You have BTC and need cash now — do you sell it for stablecoins, or use it as collateral to borrow stablecoins?
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Many people intuitively think borrowing means paying interest, so it must be more expensive. But when you add up the full picture, the answer is not that simple.
Selling directly: the cost is simple, but the price may be long-term
Selling BTC directly for stablecoins has only one layer of cost:
Trading fees: exchange fees are usually around 0.1%–0.5%.
Hidden cost: the biggest cost is giving up future upside. Xapo Bank gave an example: someone who used 1.19 BTC (about $50,000) to fix a roof in early 2024 would have seen that amount worth $149,940 by October 2025 when BTC surged. To fix the roof, they effectively paid $99,940 in missed gains.
Also, in most jurisdictions, selling BTC triggers capital gains tax. If your original purchase price was low, that tax could be much larger than you expect.
Borrowing stablecoins against BTC: visible costs are clear, hidden costs are in the dark
Borrowing stablecoins against BTC is not just about interest.
1. Interest Protocols like BTCFi CDP charge around 3.5% annual interest on borrowing. Different platforms vary widely, so check carefully before borrowing.
2. Liquidation risk This is the most dangerous hidden cost. For example, with a 50% initial LTV, a BTC drop of about 37.5% can trigger liquidation. When liquidated, your BTC is sold at a discount, and you may lose not only the interest but also part of your principal. Liquidation itself may also be treated as a disposal event and could trigger capital gains tax.
3. Opportunity cost While your BTC is locked as collateral, you cannot move it. If a better selling opportunity suddenly appears, you can only watch.
4. Tax advantage Collateralized borrowing is usually not treated as a taxable event because ownership of the asset does not transfer. Your cost basis is preserved, and tax is only calculated when you later sell.
Which costs less? It depends
If you are bullish on BTC and willing to take volatility risk → borrowing stablecoins is better You keep BTC upside and only pay interest. The interest may be lower than the tax you would pay by selling BTC. But the premise is that BTC does not fall below the liquidation line.
If you are unsure about BTC's direction, or need cash and do not want debt → sell directly If BTC drops, selling helps you avoid bigger losses. Interest and liquidation risk will not bother you.
Let's run the numbers: a hypothetical calculation
Assume you hold 1 BTC (current price $70,000) and need $35,000 in cash:
| Option | Sell directly | Borrow stablecoins against BTC (50% LTV, 5% annual interest) |
|---|---|---|
| Immediate cost | Trading fee ($35–$350) | Interest ($1,750/year) + possible liquidation |
| Tax impact | Triggers capital gains tax | Usually does not trigger |
| BTC holding | 0 BTC | 1 BTC (but locked as collateral) |
| Biggest risk | Missing upside | BTC falls below liquidation line → lose part or all BTC |
FAQ
Q: When is borrowing stablecoins against BTC more expensive than selling directly? A: When BTC crashes and triggers liquidation. You not only pay interest, but your BTC may also be force-sold at a low price — worse than selling it yourself.
Q: What if I do not want to be liquidated? A: Keep LTV in a low-risk range of 20%–30% to leave enough room for BTC to fall. But that means you can borrow less cash.
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Next step
Take out a calculator and run the numbers with the amount you need to borrow and the BTC drop you can tolerate. If the liquidation price is less than 20% away from the current price, do not borrow — selling part of your position directly is safer.
