pledgeUseful when
You need liquidity and do not want to sell BTC.
Bitcoin-Backed Loan Basics
8 min read
Quick decision
Borrow without selling, but keep liquidation and custody in view.
A Bitcoin-backed loan gives you cash or stablecoins against BTC collateral. It works only if the loan size, custody model, and downside buffer still fit.
Main risk
BTC drops enough to trigger margin call or liquidation.
First number
Starting LTV. Lower LTV buys more room.
What actually happens
Here is the actual flow, stripped of marketing language:
- Lock BTC as collateral. You transfer your Bitcoin to the platform (or lock it in a smart contract). Custody varies — multi-sig platforms let you keep your keys, custodial platforms hold them for you.
- Platform sets LTV and APR. Based on how much you deposit and the platform's terms, they determine how much they'll lend you and at what rate. Most platforms lend 50% of your collateral value at origination.
- You receive the loan. Typically in USDC or USD. Some platforms wire directly; others settle on-chain.
- You service the loan. Pay interest monthly or at term maturity. The principal is due at the end.
- You repay and reclaim collateral. Once you pay off the loan + interest, the platform returns your Bitcoin.
Key terms you need to know
Key term
LTV (Loan-to-Value)
The ratio of your loan size to your collateral value. If you deposit $100K of BTC and borrow $50K, your LTV is 50%. Higher LTV means more leverage but less buffer before liquidation.
Key term
APR (Annual Percentage Rate)
The annualized cost of borrowing, including interest. Does not include origination fees, custody fees, or other charges — always read the full fee schedule.
Key term
Margin Call
A warning from the platform that your collateral ratio has dropped below a threshold. Typically 70-85% LTV depending on the platform. You must add collateral or pay down the loan to avoid liquidation.
Key term
Liquidation
The platform forcibly sells your collateral to repay the loan when your LTV exceeds a set threshold — usually 85-95%. You lose your Bitcoin at the worst moment: during a dip.
Key term
Origination Fee
A one-time charge for setting up the loan. Varies by platform — some charge 1-2%, others charge nothing.
Key term
Collateral Types
Most platforms accept BTC as primary collateral. Many also accept ETH, some accept SOL and other assets. Each asset has its own LTV and rate.
Why people borrow against BTC instead of selling
The three most common reasons:
Reason 1
Tax deferral
In the US, selling BTC triggers a capital gains event. A BTC-backed loan is not a sale — your cost basis carries forward. If your BTC appreciates another 2x before you sell, you've deferred the tax bill.
Reason 2
Maintain exposure
You believe in Bitcoin's long-term value. Borrowing lets you access liquidity while keeping your BTC position intact. If BTC goes up, your loan cost (in BTC terms) effectively goes down.
Reason 3
Collateral-first underwriting
Most BTC lending platforms care more about collateral value than FICO scores. That makes BTC loans accessible to people who would struggle with a traditional bank loan, even though KYC, sanctions screening, and platform minimums can still affect approval.
The risks nobody talks about
Liquidation risk is real
If BTC drops 40%, a conservative 50% LTV loan may still survive on the safer platforms, but many products will already be deep in margin-call territory. Start closer to 55% LTV and the same move can put you at or beyond liquidation depending on the lender. Platforms often don't give you much time or warning. The worst part: you get liquidated at the bottom of the market, missing the recovery.
Counterparty risk: You're trusting the platform to hold your Bitcoin and return it. Platforms with custodial models (platform holds the keys) can theoretically use your Bitcoin for their own operations — even if they claim they don't.
Rehypothecation: Some platforms lend your Bitcoin to other borrowers or use it for their own trading. This is what killed Celsius. If the platform fails, you may be an unsecured creditor.
Regulatory risk: Platforms can change terms, restrict withdrawals, or freeze accounts. US-state exclusion lists change. Some platforms that served NY no longer do.
Run your own numbers.
Compare ranks lenders from your collateral, loan size, and risk preferences.
No account required.
This guide is for informational purposes only and does not constitute financial advice. Cryptocurrency lending carries significant risk including the potential loss of all collateral. Always verify terms directly with the lender.