“Should I buy bitcoin with a new HELOC?” No, but…

Should you buy Bitcoin with a home equity line of credit? H E LC heliloc. Uh the general answer is no. But there is one caveat that I'll throw out there in case it applies uh which I think is interesting. So a home equity line of credit is when you borrow against the equity in your home to do something. Maybe it's a repair on your home. Maybe it's an emergency medical bill. Maybe it's whatever. You've got equity in your house. You know, the bank will let you borrow against that equity to take out the loan. Of course, if you can't pay back the loan, I think they repossess your house. I don't know how that works, but I think that's what happens is if you can't make the loan because the house is collateral, you effectively give up your house because you can't make the loan. So, obviously, any sort of debt is dangerous because whatever the collateral is, you could lose. So, if you borrow against Bitcoin to buy more Bitcoin and you get liquidated, you lose some Bitcoin. If you borrow against your house and you can't make the payments and you get foreclosed, well, you lose your house. That's the way loans work. whatever you put up as collateral for the loan, which is what gives whoever's lending you money safety to know that they're not going to lose their money, they are only loaning you money because there's a recourse if you don't pay it back. And the recourse is whatever it is you used as collateral, they get to keep. Uh which is why, you know, loans are dangerous. Okay? So, generally, if somebody called me regardless of the price of Bitcoin and said, I'm considering a taking out a home equity line of credit to buy Bitcoin, I would say, no, don't do that. Do not do that. Now, some interesting caveats. For example, I was talking to somebody recently and they said, "Look, the bank is not letting me, you know, take out the amount of money I want to take out uh for a home repair. The bank is requiring the minimum the bank is requiring to take out is more than the amount I think I'll need for a home repair. What should I do with the extra money?" Because the bank is requiring me to take it out after, you know, whatever 6 months, I could just, you know, use it to pay back some of the heliloc or I could buy Bitcoin with it. So my answer with that was, well, look, if you have to have a heliloc and you're going to do it anyway for a home repair, and if the bank is requiring you to take out more than you need, and if you have to do something with that extra money, is Bitcoin a good place to put it? My answer would be yes. If I were in that situation and I had a heliloc anyway and the loan terms were something I was going to have to pay off a very long time in the future and my options were pay down some of the heliloc or buy bitcoin at these prices I would buy bitcoin. Now, I would never take out a new HELOC to buy Bitcoin, but if I was going to have one anyway, and if the bank wouldn't let me have one as small as I needed for repairs, and if I had that extra money regardless, and if I needed to do something with it, then yeah, I would buy Bitcoin. But again, that is a very narrow situation that probably applies to almost nobody. Now, another question is if you have capital laying around that you know you're going to need within the next six months, the question is should you keep that in Bitcoin? And the answer is, of course, it depends on the price of Bitcoin and it depends on your risk tolerance. At $82,000 Bitcoin, I would say I don't know. For money I knew I was going to need in the next next six months, it depends on your risk tolerance. If you're okay being down another, you know, 25% on that money, which is unlikely but not impossible, then sure. But if you're like, "No, I really, really, really need to not be down a meaningful amount on that money," I would say, "Well, then you're stuck." Uh, you're stuck because you need x amount of money and it can only be down like, you know, 10%. Then I would say, "Well, 82,000, it's pretty easy for Bitcoin to be down another 10%." You know, it may not be likely, but it's not unlikely. So at that point I would say if somebody said okay you know I have leftover capital do I that I know I'm going to need in six months do I buy Bitcoin now or do I you know sit in US dollar cash I would probably say sit sit in US dollar cash until the Bitcoin price is cheaper wait until James Czech my favorite analyst says hey we probably are at the bottom like all the indicators say we're at the bottom if James check is saying that all the indicators indicate that we're at the bottom we probably are Now, if it goes lower, it's probably not going to go much lower. And the main risk with that approach is that we never hit the point at which all the indicators say that, you know, we're at the bottom. So, the high likelihood in that scenario is you're like, okay, here's money I need in six months. When James check says we're at the bottom, I'll stick it in Bitcoin. The the bottom indicators are never hit. The price just goes straight up and you're stuck sitting on US dollars that you wish were Bitcoin. Well, that's just the risk you take because nobody knows where the bottom is. Nobody knows where the top is. Um, and James Czech is a better weather forecaster of the future of Bitcoin than anyone else. But he's not always right. He's likely to miss bottoms. He's likely to miss tops. In the most recent case, all of his indicators said 126,000 was not the top of the current price cycle. Well, guess what? It appears it kind of was. uh unless we just shoot straight up from here and make 126 look like an irrelevant rounding error, then people are going to look back and say, "Hey, he missed that." You know, 126 kind of was the top. Uh at least temporarily. Uh so anyway, the same is likely to happen on the bottom where, you know, you're waiting around for him to say this is the bottom and then by the time he says that was the bottom, the price has gone up and you've missed it. But again, if you have to have money in the next six months, you're stuck because there's not a good alternative. Uh, it's just too risky to buy $82,000 Bitcoin. In my opinion, it's too risky to buy $82,000 Bitcoin with money you know you're going to need six months from now. Unless you have a high risk tolerance and you can afford being down 25% on that money. Now, for me, I would keep it in Bitcoin because, again, I can afford being down 25% on money I'm going to need in six months because I have other money in Bitcoin that, you know, there's no chance that the Bitcoin price is going to drop below the cheapest Bitcoin I ever bought or even the average of the price of the Bitcoin I bought. So, I'm fine riding the ups and downs and the volatility because again, it's like, you know, you win some, you lose some, but you win with Bitcoin, you win way more than you lose. And therefore, I'm completely comfortable with the paradigm where yeah, you know, I lose money on upside I was trying to get. Ultimately, in the grand scheme, I'm better off. Just like with the $10,000 of Bitcoin I bought last night at uh 82,000 with a Bitcoin backed loan. It's a one-year loan term, which term, which means if Bitcoin's not above 82,000 in one year, plus the interest, I lose money. But again, I'm comfortable doing that because $10,000 is a very small portion of my Bitcoin. And it's an amount I'm willing to take risk with. It's an amount that even if I do get liquidated and I lose some of my collateral, I'm okay with that. Even though the liquidation levels are so low that I really don't think we're going to go there. So, uh, anyway, generally, home equity line of credit, I do not ever recommend somebody taking out new debt to buy Bitcoin. But if you have to take out debt and the money has to go somewhere at the right price, you know, Bitcoin is a great place to store value. And look, if the price drops to $70,000 and you know you don't need the money for six months, I would say yeah, at $70,000 I'd probably just stick it in Bitcoin and hope for the best. But at 82, yeah, 82 I would buy Bitcoin with any money I possibly had, but not newly borrowed money, uh, you know, that I knew I was going to need within 6 months. If I had newly borrowed money that I borrowed to do something in less than six months, I would not put that in Bitcoin at 82,000 because again, A, it's borrowed money. And B, you know, you're going to need it. And the worst the worst money to put in Bitcoin is money that meets two criteria. One, it's borrowed money. And two, it's you know you're going to need it money. So, anything that meets the, you know, it's borrowed money and you know you're going to need it money, you really have to be buying radically discounted Bitcoin. uh for that sort of 2x the risk because look, borrowed money is risky. Putting money in Bitcoin that you know you're going to need in the next six months is also risky. So if you're doubling up that risk, 2x the risk, um you know, 2* 2 is four, it's like quadruple the risk, something like that. Because when you start stacking risk, it doesn't go up linear linearly. It's not like one risk plus another risk is two risks. It's like no, it's really exponential. It's like one risk plus one risk is like 4x. it just uh grows exponentially. If you add in another risk on top of that um such as the money came from a Bitcoin back loan, not a home equity line of credit or something like that that I'm like, okay, now you're like 9x the risk because it just grows exponentially. But anyway, hopefully that's helpful in giving just a framework of what I would and wouldn't do in certain situations. And uh as always, ask me any questions. I love being helpful and I'm here for anything you need. legs.