Bitcoin Can Be Used as Loan Collateral, As Lenders Focus on No-Tax Benefit
The cryptocurrency industry, and especially Bitcoin, have been seeking ways to move into the mainstream market, though some traditional finance proponents have been continually resistant. However, crypto lenders are making it possible to use crypto assets as collateral for loans, which should appeal to traditional users in this new use case.
However, the greater benefit is the fact that these loans are exempt from taxation, which is what attracted the attention of Bloomberg in a report this week.
The reason that these transactions can easy be exempt from taxes is due to the fact that assets don’t impose a tax until they are sold, which Bloomberg compares to borrowing against stock holdings. However, the risk involved with digital currency has a lot to do with volatility, though hacking and theft can also cause a loss in collateral.
Considering that these loans are performed against cryptocurrency, they make up for the risk by not performing a credit check.
Lenders have been working to push consumers to leverage paper profits into cash, using cryptocurrency as a tool to borrow against. With no tax bill, the Internal Revenue Service (IRS) acts as if crypto money is a capital asset, much like stock or property. They do not consider the assets to be currency, so imposing a tax is simply impossible.
Genesis Capital reportedly provided over $1.1 billion in cash through the borrowing of virtual currency last year. During the last quarter, the affiliate of Genesis Trading saw double the total volume from the previous two quarters. Other lenders are also reporting more transactions to this nature, though they recognize the risk involved with using a highly volatile asset like this.
Still, much like the lack of taxation from the IRS, the crypto lenders do not have to deal with the oversight of the US Securities and Exchange Commission or the Commodity Futures Trading Commission.
Even though there has been flags from the SEC for initial coin offerings, the same has not been done for cash lending operations. While the IRS has not imposed any policies on crypto-backed cash loans, growing popularity will likely force the authority to create some kind of regulation, or at least to state whether they will have any regulations over it.
Bitcoin has gone through many transitions in the last few years. At one time, back in the end of 2017, the original cryptocurrency got close to the $20,000 mark.
Now, even though the value has been coming up, Bitcoin is only priced at $4,759.58. Still, it is worth noting that the crypto asset has gone up by 14.67% in the last 24 hours, while many cryptocurrencies are reporting gains as well.