There's no universal answer, but there is a clean way to work it out for your own numbers. Three factors decide it: your tax bill if you sell, the interest you'd pay to borrow, and how long you'd carry the loan.
Both paths get you cash. What differs is what you give up and when.
Selling converts bitcoin to cash at today's price. You realize a capital gain and owe tax on it (in the US, long-term rates if you held over a year; the IRS covers the basics in Topic 409). You also permanently give up whatever those coins do next. That second cost is invisible on the day you sell, and it's the one sellers remember years later.
Borrowing pledges your bitcoin as collateral for a loan, typically at 25 to 50% of its value. Taking the loan generally isn't a taxable event, and you keep full exposure to your coins. In exchange you pay interest for as long as the loan is open (effective APRs across the lenders we track currently run from the mid-single digits to the mid-teens), and you accept that a deep enough price crash forces you to add collateral or lose some coins to liquidation. Our taxes guide covers the tax side in detail; our price-moves guide walks a real loan through a crash.
Your unrealized gain is large. The bigger the gap between what you paid and today's price, the bigger the tax bill selling triggers, and the more a loan's interest cost has to work against. Someone with a $20,000 cost basis on a $100,000 coin has a lot more to protect than someone who bought last quarter.
The need is temporary. A bridge to a bonus, a house closing, a business receivable: if you can repay within a year or two, you pay interest for that window and the one-time tax bill never happens. Short duration is borrowing's best friend, because interest is a per-year cost and tax is a one-time cost.
You'd buy back in anyway. If you know you'd sell and then repurchase bitcoin later, you're planning to pay the tax and the spread and take the timing risk of re-entry. A loan skips all three.
You can borrow conservatively. At 25 to 40% LTV, bitcoin has to fall roughly by half before most lenders' margin calls come knocking. Borrowing wins on paper only if you can actually survive the path, and low LTV is what makes the path survivable.
Your gain is small, or negative. Little gain means little tax, which removes borrowing's main advantage. And if you're sitting on a loss, selling can actually harvest that loss against other gains, something a loan can't do.
You need the money for years. A $50,000 loan at 10% costs about $5,000 every year. Carry it five years and you've paid interest comparable to a hefty one-time tax bill, while holding liquidation risk the entire time.
A margin call would break you. The honest question isn't "will bitcoin crash?" but "if it crashes 50% while my loan is open, do I have spare bitcoin or cash to post?" If the answer is no, the loan can convert a paper drawdown into a permanent loss at the bottom, which is the worst outcome available. A forced liquidation is also a taxable sale, so you can end up with the tax bill and without the coins.
The amount is most of your stack. Borrowing against a small slice of your holdings leaves plenty of cure ammunition. Borrowing against everything leaves none.
Here's the rough rule that captures most of the decision. Estimate your tax bill if you sold, estimate the loan's annual interest cost, and divide:
Two things the simple rule leaves out, one favoring each side. It ignores upside: if bitcoin doubles while your loan is open, the borrower is dramatically ahead of the seller, and no interest bill catches up to that. It also ignores downside: if bitcoin halves, the seller sleeps fine while the borrower is posting collateral or getting liquidated. The rule prices the cash flows; you have to price the risk yourself.
If the math points to borrowing, run this list before you pledge anything:
Work it in this order. First, the breakeven math: tax bill divided by annual interest, against your honest repayment timeline. Second, the survival test: could you answer a margin call in a 50% crash without selling the collateral? Third, the sleep test: some people hold loans through drawdowns calmly and some don't, and you know which one you are. If all three point the same way, you have your answer. If they conflict, the survival test wins, because the worst borrowing outcome (liquidated at the bottom, plus a tax bill) is worse than the worst selling outcome (paid tax, missed some upside).
New to all this? Start with the complete guide to bitcoin-backed loans, or look up unfamiliar terms in the glossary.