borrow-against-appreciated-assets playbook is so common with stocks and real estate. The same logic extends to Bitcoin used as loan collateral.
Two honest caveats specific to the US:
- The collateralized-loan treatment depends on the arrangement genuinely being a loan with a real repayment obligation, not a disguised sale. Standard overcollateralized crypto loans of the kind Merum offers are structured as loans.
- There has historically been less explicit, crypto-specific guidance on every edge case than holders would like, and the regulatory landscape continues to evolve. The general principles are well established; the granular crypto applications are still maturing.
The EU framing
The European Union does not have a single harmonized capital gains regime — each member state taxes crypto disposals differently. But the underlying logic is broadly similar across most member states: a disposal (selling, swapping, or in some countries spending) is what creates a taxable gain, while borrowing against an asset is a financing transaction rather than a disposal. Specifics diverge sharply — Germany’s long-hold exemption, Portugal’s evolving rules, and various national treatments all differ — so the EU picture is best summarized as “borrowing is generally not a disposal, but confirm the rule in your specific country.”
A concrete example: sell $100k vs. borrow against it
Suppose you bought 2 BTC years ago for $30,000 total, and today it is worth $200,000. You need $100,000 in cash. Consider the two paths.
Path A — Sell $100,000 of Bitcoin (1 BTC).
- Proceeds: $100,000. Cost basis on that 1 BTC: $15,000. Realized gain: $85,000.
- At an illustrative 20% long-term capital gains rate, you owe roughly $17,000 in tax (and possibly more with surtaxes or higher brackets; state or national taxes may add to it).
- You walk away with about $83,000 net and you no longer own that 1 BTC. If Bitcoin doubles next year, you do not benefit from that coin.
Path B — Borrow $100,000 against your Bitcoin.
- You pledge your Bitcoin (as LBTC) as collateral and borrow $100,000 of USDC. At Merum’s max 60% LTV, $100,000 of borrowing is comfortably supported by your $200,000 of collateral, and a more conservative position is easily within reach.
- Taxable event: none today. You received loan proceeds, not income. You realized no gain.
- You pay interest at Merum’s fixed 7.9% APR — about $7,900 per year on $100,000.
- You keep all 2 BTC. If Bitcoin rises, your full position rises with it.
The honest comparison: Path A costs ~$17,000 once, but you are done with that coin. Path B costs ~$7,900 per year in interest but defers the tax and keeps your upside. Over a short horizon, or if you expect meaningful appreciation, borrowing can be the better deal — and you retain the asset. Over a very long horizon with flat prices, the cumulative interest can exceed the one-time tax, which is exactly why you size and time these loans deliberately.
| Sell 1 BTC | Borrow $100k | |
|---|---|---|
| Cash received now | ~$83,000 | $100,000 |
| Tax due now | ~$17,000 | $0 (deferred) |
| Bitcoin still owned | 1 BTC | 2 BTC |
| Ongoing cost | none | ~$7,900/yr interest |
| Upside retained | partial | full |
Illustrative only. Rates, basis, and tax outcomes vary by individual and jurisdiction.
Note the word defers. If you ultimately sell the Bitcoin to repay the loan, the gain is realized then. Borrowing changes the timing and lets you keep your position in the meantime; it does not make a real gain disappear. Some holders never sell — they repay loans from other income or roll them — and in that case the gain may be deferred indefinitely, but that is a planning choice with its own risks, not a guarantee.
The disclaimers — read these
This is the part we will not soften.
- This is not tax advice. It is general educational information. Merum is not a tax advisor and nothing here is tailored to your situation.
- Consult a qualified professional. Before borrowing for tax reasons, talk to a tax advisor or accountant licensed in your jurisdiction. The right answer depends on your country, your residency, your cost basis, your income, and the specifics of the loan.
- Laws vary and change. Crypto tax treatment differs enormously between countries and is actively evolving. What is true in one jurisdiction or one tax year may not hold in another.
- This is about deferral, not evasion. The legitimate strategy is to avoid triggering a sale you do not want to make — not to hide income or dodge tax you genuinely owe. Interest may or may not be deductible depending on use and jurisdiction; do not assume it is.
- Loans carry their own risks. Interest accrues, and if your collateral value falls far enough your position can be liquidated — which is a disposal and can be a taxable event. The tax benefit of borrowing does not remove the financial risk of borrowing. See our step-by-step borrowing guide for how liquidation works.
Why Merum versus CeFi lenders
If you have decided a Bitcoin-backed loan fits your situation, you have options. Centralized lenders such as Coinbase’s Bitcoin-backed loans or Ledn offer similar products, and they are legitimate, regulated businesses serving many customers. The differences are about structure, not character, and it is worth understanding them honestly.
Custody. Centralized lenders typically take custody of your Bitcoin (or route it to a custodian) for the life of the loan. Merum is non-custodial: your collateral sits in an audited smart contract on HyperEVM, and only you can repay and withdraw. Merum never holds your coins. For users who prefer not to entrust their Bitcoin to a company’s balance sheet, that distinction matters.
Rate transparency. Merum’s LBTC–USDC market carries a fixed 7.9% APR, set in the open and visible on-chain. Centralized lenders set their own rates, which may be fixed or variable and may change with their funding costs; always read their current terms.
Transparency and counterparty exposure. On-chain lending exposes you to smart-contract risk and oracle risk, which are real and which Merum mitigates through audits (by Sherlock) and conservative parameters. Centralized lending exposes you to the lender’s solvency and operational risk — a category the last cycle demonstrated can be severe. Neither model is risk-free; they distribute risk differently.
The point is not that one option is good and the others bad. It is that Merum offers a non-custodial, fixed-rate, on-chain alternative for holders who specifically want to keep custody of their Bitcoin while borrowing against it. If that is your priority, it is a meaningful differentiator. If you would rather have a regulated company handle everything off-chain, a CeFi lender may suit you better. Choose based on which risks you would rather hold.
Bottom line
Selling Bitcoin realizes a gain and triggers tax in most places. Borrowing against it is generally treated as a financing transaction, not a disposal, so it usually defers that tax while letting you keep your coins and your upside — at the cost of interest and liquidation risk you must manage. It is a legitimate, widely used strategy, not a loophole. But the details are genuinely jurisdiction-specific, so the single most important step is to confirm your situation with a qualified tax professional before you act.
When you are ready to see the mechanics, our step-by-step guide to borrowing USDC against Bitcoin walks through the entire flow, and the borrow page lets you model a loan with Merum’s real parameters.
This article is educational and not financial, investment, or tax advice. Tax outcomes depend on your jurisdiction and personal circumstances. Consult a qualified professional before making decisions.