The Ultimate
Bitcoin-Loan Guide
Everything you need to know about Bitcoin-backed loans, from basics to advanced strategies.
1. Why borrow against bitcoin?
Selling coins creates a taxable event and ends your upside exposure. A collateralised loan, by contrast, lets you pledge BTC, receive dollars or stablecoins, and reclaim the coins once the balance is cleared.
Platforms have already supplied billions in this way, with market researchers expecting outstanding balances to climb from roughly $8,5 billion in 2024 to more than $45 billion by the end of the decade.
2. The basic workflow – from deposit to repayment
You move BTC to the lender's designated address; the lender wires cash once the transaction confirms. Interest accrues according to the agreement, and the platform constantly monitors the loan-to-value ratio (LTV).
If falling prices push LTV through a warning level you receive a margin call; ignoring it can lead to liquidation, where some or all of the collateral is sold to settle the debt.
Repaying principal plus any outstanding interest unlocks the coins.
3. Key concepts
Annual Percentage Rate (APR)
The yearly borrowing cost, including fees such as origination. Low headline rates can hide a higher true APR if extra charges apply.
LTV
The loan amount divided by the market value of your BTC. A conservative LTV—say 30-40%—offers a wide safety margin; a 60% setting releases more cash but leaves little buffer.
Margin call & liquidation
A margin call is a prompt to add collateral or repay when LTV crosses a preset line; liquidation is the automatic sale that follows if you do nothing.
Rehypothecation
Some centralised lenders put your pledged coins to work elsewhere to earn extra yield, layering counter-party risk; others promise "no rehypothecation".
4. Flexible versus fixed terms
Fixed-term loans
Run for a defined period—three, twelve or even sixty months—at an interest rate agreed upfront. The timetable is clear but early exit can attract penalties.
Choose fixed if you value predictability
Flexible (or open-term) lines
Accrue interest daily; you can repay whenever you like, and the rate often floats with market conditions.
Choose flexible if you prize freedom
5. Where to borrow: CEX or P2P?
| Model | How it works | Typical profile | What to watch |
|---|---|---|---|
| Centralised exchanges and lenders (CEX) | A single company holds your coins—either in its own hot/cold wallets or with a third-party custodian. Onboarding is slick; rates are normally published in advance. | Retail users wanting speed; institutions needing large tickets (some Wall-Street banks now take BTC as collateral). | Platform solvency and rehypothecation policies; key-management transparency. |
| Peer-to-peer marketplaces (P2P) | Borrowers post requests, individual lenders fill them. Coins sit in escrow under multisig until the loan ends. | Smaller loans from $1,000; entrepreneurs who like negotiating their own rate. | Liquidity may be patchy; you must monitor LTV yourself. |
6. Non-custodial loans and multisig escrow
Traditional custodial setups ask you to trust that the platform will safeguard your coins. Non-custodial services flip that model by splitting control of the collateral keys.
In a common "two-of-three" multisig arrangement one key stays with the borrower, one with the lender and one with an independent third party. No single actor can move BTC unilaterally, and contracts even include a recovery clause if the platform disappears.
For users who live by the motto "not your keys, not your coins," this structure sharply reduces counter-party risk.
7. Advantages borrowers care about
- Because the collateral speaks for itself, most lenders dispense with traditional credit checks.
- Funds often arrive within hours.
- You retain potential price appreciation.
- In many jurisdictions the manoeuvre does not trigger capital-gains tax until collateral is sold.
8. Points to compare before you click "accept"
Effective APR
Fold in origination or withdrawal fees, not just the posted rate.
Starting and liquidation LTV
A narrow gap means frequent top-ups in volatile markets.
Flexible or fixed term
Decide how long you need the cash—and how soon you might want out.
Custody model
Custodial, non-custodial multisig, or a mix.
Rehypothecation stance
Zero rehypothecation is the safest path if you want collateral idle.
Payout rails
Bank wire, stablecoin or BTC? Delivery method affects both speed and taxes.
9. Risks—and how to keep them in check
Bitcoin can shed thirty percent in a single day; if your LTV buffer is thin, expect margin calls. Maintain spare BTC to top up or be ready to repay early.
Vet any CEX for proof-of-reserve disclosures and past lending practices—many users learnt this lesson during the 2022 collapses of large custodial platforms.
For P2P deals, verify the escrow script and reputation of counterparties.
Finally, consult a tax professional: forced liquidations can still create taxable events even when the initial loan did not.
10. Recap
Handled prudently, a bitcoin-backed loan unlocks fiat liquidity today without surrendering tomorrow's upside. Understand APR, LTV, term structure and custody choices, then weigh CEX convenience against the added safety of non-custodial or P2P designs. With those pieces in place, you can compare offers confidently and keep your stack exactly where you want it—on-chain.
Disclaimer: This guide is educational, not financial advice. Bitcoin loans involve market and counter-party risk. Always do your own research and consult professionals.