QUESTION: Should I BORROW money and buy bitcoin with DEBT? Risk versus reward of borrowing to invest?

00:01 Hey everyone. Should you borrow money 00:04 and buy Bitcoin with debt? You may have 00:06 heard people talking about the fact 00:08 that, hey, the interest rate I can get 00:10 if I borrow money is relatively low and 00:13 the return on Bitcoin is way higher. So, 00:15 why don't I borrow money at whatever 00:18 interest rate and then make more money 00:19 on the Bitcoin? That is generally a bad 00:22 idea, but I wanted to provide the nuance 00:24 of why it's usually a bad idea and what 00:27 exceptions there might be. Okay. So, 00:29 we're going to work our way from the 00:33 worst ideas to the best ideas. So, the 00:36 worst idea is to borrow against anything 00:38 that is mark to market. M A R K to 00:43 market. M A R C K T market. Okay. 00:47 Anything that you don't ever ever ever 00:49 want to borrow against something that is 00:51 marked to market because you can get a 00:54 margin call. A margin call means that 00:56 your collateral, which means the thing 00:58 that you are borrowing against, has 01:00 changed in price down and now you have 01:03 to provide more collateral. Otherwise, 01:05 they're going to take your collateral. 01:07 Now, the only time this would happen is 01:09 if uh the things that are marked to 01:11 market would be things like a stock 01:12 portfolio, if you borrow against a stock 01:14 portfolio, or if you borrow against your 01:18 Bitcoin. Don't ever borrow against your 01:21 Bitcoin to buy more Bitcoin. Don't do 01:23 that. It's I promise you're going to 01:25 blow yourself up if you try to do that. 01:27 Uh so borrowing against your Bitcoin, 01:29 your Bitcoin is marked to market. Uh the 01:31 term mark tomarket means the price of 01:33 your collateral is floating by the 01:35 minute or by the hour or by the day 01:37 based on the price of the market. So if 01:39 you borrow against stocks, the stocks 01:40 are constantly going up and down. If you 01:42 borrow against Bitcoin, the Bitcoin's 01:43 constantly going up and down. And what 01:45 happens is, let's say you have I'm going 01:48 to use big round numbers. you have 01:50 $100,000 of Bitcoin and you borrow 01:52 $50,000 of that, which is a 50% loan to 01:55 value. Uh it's called an LTV ratio, loan 01:58 to value ratio. So you borrow 50,000 02:00 against your 100,000. Now they get 02:03 they're holding your $100,000 of 02:05 Bitcoin. It's still yours, but they're 02:07 holding it and they're giving you 02:08 $50,000 of US and then you turn around 02:11 and buy more Bitcoin. Now, if everything 02:13 works out, then what's going to happen 02:15 is uh you'll repay the loan at whatever, 02:18 you know, 10% interest, but then you get 02:21 50% more Bitcoin. But the problem is if 02:24 the value of your $100,000 of Bitcoin 02:27 starts to drop, you're going to get a 02:28 margin call because now 50,000 that you 02:31 borrowed is more than 50% of the value 02:33 of your Bitcoin. So, what happens is the 02:36 price of your Bitcoin, you borrow 02:38 $50,000 when the value of your Bitcoin 02:39 is $100,000. And then the value of your 02:42 Bitcoin starts to drop and it drops to 02:44 90,000 and then 80,000 and then 70,000 02:47 and you get notices from whoever you 02:49 borrowed from saying, "Hey, you have to 02:51 put up more collateral. You borrowed 02:53 $50,000. Your Bitcoin used to be worth 02:55 100. Now it's only worth 70 or 80. You 02:58 got to put up 30, 20, $30,000 more 03:00 Bitcoin. Otherwise, you're going to get 03:03 liquidated." Liquidated means they keep 03:06 all of the Bitcoin you put up as 03:07 collateral. Um, now you still have the 03:09 $50,000, but you lost the $100,000. So, 03:12 you basically lost half your Bitcoin. 03:14 Um, and of course your 50,000 because 03:16 the price of Bitcoin's dropping is now 03:18 only worth 35 or 40. So, don't do that. 03:20 Don't borrow against a stock portfolio 03:22 or a bond portfolio or just don't borrow 03:25 against anything where the asset itself 03:27 is fluctuating in price and that is your 03:29 collateral. So, that's the worst idea. 03:31 Okay. The next worst idea is to borrow 03:34 against your house to buy Bitcoin. Why? 03:37 Because if he gets if it if if it 03:39 doesn't work out as you planned, your 03:41 house is at risk. Don't do that. I would 03:43 never put my family's residence where we 03:46 live. I would never put that at risk 03:49 because I borrowed against it to buy 03:51 more Bitcoin and then the Bitcoin went 03:52 down and then I couldn't make the P 03:54 payments and then I lost the Bitcoin and 03:56 then I mean technically you wouldn't 03:58 lose your house unless you stopped 03:59 making payments, but you might lose all 04:00 the equity in your house that you used 04:02 to buy Bitcoin. So I would generally not 04:04 do that. Now, it's way less risky to do 04:07 that as compared to marktomarket because 04:09 the house the the value of your house 04:11 that's appraised by the bank does not 04:12 change on a day-to-day basis. Um, so 04:15 it's not it's not like an appraiser 04:17 comes out to your house every single day 04:19 and says, "Ooh, a hail stom's coming in. 04:21 Your house is now 20% less valuable 04:23 because it might get hit." That doesn't 04:24 happen with your house. So it is way 04:26 safer to borrow against your uh you know 04:30 to take out a home equity line of credit 04:32 uh heliloc a home equity line of credit 04:34 credit. It is a still say much safer to 04:37 do that as compared to borrowing against 04:38 your bitcoin or borrowing against a 04:40 stock portfolio or something like that 04:42 but is still extremely risky and I would 04:44 never recommend it and I would never do 04:45 it. I am never going to jeopardize my 04:48 house or the equity in my house um to 04:51 buy more bitcoin but again I'm not 04:53 everybody. I know people who do it. Um, 04:55 again, at least it's way safer than 04:57 borrowing against Bitcoin to buy Bitcoin 04:59 or borrowing against stocks or something 05:01 like that to buy Bitcoin. Uh, but I 05:03 still wouldn't do it. Okay, the next um 05:06 sort of less risky thing you could do is 05:09 borrow against your 401k, for example. 05:12 Again, you're putting some of your 05:14 retirement at risk, but at least you're 05:16 not jeopardizing where you live. Again, 05:18 would I do that? No, I would not do 05:20 that. and I have a very high risk 05:22 appetite, but I also have enough other 05:24 money to buy Bitcoin that I have never 05:26 had to think through what if I really 05:29 wanted to buy more Bitcoin and my only 05:31 asset was a 401k or the equity in my 05:35 house. If that was my only asset to buy 05:38 Bitcoin, I've just never had to think 05:40 through that because I've always had 05:41 other money I could use to buy Bitcoin. 05:43 So if you are in the place where the 05:46 only asset you have of any significant 05:49 value is the equity or your home or a 05:52 401k, my answer is I would never 05:54 recommend somebody borrow against that 05:56 to buy Bitcoin. Um 05:58 especially especially because everybody 06:01 starts talking about doing it when 06:02 Bitcoin's setting new all-time record 06:04 highs. um if anyone was going to ever do 06:08 that, you know, the time to do it would 06:11 be right after FTX blew up back in 2022 06:14 or anytime in 2023 or even most of the 06:16 time in 2024. Uh but the problem is 06:19 everybody starts getting the bright idea 06:21 to borrow against their 401k or to 06:23 borrow against their house when Bitcoin 06:25 is up in the stratosphere setting new 06:28 all-time highs every day. It's like way 06:31 up in the thin air of the atmosphere. 06:33 Um, and then everybody gets the bright 06:34 idea to borrow to buy more of it. So, 06:37 um, if somebody was going to do that, I 06:40 would say, "A, it's a bad idea." And if 06:42 they were like, if they were like, 06:44 "Joel, I'm not going to listen to you. 06:47 I'm going to borrow against my 401k or 06:49 I'm going to buy borrow against the 06:51 equity in my house to buy Bitcoin and 06:52 you can't stop me. I would I'm going to 06:54 do it." Then I would say a that's a bad 06:56 idea and b at least do that when Bitcoin 06:60 is in a serious correction and 07:02 everybody's talking about the end of the 07:03 world and Bitcoin's never coming back 07:05 and it's down 30% or 40% or something 07:08 like that. At least do it when Bitcoin 07:11 is massively on sale because at least 07:14 then you're not risking, you know, 07:16 buying the top. Um, now I don't think 07:19 buying Bitcoin at $120,000 is buying the 07:21 top, but I don't know where I don't know 07:23 where the top is of the cycle. I think 07:24 long-term it goes to a million dollars a 07:26 coin, but on its way to a million 07:28 dollars a coin, it could go through 07:30 multiple 07:32 20, 30, 40, 50% price corrections on the 07:35 way between here and a million dollars. 07:37 Um, and we've had two and a half all of 07:40 2023, all of 2024, and half of 2025 on a 07:44 serious bull market. I mean, we've been, 07:47 you know, the lowest point in November 07:49 of 2022 was 15,500. So, Bitcoin has been 07:52 on a tear, which again, a bunch of price 07:55 corrections of 20 30% along the way, but 07:58 we've been on a pretty epic tear from 08:00 15,500 in the in the fourth quarter of 08:03 2022 to the present. So, if you're 08:06 getting the bright idea to borrow 08:07 against your house or your 401k today, 08:10 um, as James Czech, my favorite Bitcoin 08:12 analyst, would say, we are in the fourth 08:14 quarter of this ball game. Now, you 08:17 know, after we go through the fourth 08:18 quarter, then we start the first quarter 08:20 of the next cycle, which sucks. And I 08:23 don't know, maybe it drops from here. I 08:25 don't think so, but maybe it runs up to 08:28 180,000 and drops to 120 again, which 08:30 would be, I don't know, a however 08:32 percent price drop. I don't know. Nobody 08:34 knows what's going to happen. But if 08:36 you're going to borrow against your 401k 08:39 or your house and I can't stop you and 08:41 you're going to ignore my advice to not 08:43 do that, then the time to do that is not 08:46 when you're setting new all-time high 08:47 record highs every day. The time would 08:49 be to do that when Bitcoin's down in the 08:50 dumps. You know a lot about it. you have 08:52 deep conviction or at least we've been 08:55 grinding sideways for months on end with 08:58 which gives you some absolute cir 08:59 certainty that we're not at the top of 09:01 the cycle because we've just been 09:02 grinding and grinding and grinding and 09:04 grinding sideways again right now we 09:06 just came off I mean we're at record 09:08 high territory in the last 24 hours so 09:11 you know th that's just it's typically 09:13 an especially bad idea to borrow against 09:15 a 401k or a u home equity when you're 09:19 setting record highs every other day 09:21 that's generally the worst time to do 09:22 it. One second. 09:27 Okay, so we've covered never borrow 09:28 against your Bitcoin to buy more 09:30 Bitcoin. Never borrow against stocks or 09:32 anything else that changes in value on a 09:34 daily basis. Um we've also covered that 09:36 it's a bad idea to borrow against your 09:38 house or your 401k uh to buy Bitcoin. Um 09:42 and but if you're going to do that, 09:45 again, the time to do it is when 09:46 Bitcoin's in a major price correction, 09:48 not when it's setting record highs every 09:49 other day. Um then uh next up, is it a 09:53 good idea to borrow sorry to not pay off 09:58 a house or a car in order to buy 09:60 Bitcoin? Now I am much more open to 10:02 that. In my case, um I needed to buy a 10:05 new car cuz one of my kids turned 16 and 10:07 they needed a car. So they were getting 10:08 the 2010 Honda Odyssey family van that's 10:12 15 years old with 230,000 mi on it, 10:14 which freed up somebody to get a new 10:16 vehicle. Well, it turned out I was in 10:18 the rotation and so I bought myself a 10:20 2026 Tesla Model Y, uh, which is like 10:23 the, you know, the most amazing car you 10:26 can buy in my opinion. It's not the 10:28 expensive. The expensive Teslas are the 10:30 Model X and the Model S. So, it's not 10:32 the expensive Tesla, it's just the best 10:34 Tesla. And, uh, the Tesla Model Y, I 10:36 bought at 2026 back in March. Well, 10:38 Bitcoin was trading at $85,000 per coin, 10:41 858500. 10:43 And I did not want to sell the Bitcoin 10:45 to buy the Tesla, which I could have 10:46 done. and I had the Bitcoin. I still 10:48 have the Bitcoin. I could buy I could 10:49 sell the Bitcoin and buy a Tesla right 10:51 now. Um, but instead of doing that, I 10:53 went to Trustmark and I took out an auto 10:55 loan at 6% interest for 5 years. Uh, and 10:59 I paid for the Tesla that way and now I 11:01 pay uh Trustmark back with a with a 11:04 monthly car payment. Now, the only 11:05 reason I do did that is because one, I 11:07 can pay that car payment all day long. I 11:09 could pay off the car today in a 11:11 heartbeat with, you know, relatively 11:13 little impact on my net worth if I 11:14 needed to do that for any reason. I just 11:16 didn't want to do that because at 85,000 11:19 a coin, Bitcoin had been up to 109,000 11:22 and it was down at 85. So, just like 11:24 borrowing against home equity line of 11:26 credit or a 401k, um, I'm thinking I 11:29 don't want to sell Bitcoin down here at 11:31 85,000, especially when it's tasted 109. 11:34 I don't want to buy sell it down here at 11:37 uh at 85,000. So, I will borrow US 11:40 dollars to buy the Bitcoin uh sorry to 11:42 buy the Tesla and keep my Bitcoin and 11:44 then I will pay off the Tesla slowly 11:47 month by month over 5 years at 6% 11:49 interest. Well, that is working 11:50 fantastically well because my car 11:52 payment is coming up. What is it's the 11:54 14th of the month? My car payment is 11:56 coming up and I'm about to pay uh a car 11:59 payment that is like whatever 30% 12:01 discounted or whatever it is. I'm paying 12:03 with $120,000 Bitcoin for a car payment 12:06 that was established when Bitcoin was 12:08 85. So, whatever percent less $85,000 is 12:11 than $120,000, that's a significant 12:14 discount on my car payment. Uh, and 12:16 hopefully I'll get to the point where 12:17 I'm paying like half where, you know, 12:19 Bitcoin's double $85,000 and my car 12:22 payments are less than half of what they 12:23 would have been if I had just paid up 12:25 front. So, I am much more open to 12:28 financing a house or a car so that you 12:31 don't have to sell Bitcoin. But that 12:34 that assumes you already have the 12:35 Bitcoin and you are financing a new 12:38 purchase of a house or a car or a used 12:40 house. Obviously, my house is used. Uh 12:42 or in my case, a new car, but I could 12:44 afford it. Otherwise, I would always 12:45 recommend a used car, not a new car. Um, 12:48 so I'm I'm way more open to that. That's 12:50 not saying I recommend it. I'm just 12:51 saying I'm way more open to that if 12:53 somebody says, "I have my Bitcoin. I 12:55 could liquidate it and buy a car or I 12:57 could liquidate it for a 20 or 30% down 12:60 payment on a house, but I don't want to. 13:02 Instead, what I'm going to do is 13:09 crud. I've got to go deal with a natural 13:12 gas leak." Um, this video unfortunately 13:15 is going to be in two parts, which I 13:17 know is super inconvenient, but uh here 13:19 we go. It's just going to be in two 13:21 parts. Sorry everyone.