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Podcast 🎤 #12 The “Never Sell” Strategy

Today we’re discussing how to borrow against your crypto using CeFi & Defi so you can hodl forever without making a single interest payment.

Michael Saylor always says, “never sell, just borrow”. By never selling, you don’t have to time the market and risk missing a big run. Not to mention, by just hodling you don’t pay any capital gains taxes! But the details of how to execute this strategy are tough to come by.

For this example, we’re going to use bitcoin as collateral and Nexo to borrow, but similar strategies can be achieved in DeFi using other collateral like ETH or wBTC and MakerDAO for example.

Let’s say you have $100k worth of bitcoin in Nexo (collateral) and you want to buy a car for $30k. Nexo will allow you to borrow up to 50k of USDC for ~7% APR per year which you can easily withdraw to your bank account to buy the car! That’s because Nexo allows you to borrow up to 50% against your bitcoin, also known as a loan-to-value (LTV) ratio of 50%:

LTV = borrowed value ÷ collateral value

But unlike a typical mortgage or lease loan, you don’t have to make a monthly payment! The amount you owe them simply continues to grow within your Nexo account as long as your LTV remains below 83.33%. In our example, this means the value of your bitcoin would have to drop from $100k to $36k!

83.33% = 30000 ÷ 36000

If this was to happen, Nexo would begin selling some of your bitcoin to bring your LTV back into a safe range. But before it comes to that, you have two options:

  1. Pay back some of your loan
  2. Deposit more collateral

Nexo even has a feature which automates loan repayment for you by moving collateral from your Nexo Savings Account into your Credit account.

Now obviously at some point that ~7% snowballing interest you owe will catch up to you. Or will it? Somewhere around 15.5 years, the amount you’ll owe from your $30k loan will be about $83.33k. But that assumes the value of your bitcoin stays the same for 15 years! Bitcoin hasn’t even existed for 15 years and it’s gone from $0 to $63k!

The “Never Sell” strategy hinges on the belief that your collateral will continue to appreciate. If the value of your bitcoin only doubles to $200k while your loan remains in place, that means you won’t reach 83.33% until somewhere around 25.5 years!

We’re talking about the best performing asset of the decade. If you don’t think bitcoin is bound to at least double over the next 25 years you’re not in the right place.

So in summary, the “Never Sell” strategy requires two things to be true:

  1. The system you borrow from doesn’t require regular payments and instead continues growing within an allowable LTV ratio
  2. You believe the value of your collateral will outpace the interest you owe on your loan

This is a pretty sophisticated strategy, but if done right, it means never having to sell your bitcoin while still being able to pay for the things you need. Pretty cool right?

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