BEGINNER'S GUIDE

Bitcoin Loans Explained

New to Bitcoin-backed loans? Learn the basics in plain English — no jargon, no hype.

Quick start: 3 questions

1. Do you actually need cash?

Borrowing adds cost and risk. If selling works, selling is usually safer.

Borrow vs sell guide →

2. How much BTC do you have?

Larger collateral = lower rates and more options. Small amounts limit lender choice.

Check your borrowing power →

3. What's your risk tolerance?

Conservative? Choose safety (multi-sig, low LTV). Aggressive? DeFi, higher LTV.

Compare lender safety →

What is a Bitcoin-backed loan?

A Bitcoin-backed loan lets you borrow cash (usually USD or stablecoins) using your Bitcoin as collateral. You keep ownership of your BTC — you're just pledging it as security.

If you repay the loan on time, you get your Bitcoin back. If you don't, the lender keeps a portion of your collateral (called a liquidation).

Key difference: You're not selling Bitcoin. You're borrowing against it.

This means you keep any Bitcoin price appreciation — but you pay interest on the loan and risk losing collateral if BTC drops.

What is LTV?

Loan-to-Value (LTV) is how much you can borrow relative to your Bitcoin collateral.

50% LTV example

Collateral: 1 BTC ($100,000)

Maximum loan: $50,000

You can borrow up to half your collateral value.

73% LTV example (DeFi)

Collateral: 1 BTC ($100,000)

Maximum loan: $73,000

DeFi platforms often offer higher LTVs but carry smart contract risk.

What's a safe LTV?

Most conservative borrowers use 25–40% LTV. This gives you a buffer if Bitcoin drops 20–40% while your loan is active.

Higher LTV = higher borrowing power but higher liquidation risk.

DeFi vs CeFi: What is the difference?

DeFi (Decentralized)

  • Example: Aave, Maker (Sky)
  • Custody: You hold the private keys
  • Pros: Lower rates (2–5% APR), no KYC, global access
  • Cons: You're responsible for key management, smart contract risk, no customer support

CeFi (Centralized)

  • Example: Unchained, Ledn, Figure
  • Custody: Platform holds your BTC (often multi-sig or cold storage)
  • Pros: Customer support, easier recovery, insurance in some cases
  • Cons: Higher rates (8–15% APR), KYC required, you trust the platform

Beginner recommendation: Start with CeFi if you're new to self-custody.

DeFi requires understanding wallets, gas fees, and smart contract interactions. It's powerful, but not beginner-friendly.

What is liquidation?

Liquidation happens when your collateral value drops below a threshold set by the lender.

How it works

  1. You borrow $50,000 against 1 BTC at 50% LTV
  2. Your collateral (1 BTC) is worth $100,000
  3. If BTC drops to $60,000, your collateral value is now $60,000
  4. Liquidation triggers at around 65–70% of original collateral value (varies by platform)
  5. Lender keeps enough BTC to cover the loan + fees
  6. You receive the remaining BTC back

How to avoid liquidation

  • Use lower LTV (25–40%) to create a buffer
  • Choose shorter loan terms (less time for price to drop)
  • Monitor BTC price and consider adding collateral if needed
  • Only borrow what you can comfortably repay

When does borrowing make sense?

✓ Good reasons to borrow

  • You need cash for an opportunity (business, investment, emergency)
  • You want to avoid selling BTC and triggering capital gains taxes
  • You understand the risks and have a repayment plan
  • Your BTC is in a secure custody setup

✗ Bad reasons to borrow

  • Speculating that BTC will go up (no guarantee)
  • Borrowing for lifestyle spending you can't afford
  • You don't understand liquidation risk
  • Your only exit plan is "hop BTC goes up"

The "don't sell" tax case

In the US and many other countries, selling Bitcoin triggers capital gains taxes. Borrowing against it does not — you're taking a loan, not selling an asset.

Tax disclaimer: This is not tax advice. Consult a tax professional for your situation.

Read full tax breakdown →

Ready to compare lenders?

You now understand the basics. Time to see real options with rates, safety scores, and custody models.

Compare All Lenders →Use the Calculator →

Before you borrow

  • Research thoroughly. Compare safety scores, custody models, and track records.
  • Start small. If you're new, borrow less than you think you can afford.
  • Have an exit plan. How will you repay? What if BTC drops?
  • Never borrow more than you need. Higher leverage = higher liquidation risk.