On Tuesday, Coinbase announced its new lending program where hodlers of Bitcoin on its platform can borrow up to 40 percent of their stack, to as much as $1 million total. Participants in the program will only have to pay an 8 percent annual percentage yield (APY), with no credit check.
More importantly, borrowers won’t have to cash out their Bitcoin, which is a taxable event in the U.S. The IRS currently classifies cryptocurrencies as “property” not securities. As such, that asset class is taxed at the short- or long-term capital gains rate depending on how long you’ve held an asset.
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If you hold a cryptocurrency for a year or less, the most recent short-term tax rate ranges from 10 to 37 percent depending on income and filing status. If you hold a digital asset for longer than a year the long-term tax rate applies, ranging from zero to 20 percent on profits.
The Coinbase APY is a significant savings by comparison. Other attributes of the Coinbase offering include:
- No transaction fees
- A flexible payoff schedule on the Bitcoin line of credit
- Borrowed funds can be instantly added to PayPal or to a bank via ACH
According to the Coinbase website, every month borrowers only need to pay the interest due ($10 min) and then pay off the principal balance when ready. Additionally, the Bitcoin used as collateral remains safely stored in the Coinbase vault – it’s not lent out or used for any other purpose.
On The Flipside
- Even though Coinbase is one of the most trusted names in crypto, it is a centralized exchange.
- That makes it a constant target for hacker attacks and security concerns.
Why You Should Care?
The real benefit of this offer is that you never have to sell your Bitcoin for emergency liquidity needs.This has been something hodlers have been waiting for as it allows the Bitcoin to continue to appreciate in value, while remaining on-chain in your wallet.
