Last Title: «Bitcoin, Ethereum and the Next Market Move: Why Preparation Matters More Than Prediction»
For many crypto investors, the biggest challenge eventually becomes surprisingly simple: how can you benefit from the wealth created by your digital assets without constantly selling them?
The traditional approach is straightforward. Buy an asset, wait for its price to rise, sell part of it and use the proceeds.
But there is another concept worth understanding.
Instead of immediately selling a long-term crypto position, investors can potentially use part of that position as collateral for a loan, accessing liquidity while retaining ownership of the underlying asset.
This strategy can be powerful when used conservatively. It can also become extremely dangerous when excessive borrowing, high leverage or poor risk management enters the equation.
The difference between the two outcomes comes down to one thing: discipline.
The Core Idea: Keep the Asset, Access the Liquidity
Imagine an investor has spent years accumulating Bitcoin or other established crypto assets.
The portfolio has grown substantially, but the investor now needs €30,000 for a business opportunity, a major purchase or another legitimate expense.
One option is to sell crypto.
Another possibility is to use a portion of the portfolio as collateral and borrow against it.
The investor continues to own the underlying assets, while a portion is temporarily locked as collateral.
In theory, this creates a different relationship with wealth:
The objective isn't simply to sell the asset when its value rises. The objective is to understand how the asset itself can potentially provide access to liquidity.
This concept isn't unique to crypto. Wealthy investors have long used securities, property and other assets as collateral for financing.
Crypto simply brings the same financial concept into a highly volatile digital-asset environment.
And that last part is critical.
Why the Value of the Collateral Matters
Suppose an investor has a crypto portfolio worth €300,000.
Rather than placing the entire portfolio at risk, the investor could use only a fraction as collateral.
For example:
Total portfolio: €300,000
Collateral: €100,000
Loan: €50,000
Initial LTV: 50%
At first glance, this may appear manageable.
But crypto prices can move dramatically.
If the collateral falls by 40%, €100,000 becomes €60,000.
The €50,000 loan hasn't disappeared. The debt remains approximately the same while the collateral has fallen.
The LTV therefore rises dramatically.
This is where the strategy can become dangerous.
If the collateral value falls sufficiently, the lending platform may require additional collateral or repayment. Depending on the terms, liquidation can eventually occur.
The lesson is simple:
A crypto-backed loan does not eliminate risk. It transfers the risk into the relationship between the asset value and the debt.
Low LTV Is the Foundation of the Strategy
One of the most important concepts to understand is Loan-to-Value, or LTV.
The formula is:
LTV = Loan ÷ Collateral Value × 100
For example, borrowing €20,000 against €100,000 of collateral produces an LTV of 20%.
Borrowing €50,000 against the same collateral produces an LTV of 50%.
The second position has considerably less room to absorb a market decline.
This is why conservative investors may prefer to maintain substantial distance from a platform's liquidation threshold.
The lower the LTV, the greater the potential buffer against volatility.
However, there is no universally “safe” LTV. Different assets, platforms, interest rates, liquidation mechanisms and market conditions create different risks.
A responsible investor therefore needs to understand the exact terms before borrowing.
The 50% or 70% Crash Test
There is a useful mental exercise for anyone considering crypto-backed borrowing.
Don't ask:
“What happens if Bitcoin goes up?”
Ask:
“What happens if my collateral falls 50% tomorrow?”
And then ask the harder question:
“What happens if it falls 70%?”
Crypto has historically experienced extremely severe drawdowns.
A strategy that only works while prices are rising is not a robust long-term strategy.
The objective should be to structure the debt so that a major market correction does not automatically destroy the underlying portfolio.
That means leaving a significant safety margin rather than borrowing the maximum amount available.
Don't Confuse Liquidity With Leverage
This distinction is extremely important.
Using an asset as collateral to obtain liquidity is not necessarily the same thing as using leverage to speculate.
Consider two investors.
Investor A owns a long-term Bitcoin position and borrows a relatively small amount against it to finance a business expense.
Investor B borrows heavily against crypto and uses the borrowed money to purchase even more volatile assets, hoping to multiply the potential return.
The second strategy introduces another layer of risk.
If the market falls, the investor can face losses on the original collateral while simultaneously carrying additional debt and exposure.
The goal of conservative collateralisation should therefore be liquidity management, not an excuse to increase speculation.
When Selling May Actually Be the Better Choice
It is important not to turn “never sell” into an absolute rule.
Sometimes selling part of a crypto position can be financially healthier than borrowing.
A loan creates an obligation.
There may be:
Interest costs
Origination or platform fees
Variable borrowing rates
Collateral requirements
Liquidation risk
Counterparty or platform risk
Tax implications depending on the jurisdiction
Selling, on the other hand, removes the debt entirely.
There may also be tax consequences from selling, depending on where the investor lives and how the transaction is classified.
Therefore, the correct question isn't simply:
“Can I avoid selling?”
It is:
“Which option gives me the best balance between liquidity, cost, taxation, risk and long-term portfolio objectives?”
That is a much more useful question.
Consider a €50,000 Purchase
Let's return to a practical example.
An investor wants to make a €50,000 purchase and owns a substantial crypto portfolio.
Selling €50,000 worth of crypto provides immediate liquidity, but it permanently reduces the investor's exposure to those assets.
A collateralised loan potentially allows the investor to retain ownership while obtaining the required liquidity.
But the comparison doesn't stop there.
The investor must calculate:
Loan interest + fees + collateral risk + potential tax consequences + opportunity cost.
If the cost and risk of borrowing are excessive, selling a portion may be the more sensible decision.
If borrowing is structured conservatively and the investor has sufficient liquidity to service the debt, the calculation may look different.
There is no universal answer.
The Importance of Timing
Market conditions also matter.
Borrowing heavily against crypto after an enormous price increase can be particularly dangerous because a significant correction may cause the LTV to rise rapidly.
Conversely, a depressed market doesn't automatically make borrowing safe either.
Crypto can remain under pressure for much longer than expected.
The better approach is not to try to predict the perfect market bottom.
Instead, build a structure that can survive multiple scenarios.
Ask yourself:
Can I continue servicing the loan if crypto falls sharply?
Would I still be comfortable with the position after a 50–70% market decline?
Do I genuinely need the liquidity?
What happens if interest rates increase?
What happens if the lending platform experiences problems?
What is my repayment plan?
If the answers aren't convincing, taking the loan may not be appropriate.
Custody Matters as Much as Price
Another important element is security.
Long-term crypto holdings represent significant financial value for many investors.
That means custody cannot be treated as an afterthought.
Where appropriate, investors may consider secure self-custody for assets that aren't being used as collateral, while understanding that self-custody also introduces its own risks, including loss of private keys and operational mistakes.
Assets used as collateral necessarily involve another layer of risk because they must interact with a lending system.
This means investors should investigate the platform, smart-contract risks where applicable, collateral rules, liquidation mechanisms, withdrawal policies and the legal structure of the service.
The strongest portfolio strategy is not simply about choosing the right asset. It is also about protecting that asset.
The Long-Term Mindset
The most interesting part of this approach isn't the loan itself.
It is the mindset behind it.
Instead of constantly asking:
“When should I sell?”
A long-term investor can also ask:
“How can I manage my assets so that they remain productive parts of my overall financial strategy?”
That doesn't mean crypto should never be sold.
It means selling should be a deliberate financial decision rather than an automatic reaction to short-term price movements.
If someone believes strongly in the long-term potential of an asset, maintaining exposure may be important.
But conviction should never replace risk management.
Markets don't care how confident an investor feels.
A Simple Framework
For anyone researching crypto-backed borrowing, a conservative framework could look like this:
1. Build the asset base first
Focus on establishing a diversified portfolio based on assets and projects that have a clear investment thesis.
2. Protect the long-term holdings
Don't put the entire portfolio at risk simply because a platform allows it.
3. Borrow conservatively
The maximum amount available is not necessarily the appropriate amount to borrow.
4. Keep LTV comfortably below liquidation levels
The exact figure depends on the asset, platform and circumstances, but maintaining a large buffer is essential in a volatile market.
5. Borrow for a defined purpose
Liquidity for a productive business investment or essential expense is very different from borrowing to speculate.
6. Have a repayment strategy
Never assume that future crypto appreciation will automatically repay today's debt.
7. Stress-test the position
Calculate what happens if the underlying asset falls 30%, 50% or even 70%.
8. Monitor the position
A collateralised loan should never be treated as “set and forget.”
The Bigger Picture
Crypto is evolving from an asset class primarily associated with trading into something that can increasingly be considered within broader financial planning.
Bitcoin and other established digital assets can potentially serve different roles in an investor's strategy: long-term holdings, diversification, collateral, liquidity or wealth preservation.
But every additional financial tool introduces additional complexity.
The objective should therefore not be to squeeze every possible euro out of a portfolio.
It should be to build wealth while protecting the wealth already accumulated.
That distinction can make all the difference.
The strongest long-term investor isn't necessarily the person taking the biggest risks.
It may be the person who understands when not to take them.
Final Thoughts
The idea of accessing liquidity without immediately selling long-term crypto holdings is certainly worth understanding.
It can potentially allow investors to maintain exposure to an asset while using part of its value for legitimate financial purposes.
But it isn't free money, and it isn't a guaranteed path to financial freedom.
A falling market can rapidly increase LTV. Interest continues to accumulate. Platforms can fail. Assets can be liquidated. Regulations and taxation can vary between jurisdictions.
The principle is therefore simple:
Protect the asset. Keep debt conservative. Maintain liquidity. Understand the risks.
Crypto's greatest opportunity may not come from constantly trading every price movement.
For a long-term investor, it may come from patiently accumulating quality assets and learning how to manage them intelligently through different market cycles.
Before considering any crypto-backed loan, do your own research, understand the platform's terms and consider speaking with an appropriately qualified financial or tax professional.
The objective isn't simply to own more crypto.
It is to build a financial strategy that can survive the journey.
Disclaimer: This content is informational and should not be considered financial advice. The views expressed in this article may include the author's personal opinions. Readers are encouraged to do thorough research before making any investment decisions. The Crypto Canadas is not responsible for any financial losses.
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