On 2 August 2026 bitcoin trades at around 63 000 dollars. That is a fall of roughly 44 % over twelve months and about half of the peak above 126 000 dollars. Over the same period bitcoin-backed borrowing grew: according to Galaxy Research, crypto loan volume reached some 67 billion dollars in the first quarter of 2026, up almost 50 % year on year.

Put those two numbers together and you get exactly what you would expect. A large share of those loans was taken out at much higher prices and some of them have since hit their liquidation threshold. And it is at liquidation that the tax side of this instrument, which the community tends to explain only halfway, finally shows up.

Drawing the loan really is not income

Start with the part that is true. The Slovak Financial Administration puts it plainly: a loan received is not income subject to income tax. You are given money you are obliged to return, so no economic benefit arises, only a liability.

Nor does anything happen that the Income Tax Act treats as a taxable moment for crypto-assets. Under Section 2(ai) read with Section 8(1)(t) of the Act, what is taxed is the exchange of a crypto-asset for property, for another crypto-asset, for a service, or its transfer for consideration. Posting bitcoin as security is none of those. You have sold nothing and exchanged nothing.

So as long as you service the loan and the collateral is released at the end, the entire cycle runs without a single taxable moment. That is legitimate and it is not a trick. It simply follows from the fact that tax attaches to realisation, not to liquidity.

How your collateral is locked up

Two models are worth distinguishing here, because the degree of tax certainty differs.

Non-custodial. The bitcoin is locked into a multisig address, one of the keys stays with you, and the provider cannot move the coins on its own. Ownership does not change and the position is clean for tax purposes. This is how platforms built directly on bitcoin work, including the Czech platform Firefish, which is the best known one in the Czech and Slovak community.

Custodial. You hand the coins over to the provider, who holds them at its own addresses. If the contract reserves a right to re-lend that collateral, that is rehypothecation, and you now have a problem not only with counterparty risk but also with arguing that you remained the owner.

One legal note to check in your contract. Slovak law recognises a pledge under Section 151a and following of the Civil Code, where ownership stays with the debtor, and also a security transfer of right under Section 553 of the Civil Code, where ownership passes to the creditor for security purposes. For income tax what matters is whether there is a transfer for consideration, and a security transfer is not one, because you receive no consideration for the asset. Even so, the closer the arrangement gets to a genuine handover of ownership, the more attention the contract deserves.

Liquidation is a sale and you are not the one deciding

Now the heart of the matter. If the price of bitcoin falls far enough that the ratio of loan to collateral value breaches the agreed threshold, the collateral is sold to cover the debt. At that moment there is a transfer of a crypto-asset for consideration, that is, a taxable event, exactly as if you had clicked the sell button on an exchange.

The Income Tax Act has no concept of an involuntary sale. It does not care that you did not want to sell, that you had no say in the liquidation, and that the price was the worst in a year. All that matters is that the crypto-asset was transferred for consideration and that the difference between the proceeds and the demonstrable acquisition cost is positive.

We covered the same principle in the context of forced conversions on exchanges winding down in our article on the end of the MiCA transition period. With loans the impact is harsher, because the loan proceeds are usually already spent while the tax falls due a year later and has to be paid in cash.

A worked example

Say you bought 1 BTC for 25 000 € in 2021. In the summer of 2025, at around 107 000 € per coin, you borrowed 50 000 € against it at an initial LTV of roughly 47 % and used the money to renovate a house. You kept your bitcoin, exactly as intended.

In 2026 the price fell and at around 52 600 € per coin the loan-to-value ratio hit the liquidation threshold. The collateral was sold for 52 600 €. Of that, 50 000 € plus interest went to the lender and you were left with the remainder, a few hundred euro.

For tax purposes, however, you realised proceeds of 52 600 € against an acquisition cost of 25 000 €. The tax base is 27 600 €. In the first band of the progressive rate, up to 43 975 €, the rate is 19 %, giving 5 244 € of tax. On top of that comes the 16 % health insurance contribution, another 4 416 €. Roughly 9 660 € in total, payable in 2027 out of your own pocket, because the sale left you with practically nothing.

For completeness, the other side of the example. Had you simply sold in the summer of 2025, the tax would have been considerably higher, because the tax base would have been 82 000 €. And had the liquidation never happened and you had repaid the loan, there would have been no tax at all. Borrowing against bitcoin is not a bad instrument. It just should not be sold as something that removes the tax, when in reality it only moves it to a moment you do not get to choose.

Topping up collateral, partial liquidation and repayment

The three situations that come up most often have clear and quite different answers.

Topping up collateral in response to a margin call is not a taxable event. You are sending more coins into the security arrangement, ownership does not change and nothing is sold. Repaying the loan and having the collateral released is not a taxable event either.

If, however, you sell some of your coins to repay, that sale is taxable. And where there is a partial liquidation, only the portion sold is taxed, with a proportionate share of the acquisition cost attached to it. Where the same asset was bought gradually at different prices, the acquisition cost is in practice determined using a weighted arithmetic average under Section 25b of the Act.

Watch what the loan is actually paid out in, too. If you receive a stablecoin rather than euro, converting it into euro later is an exchange of a crypto-asset and therefore a separate taxable event.

As an individual you cannot deduct the interest

This one surprises a lot of people. For income under Section 8, the deductible expense is the price at which you demonstrably acquired the crypto-asset plus costs connected with its sale. Interest paid on a loan is not among them. So you pay 9 %, 11 % or whatever was agreed, and none of it reduces the gain realised on liquidation.

Inside a company the position is different, because interest on a loan is a deductible expense where the conditions are met and it reduces the tax base. We set out the difference between the two routes in our article on crypto taxation in Slovakia. With loans from related parties you also have to factor in the interest limitation rules.

The other side of the trade: the lender

On a P2P platform there is always someone providing the fiat, and there are surprisingly many of them in Slovakia. Their tax position is entirely different and almost nobody explains it.

Interest and other yield from loans provided is capital income under Section 7(1)(c) of the Income Tax Act. It forms a separate tax base to which a flat rate of 19 % applies regardless of the amount, so the progressive bands do not come into play here. At the same time it is an assessment base for health insurance contributions, which the insurer assesses in the annual reconciliation at 16 %. Social insurance contributions are not paid on this income.

Crucially, virtually no expense can be deducted from interest income other than the health contribution actually paid. What is taxed is the cumulative total of all interest credited during the calendar year, declared in a type B tax return. Withholding tax does not apply to loans between private persons, so this is on you.

In numbers: lend 20 000 € at 10 % a year and you have income of 2 000 €. Tax of 380 € and contributions of 320 € mean that the advertised 10 % nets out at roughly 6.5 %. That is not a reason not to lend, but it is a reason to price it in beforehand.

One more point for lenders. If interest or a settlement reaches you in bitcoin, it is non-monetary income valued at the rate on the date it is credited, and that same figure becomes the acquisition cost you will need when you eventually sell. Write it down straight away.

Regulation and reporting

A non-custodial design takes custody out of the equation, but MiCA is built around activities, not architecture. Whether a given platform needs a CASP authorisation depends on the services it actually provides. Always verify the position in the register maintained by ESMA rather than relying on marketing.

For the tax side there is a practical conclusion. If the liquidation is executed by a licensed provider, the transaction may end up in the reporting under the DAC8 directive and the CARF framework. Record keeping has been running since 1 January 2026, the first report to the Financial Administration is due by 31 May 2027 for the whole of 2026, and the data is then exchanged automatically between tax administrations. Assuming nobody will find out about a liquidation is a risky bet.

What to keep a record of

If you are borrowing against bitcoin, keep five things. The date and amount of the loan. The amount of bitcoin posted as security and proof of its original purchase price. The date, amount and exchange rate for every liquidation, partial ones included. The interest you paid. And the contractual documentation showing that this was security and not a sale.

If you are lending, two will do: a summary of all interest credited during the year and the currency it was credited in.

This article is a general overview, not individual tax advice, and it is neither investment nor product advice. If your collateral has been liquidated, you are dealing with partial liquidations across several loans, or you simply want to check how to declare interest income from a P2P platform, kryptotax.sk will prepare your tax return end to end, including processing the underlying records and establishing acquisition costs. Get in touch. 🇸🇰