Selling an appreciating asset to “take profits” isn’t the only way to access cash from it, and for people holding a large, appreciating position, it’s often not the most tax-efficient move.
Selling vs. Borrowing Against an Asset
Selling triggers capital gains tax, gives up any future appreciation on what you sold, and leaves you holding cash that loses purchasing power to inflation over time. Borrowing against an asset works differently: loan proceeds aren’t taxable income, so you can access liquidity without a taxable event, while the underlying asset stays in place and keeps whatever upside it has left. Real estate investors have used a version of this for decades, holding property, using depreciation to offset other taxable income, and borrowing against equity rather than selling when they need cash.
How This Applies to a Concentrated Position
For someone holding a large position in an appreciating asset, whether that’s XRP, real estate, or equities, the same logic can apply: instead of asking when to take profits, the question becomes how large a position you need before you can meet your cash needs through borrowing rather than selling. This is an approach some investors with significant, illiquid or concentrated holdings use. It isn’t a universal recommendation, and it depends heavily on your specific tax situation, loan terms, and overall balance sheet.
The Trade-off, and the Risk That Matters
Borrowing against a volatile asset like crypto carries real risk that shouldn’t get skipped over. If the collateral’s value drops sharply, a lender can issue a margin call or force liquidation of the position, potentially at the worst possible moment. Loan interest also has to be paid regardless of which direction the asset moves, so this isn’t risk-free leverage; it trades the risk of selling too early for the risk of forced liquidation in a downturn. Whether this strategy makes sense depends on your total balance sheet, how much of your net worth is concentrated in the asset, and your ability to service the loan through a drawdown. Talk with a financial advisor, and a tax professional if relevant, before using debt against a concentrated position.
Educational only, not tax, legal, or investment advice. Check primary sources and speak with a qualified professional before making financial decisions.
