Scenario:
Imagine I possess 1 BNB and use it as collateral on a decentralized finance platform. I then obtain a loan for 0.5 BNB against this collateral. Subsequently, I convert the borrowed 0.5 BNB into USDC and withdraw the cash. Since this process involves borrowing rather than selling my crypto asset, it appears there would be no capital gains. However, would turning that borrowed crypto into USDC be treated as a taxable capital gains event?
Borrowing against cryptocurrency generally does not trigger a taxable event since you are not disposing of your asset. In my experience, as long as you maintain the position and do not sell the collateral, the act of converting the loan proceeds to another asset like USDC does not generate capital gains. That said, tax treatment can depend on individual circumstances and local regulations. It is advisable to consult with a tax professional to ensure that all aspects of your situation are correctly addressed.