Is a Bitcoin-backed loan a taxable event?

In most jurisdictions, no. Borrowing against bitcoin is not a sale, so it does not trigger capital gains tax. Tax rules vary by country and are evolving. Consult a tax professional before borrowing.

What happens if I cannot repay a Bitcoin-backed loan?

If your LTV exceeds the platform's liquidation threshold and you do not add collateral or repay part of the loan, the platform sells your bitcoin to cover the debt. The loss is permanent.

Can I lose more than my collateral?

Generally no. Bitcoin-backed loans are overcollateralized. You cannot owe more than your deposited collateral is worth. But you can lose all of the collateral if bitcoin drops far enough.

What is rehypothecation and why does it matter?

Rehypothecation is when a lender lends out your collateral to earn yield. If their counterparty fails, your coins may not be recoverable. This is a key factor in how multiple lenders collapsed in 2022 and 2023.

How do I track my LTV ratio?

Every lending platform has a dashboard showing your current LTV. Set an alert at 55 to 60 percent LTV so you have time to act before a margin call at 75 percent.

Where can I compare current rates across all Bitcoin lenders?

borrowonbitcoin.com maintains a live comparison of rates, LTV ratios, custody models, and minimum loan sizes across the main Bitcoin-backed lending platforms. It is a publisher, not a lender, and data is updated weekly.

Bitcoin-Backed Loans

Borrow Against Your Bitcoin. Keep Your Stack.

Selling means locking in gains, triggering taxes, and losing your upside. There is another option. This guide explains how Bitcoin-backed loans work, what the real risks are, and how to pick a lender you can trust with your collateral.

The Basics

What is a Bitcoin-backed loan?

You deposit bitcoin as collateral. The lender gives you cash or stablecoins. You repay the loan with interest, and your bitcoin comes back to you.

You do not sell. You do not close your long-term position. You get liquidity now while keeping full exposure to bitcoin's future price.

Wealthy investors have borrowed against stocks and real estate for decades. Bitcoin-backed loans bring that same mechanic to BTC holders. Instead of liquidating an appreciating asset, you leverage it.

Common reasons people borrow

House deposit or property purchase
Covering a tax bill without selling
Funding a business or investment opportunity
Smoothing a short-term cash flow gap
Avoiding a taxable event on appreciated bitcoin

One thing to understand before you go further: when you take a Bitcoin-backed loan, your coins leave your wallet and sit in someone else's custody for the duration. That is the core tradeoff. Everything else flows from it.

Step by Step

How it works

Choose a lender

Rates, custody models, and liquidation rules vary significantly across platforms. This is the most important decision you make. Do not skip the due diligence.

Deposit your bitcoin as collateral

Your BTC moves from your wallet to the lender's custody. It is locked for the duration of the loan. You give up control temporarily.

Receive your funds

You get cash (USD, EUR) or stablecoins (USDC, USDT) depending on the platform. Most established lenders fund within 24 to 48 hours.

Pay interest, manage your LTV

Interest accrues monthly or daily. Current rates at established lenders sit between 7% and 15% APR. Monitor your loan-to-value ratio as bitcoin's price moves.

Repay and get your bitcoin back

Once fully repaid, the lender releases your collateral. Your bitcoin returns to you, along with any price appreciation that happened during the loan period.

The Key Concept

Loan-to-Value (LTV)

LTV is the ratio of what you borrow versus the value of your collateral. This is the number that determines your risk. Watch it constantly.

LTV Calculator

BTC collateral value (USD)

Amount you want to borrow (USD)

Your LTV35%

0%Margin call ~75%Liquidation ~82%

Good buffer. Bitcoin would need to fall around -114% before a margin call.

The rule of thumb

Borrow at 30 to 40% LTV. At 35% LTV, bitcoin needs to fall roughly 50% before a margin call. That is your buffer. Do not give it away chasing a larger loan.

If the price drops and your LTV rises above the platform's threshold, you have two options: add more collateral, or repay part of the loan. If you do neither, the platform liquidates. Automatically. No grace period.

Do Not Skip This

The real risks

People have lost their bitcoin to forced liquidations. People have lost their collateral to platform collapses. This section is not optional reading.

⚡

Liquidation Risk

Critical

If bitcoin drops fast and you cannot top up your collateral or repay part of the loan in time, the lender sells your bitcoin to cover the debt. You lose the coins. The loss is permanent. A 30% price drop in a week is not unusual for bitcoin. Model your position against that scenario before you sign anything.

🏦

Custody Risk

Critical

Your coins are in the lender's custody, not yours. Platform insolvency can tie up your collateral in bankruptcy proceedings for years. This is exactly what happened with BlockFi, Celsius, and Voyager in 2022 and 2023. Always verify who holds your collateral, how it is stored, and whether the lender can lend it out.

🔄

Rehypothecation Risk

High

Some platforms lend out your collateral to generate yield. If their counterparties fail, your coins may not be there when you repay. Ask every lender directly: do you rehypothecate? If they cannot answer clearly, that is your answer.

📈

Interest Rate Risk

Medium

Variable-rate loans can shift over a multi-year term. Lock in a fixed rate if you plan to hold the loan long term. The difference between 8% and 14% APR over two years on a $50,000 loan is over $6,000.

🧾

Tax Implications

Varies

In most jurisdictions, borrowing against bitcoin is not a taxable event. You are not selling. But rules vary by country and are still evolving in many places. Consult a tax professional in your jurisdiction before you borrow.

Due Diligence

What to check before you choose a lender

Rate is not the most important variable. Custody model is. Ask every question below before you deposit a single satoshi.

Who holds my collateral?

Cold storage, segregated from other users' funds, is the standard you want. Hot wallets or pooled custody are red flags.

Does the lender rehypothecate?

Ask directly. If the answer is vague or unclear, walk away. This is how multiple 2022 lenders destroyed their customers' funds.

At what LTV does margin call trigger?

Typically 70 to 75%. Know this number before you deposit. It determines your actual risk buffer.

At what LTV does automatic liquidation happen?

Usually 80 to 85%. Find out whether they liquidate your full position or only what is needed to bring LTV back into compliance. Partial is far better.

What is the actual APR?

Compare APR, not marketing rates. Some platforms advertise low rates but charge origination fees on top.

Is the lender regulated?

Regulated entities have legal obligations around asset custody and disclosure. Unregulated platforms can change terms or freeze withdrawals with little recourse.

What is the minimum loan size?

Some platforms require $10,000 or more. Know before you spend time on an application.

Platforms

Lenders worth considering

These are Bitcoin-relevant platforms our audience asks about most. This is not a ranking. Verify everything directly with any lender before you commit funds.

Unchained

Bitcoin-Only

Collaborative multisig custody. Your collateral sits in a 2-of-3 multisig where you hold one key. That is meaningfully better than handing your coins to a single custodian. Higher rates reflect the security tradeoff, and it is a tradeoff worth considering.

You hold a multisig keyBitcoin-onlyEstablished reputation

Visit Unchained Read our review

Ledn

Established

Operating since 2018. Transparent about custody structure. Uses partial liquidations, meaning they only sell what is needed to bring your LTV back into compliance. Minimum $10,000 loan. Competitive rates for the CeFi category.

Partial liquidations onlyTransparent custodySince 2018

Visit Ledn Read our review

Strike

Worth Comparing

Newer loan product from a platform already familiar to many bitcoin users. Worth including in your comparison if you already use Strike for other services. Verify custody and liquidation mechanics directly before depositing.

Familiar platformCompare ratesGrowing product

Visit Strike Read our review

Compare all lenders in one place

For a current, regularly updated side-by-side on rates, LTV ratios, and custody models across every major lender, use borrowonbitcoin.com. They are a publisher, not a lender. Independent comparison, updated weekly.

Compare lenders now

Before You Borrow

Understand self-custody first.

Taking a Bitcoin-backed loan means temporarily moving your coins into someone else's hands. You need to understand what you are giving up. If hardware wallets, seed phrases, and custody models are not fully clear to you yet, start there before you borrow.

Our wallet guide Self-custody guide

FAQ

Common questions

Next Steps

Ready to borrow? Start here.

Bitcoin-backed loans are a legitimate tool for long-term holders who need liquidity without selling. Used correctly, they let you access capital while keeping your position. Used poorly, they are how people lose their bitcoin in a downturn.

Do the research. Model the worst case. Start at a conservative LTV.

Compare lendersIndependent comparison of rates, LTV, and custody models. Updated weekly. borrowonbitcoin.com Understand custody firstBefore you borrow, know what you are giving up. Our wallet guide covers everything.

Our lender reviews

Ledn review|Unchained review|Strike review

Disclosure: Bitcoin.diy earns referral fees from some lenders linked in this guide. This does not influence our editorial assessment. All risks are stated plainly.