The dilemma of Bitcoin retirees: sell or borrow?

How to manage your bitcoins at the time of retirement? Is it simply better to sell your bitcoins, or bring them to collateral and live on credit?

Bitcoin, the capital of the 21st century

In a discussion thread published on X devoted to Bitcoin, the user Wicked Compared the two approaches to the light of a pessimistic scenario over 10 years. The parameters are as follows:

A retiree having saved in bitcoins the equivalent of 50 times his annual expenses. Annual expenses amount to € 50,000 for total savings of € 2,500,000 in bitcoins (24 BTC).

Years 1 and 2: brutal lower market. Bitcoin plunges 50 % at the end of the first year and an additional 50 % at the end of the second year. Clearly, the value of its dark bitcoins at € 1,50,000 after a year, and € 625,000 after two years.

Consequently, the annual expenditure of 50,000 euros represents 2 % of the initial reserve (Year 1), then 4 % (Year 2) and 8 % (Year 3).

Years 3 and 4 : Recovery. The Bitcoin market stands up, going up 100 % per year. The price of Bitcoin returns to the initial level at the end of the year 5.

Years 5 to 10 : Appreciation of 25 % per year of Bitcoin (this is the forecast of Michael Saylor).

Which of the two strategies is the most profitable after ten years? Sell ​​a part of its bitcoins to be served severly each year to cover expenses, or borrow against these BTCs which are preserved? Knowing that the annual interest rate is painful, 10 %.

Here is a detailed analysis of the two approaches.

Strategy 1: Sell Bitcoins

In this approach, the retiree sells each year, at the beginning of the year, the amount of bitcoin necessary to cover its annual expenses of 50,000 euros.

Wicked makes the simplifying hypothesis that bitcoins are not taxed. This is the case in several European countries such as Portugal, Germany and the Czech Republic where the capital gains tax is not applied if the bitcoins are kept for more than a year.

Here is how the cost of living and the Bitcoin reserve over 10 years is evolving:

Year 1 : The retiree sells 2 % of his BTC, he has 98 % left.
Year 2 : The retiree sells 4 % of its BTC, it has 94 %.
Year 3 : Sale of 8 %, remains 86 %.
Year 4 : Sale of 4 %, remains 82 %.
Year 5 : Sale of 2 %, remains 80 %.
Year 6 : Sale of 1.6 %, remains 78.4 %.
Year 7 : Sale of 1.3 %, remains 77.1 %.
Year 8 : Sale of 1 %, remains 76.1 %.
Year 9 : Sale of 0.82 %, remains 75.3 %.
Year 10 : Sale of 0.66 %, remains 74.6 %.

Result after 10 years: the retiree retains 74.6 % of his initial reserve, that is (thanks to the rapid IA calculations!) The equivalent of € 7,115,314 taking into account the decline followed by the appreciation of the bitcoin imagined in the scenario.

Strategy 2: borrow

In this scenario, the retiree borrows each year to cover his expenses. He uses his bitcoin reserve as collateral. Bitcoins are therefore never sold. The hypotheses are as follows:

Collateral requirement: 2x. Clearly, to borrow the equivalent of 1 % of the value of the reserve in euros, it is necessary to immobilize 2 % of the BTC in collateral.

Terms: the interest of 10 % accumulates from year to year. The pensioner postponed the debt continuously without ever reimbursing anything.

Here is the evolution of debt and collateral over 10 years:

Year 1 : Cost = 2 %. Borrowing of 2 %, initial debt = 2 % × 1.1 = 2.2 % (interest). Collateral = 4.4 % total savings. At the end of the year, with the 50 % drop in bitcoin, the adjusted debt is 4.4 %, collateral = 8.8 %.

Year 2 : Cost = 4 %. Previous debt = 4.4 % (previous year) + 4 % (new loan) × 1.1 = 8.8 %. Collateral = 17.6 %. At the end of the year, with the new 50 % drop in bitcoin, debt = 17.6 %, collateral = 35.2 %.

Year 3 : Cost = 8 %. Debt = 17.6 % + 8 % × 1.1 = 26.4 %, collateral = 52.8 %! At the end of the year, Bitcoin dates back 100 %, debt = 13.2 %, collateral = 26.4 %.

Etc.

Result after 10 years: the retiree retains 100 % of its initial reserve which is then worth 9,537,322 euros, to which must be derived € 885,846 in debt linked to interest.

Conclusion

Financial results after 10 years:

Scenario 1 (sell) : 7,115,314 €.
Risk of liquidation: none, because there is no loan.

Scenario 2 (borrow): € 8,651,477.
Risk of liquidation: high, especially at the beginning of year 3, where the ratio [dette/épargne totale] reaches 50 %! An additional drop in Bitcoin of 50 % would trigger a liquidation, resulting in a loss of 50 % of all bitcoins.

As you can see, even with an extremely conservative starting point (only 2 % of BTC savings spent each year, three consecutive years of 50 % drop in bitcoin trigger liquidation and the loss of half of the 24 initial bitcoins).

That is to say, for example, if Bitcoin fell from 104,000 euros to 13,000 euros. However, this now seems unlikely that Bitcoin is dubbed by the United States and many large financial institutions. Here, the American vice-president actively supports Bitcoin:

Finally, the risk of liquidation is greatly reduced if you are not retired and you continue to work. If you want to buy your home for example.

It should be expected that this type of “Lombard loan” will democratize in the coming years in France. They already exist in the United States with the launch of the company 21 capital overseen by Jack Mallers. It is already possible to contract loans at rates located between 9 and 13 %.

To convince you to retire you in Bitcoins, do not miss our article: The interests of the French debt explode.