What Is a Bitcoin-Backed Loan? Borrowing Against BTC Explained

Most long-term Bitcoin holders know this problem. You need cash for a house deposit, a business or a tax bill, but selling BTC means giving up exposure to its future price. In many countries it also means paying capital gains tax. A Bitcoin-backed loan is a way around that: you pledge your Bitcoin as collateral and borrow dollars or stablecoins against it.

The idea is as old as lending itself. People have long borrowed against homes, stock portfolios and gold. What's new is the collateral, an asset that trades around the clock and can swing in price by double digits in a week.

The market collapsed in 2022, when lenders including Celsius and BlockFi went bankrupt. It has since come back in a more cautious form, with centralized lending more than tripling from its late-2023 low, according to Galaxy Research.

This guide covers what Bitcoin-backed loans are, how they work, who offers them, and the risks borrowers should understand before taking one out.

What is a Bitcoin-backed loan?

A Bitcoin-backed loan is a secured loan with BTC as the collateral. You deposit Bitcoin with a lender, or lock it in a smart contract. In return you get a loan worth a fraction of that Bitcoin's value, paid in fiat currency such as U.S. dollars or in a stablecoin such as USDC.

While the loan is open, your Bitcoin stays locked. Once you repay the principal plus interest, you get it back.

Lenders lean on the collateral rather than your income history, so many of these loans need little or no traditional credit check. They come in two broad types:

• Centralized (CeFi) loans, from companies such as Ledn, Strike, Unchained, Nexo and Coinbase. You go through identity checks, and the company or its custodian holds your BTC.
• Decentralized (DeFi) loans, from protocols such as Aave and Morpho. A smart contract holds the collateral, and native BTC usually has to be "wrapped" into a token on another blockchain first.

How does a Bitcoin-backed loan work?

The key number is the loan-to-value (LTV) ratio: how much you borrow compared with the value of your collateral. Industry LTVs typically range from about 30% to 70%, and many lenders start at 50%. At a 50% LTV, $100,000 of Bitcoin gets you a $50,000 loan.

That cushion matters because Bitcoin is volatile. If BTC's price falls, your LTV rises. Lenders set thresholds:

• Margin call: if your LTV rises past a set level, you're asked to add more collateral or repay part of the loan.
• Liquidation: if the LTV keeps rising, the lender sells some or all of your Bitcoin to cover the debt. In DeFi, smart contracts do this automatically.

Terms vary. Some products have fixed 12-month terms with monthly interest. Others, such as Coinbase's loans, have no monthly payments and no repayment deadline. Interest simply builds up on the balance.

What's so special about Bitcoin-backed loans?

The main draw is getting cash while keeping your Bitcoin. In many jurisdictions, borrowing is not a taxable event, but selling is. Check your local rules, though.

The sector has also matured. Lenders now advertise that they don't rehypothecate collateral, and some offer "collaborative custody." Unchained, for example, keeps loan collateral in a 2-of-3 multisig vault: the borrower, Unchained and an independent key agent each hold one key, and no single party can move the coins alone.

Wall Street is paying attention too. In February 2026, Ledn closed a $188 million Bitcoin-backed asset-backed securitization. S&P Global assigned its $160 million senior class a preliminary "BBB-" rating, which SVB described as the first investment-grade rating for a Bitcoin-collateralized lending portfolio. Galaxy put total crypto-backed loan volume at $56.16 billion in Q2 2026, down 16.8% from the previous quarter as borrowers cut back on leverage, with centralized lenders now holding more loans than DeFi protocols.

Who's offering Bitcoin-backed loans?

• 🏦 Ledn: a Bitcoin-focused lender with custodied loans whose collateral isn't lent out.
• 🔐 Unchained: commercial loans held in multisig vaults where the borrower holds a key.
• ⚡ Strike: Bitcoin-backed loans for individuals and businesses in select U.S. states.
• 🔵 Coinbase: on-chain loans run through the Morpho protocol, available in most U.S. states.
• 💳 Aven: launched a Bitcoin-backed Visa credit line in April 2026 with limits up to $1 million.
• 🌐 Nexo: instant credit lines against BTC and 100+ other assets, mainly for non-U.S. users.
• 🧮 Aave: a DeFi lending protocol where you can borrow against wrapped BTC.

What does a Bitcoin-backed loan cost?

Rates depend on loan size, LTV and provider, and they change often. As of October 2026, published rates start at about 5.8% at Coinbase. SALT advertises 7.49% to 10.5% APR, while Ledn's rates run from 11.49% APR on loans below $250,000 down to 9.25% on loans of $2 million or more. Strike charges between 10.5% and 13% APR on loans with monthly interest payments, and a percentage point more if interest is paid at maturity. Unchained quotes a 12% interest rate, or 14.18% APR. DeFi rates float with supply and demand. Lower LTVs and bigger loans usually get better rates.

Also look for origination fees, prepayment penalties and liquidation fees. These can push the effective cost well above the headline rate.

How to get a Bitcoin-backed loan

1. Pick a provider. Compare custody model, rehypothecation policy, rates and where it operates.
2. Complete KYC. Centralized lenders require identity verification.
3. Choose your LTV and term. A conservative LTV leaves more room before a margin call.
4. Deposit BTC into the lender's custody, a multisig vault or a smart contract.
5. Receive funds in fiat or stablecoins, then watch your LTV and repay to unlock your Bitcoin.

The future of Bitcoin-backed loans

Bitcoin lending is starting to look like ordinary finance. Regulation is clearer after the GENIUS Act passed in the U.S., and the administration is friendly to crypto, although the broader CLARITY Act stalled in the Senate in September 2026. SVB notes that several major financial institutions launched Bitcoin-backed lending for select clients in the first half of 2026.

Expect more bank participation, more rated securitizations like Ledn's, and more consumer products such as credit cards and longer-term loans. The core risk won't change, though: if Bitcoin's price drops sharply, borrowers who are overextended get liquidated.

DeFi borrowers face added risks, too. In April 2026, after attackers drained $291 million from infrastructure linked to the Kelp DAO project, users of lending protocol Aave struggled to withdraw funds as $6.2 billion flowed out. Borrow conservatively, and know exactly who is holding your coins.