💰 "Buy, Borrow, Die": A common asset strategy for the wealthy

Assume a simple example:

A father buys $Grayscale Bitcoin Mini Trust ETF(BTC.US) with $100,000.

Years later, the asset appreciates to $5,000,000.

If he sells directly, the capital gain on the Bitcoin would be:

$5,000,000 − $100,000 = $4,900,000

This portion is typically subject to capital gains tax in the US.

Many high-net-worth families don't do this.

They use a classic structure known as:

Buy → Borrow → Die

Step 1: Buy (Purchase and hold long-term)

After purchasing the asset, hold it long-term without selling.

Because as long as it's not sold, capital gains are usually not taxed.

Step 2: Borrow (Take out a loan using the asset as collateral)

When the asset appreciates to a high value, it can be pledged to a bank as collateral.

For example:

Use $Grayscale Bitcoin Mini Trust ETF(BTC.US), stocks, or real estate as collateral.

The bank provides a loan.

The key point is:

A loan is not income, so it's not taxable.

This allows one to:

Use the borrowed money for consumption or investment.

Step 3: Die (Step-up in basis upon death)

In the US, many assets receive a:

step-up in basis upon inheritance.

This means:

When the heir receives the asset, its cost basis is reset to the market price at that time.

In this example:

The child's cost basis upon inheritance is $5,000,000.

If they sell immediately, theoretically, there is almost no capital gains tax.

So the logic of this structure is:

Buy and hold

Borrow against the asset to fund lifestyle

Ultimately pass the asset to the next generation

However, several practical factors need attention:

1️⃣ Secured loans typically require stable assets and good credit

2️⃣ May face a margin call if the market declines

3️⃣ Tax laws may change in the future

This strategy is commonly seen in reality for:

Stocks

Real estate

Crypto assets

Especially for assets that appreciate long-term but don't need to be sold.

📊 In summary:

The goal for many high-net-worth investors is not "selling for profit."

But rather:

Letting the asset continue to grow while obtaining cash flow through borrowing.