For Crypto Whales, Borrowing Beats Selling

As Bitcoin and Ethereum rebound, a quiet but powerful trend is taking root among crypto’s largest holders: they’re not selling. Instead, they’re borrowing against their assets. For these ‘crypto whales’, selling would mean triggering enormous capital gains taxes—the kind that come with seven-figure IRS checks. But by using their crypto as collateral for loans, they can access millions in cash without a single dollar in taxable income.

This isn’t a loophole. It’s the same strategy used by traditional billionaires for decades: borrow against appreciating assets like stock portfolios and real estate to fund spending while deferring taxes indefinitely. In crypto, the concept is the same, but the execution comes with new complexities, risks and opportunities. And while it’s out of reach for many everyday investors, the strategic thinking behind it is something everyone can learn from.

How Borrowing Against Crypto Defers Taxes

The IRS treats crypto as property, which means selling it counts as a taxable event. If you bought Ethereum at $100 or Bitcoin under $10,000, selling today locks in enormous gains, as well as a massive tax bill. But loans aren’t income. By pledging crypto as collateral, whales can extract liquidity without giving up ownership or triggering capital gains.

The benefits are clear: there’s no tax on the loan, the original asset can continue to appreciate and repayment can often be structured or deferred indefinitely. It’s a perfectly legal way to retain upside while sidestepping immediate tax obligations. If and when the asset is sold in the future, the tax is still owed, but—in the meantime—the deferral can result in millions.

Why Retail Investors Can’t Easily Use This Playbook

The catch? This strategy works because whales operate at a scale that changes the rules. Institutional lenders and private banks aren’t interested in small portfolios. They want large deposits, the size of which whales can easily provide. In return, they offer better terms, lower rates (often between 5%–7%) and higher-touch service. Retail investors, on the other hand, face double-digit interest rates and stricter collateral terms, if they can access lending at all.

More importantly, the risk dynamics are entirely different. A whale with $50 million in Bitcoin borrowing $5 million at 20% loan-to-value (LTV) is in a low-risk position. If prices drop, they have room to breathe. But a retail investor with $50,000 in crypto borrowing $25,000 at 50% LTV is far more exposed. A market swing could trigger a forced liquidation and with it, a taxable sale they were trying to avoid.

This divide creates a deeper issue: while whales preserve wealth and access capital without selling, retail investors often find themselves having to liquidate just to cover basic needs, incurring taxes and missing out on long-term growth. Access to leverage is a compounding financial advantage and one that further widens the wealth gap.

Two Major Risks Even Whales Must Navigate

Borrowing against crypto is not without landmines. The first is liquidation risk. Because these loans are secured by crypto, a sharp downturn in the market can increase a borrower’s LTV to dangerous levels. Lenders don’t issue warnings; they liquidate automatically to protect their position. Whales typically borrow at conservative LTVs (20–30%) to create a safety buffer. Retail investors, in contrast, often need more liquidity and take on higher LTVs, increasing their chances of a forced liquidation during a downturn.

The second major risk is regulatory scrutiny. Borrowing itself is legal, but when paired with lifestyle spending—like buying a house, car or boat—it can raise red flags, especially if the IRS believes it looks like a disguised sale. Offshore or non-compliant lending platforms can also create serious problems if reporting isn’t handled properly. The safest strategy? Work with compliant custodians, keep detailed documentation and avoid any gray areas.

How Everyday Investors Can Think Like Whales

While most investors can’t replicate the full whale playbook, the mindset is what matters. Strategic borrowing, rather than reactive selling, can still be a useful approach if done carefully. It starts with knowing your cost basis and calculating the real tax impact of a potential sale. Sometimes, especially with long-term capital gains, it might actually make sense to realize the gain rather than take on high-interest debt. But if you do borrow, do it conservatively. Avoid the temptation to max out what lenders will give you. Build in a buffer because crypto volatility is a matter of when, not if.

Use borrowing for real needs, not to increase exposure or double down on leverage. A down payment on a home or covering a one-time tax bill can make sense. Chasing more crypto or spending beyond your means rarely does.

And perhaps most importantly, work with professionals. A crypto-savvy accountant or tax advisor can help you structure loans, maintain compliance and avoid audit risks. As new regulations loom, keeping your house in order is no longer optional.

The Bigger Picture: Preservation Over Profit

Borrowing against crypto solves two powerful problems: how to get liquidity without giving up exposure and how to legally defer taxes. For whales, it’s become the preferred way to fund their lives without selling their future. But it’s not a wealth-creation strategy, rather a wealth-preservation one.

Retail investors shouldn’t try to mimic every whale move. But they can adopt the core philosophy: plan ahead, use the right tools and treat taxes as a strategic factor—not an afterthought. Smart investors aren’t just buying dips or riding waves. They’re thinking holistically about how to protect what they’ve earned.

Borrowing against crypto is a blueprint for long-term financial discipline. For whales, it’s a way to unlock liquidity without sacrificing gains. For everyone else, it’s a lesson in how wealth is preserved: not by making the biggest bets, but by using the system—and its tools—intelligently. The future of crypto investing won’t just belong to those who accumulate assets, but to those who understand how to manage them with precision, patience and a plan.