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Bitcoin-Backed Loans — Understand the Risks Before You Borrow
Bitcoin Loans: Pros, Cons, and What to Check in 2025
Bitcoin-backed loans let you borrow cash while pledging your BTC as collateral instead of selling it. You’ll see a loan-to-value (LTV) limit (e.g., 30–60%), pay interest and fees, and must keep your collateral above the liquidation threshold. If BTC price falls and your LTV exceeds the limit, you’ll need to add more BTC or the lender may liquidate part of your collateral.
How a Bitcoin-Backed Loan Works
- Collateral & custody. You lock BTC with a lender or a third-party custodian (sometimes multi-sig). Read whether they allow rehypothecation (using your collateral elsewhere) and if assets are segregated.
- LTV & liquidation. Lower LTV = more buffer. A high LTV can trigger margin calls during volatility.
- Repayments & fees. Interest-only (monthly) or amortized payments + origination and other fees. Always compare APR, not только «ставку».
- KYC/Compliance. Expect identity checks and, for fiat disbursements, a US bank account. Some lenders can disburse to stablecoins instead.
Steps to Get a Bitcoin Loan
- Choose a reputable lender. Check licensing/coverage by state, custody model, and whether collateral is segregated.
- Apply & complete KYC. Provide ID; some lenders may ask about income and source of funds.
- Select term & LTV. Conservative LTV (30–50%) reduces liquidation risk.
- Fund the collateral. Transfer BTC to the lender’s designated address/custody.
- Receive funds. Bank transfer or stablecoin payout; confirm timelines and fees.
- Monitor LTV. If price drops, be ready to add BTC or partially repay to avoid liquidation.
| Quick Facts (US) | What to Know |
|---|---|
| Credit score | Often less important than with bank loans, but KYC is standard. Some lenders still review income and history. |
| Disbursement | Fiat to bank account or stablecoins (varies by lender/state). |
| Taxes | Loan itself is typically not a taxable event, but liquidation of BTC collateral = taxable sale (capital gain/loss). This is not tax advice. |
| Custody risk | Prefer segregated custody / multi-sig; avoid unchecked rehypothecation. |
Pros
- Keep upside exposure. You borrow without selling BTC (no immediate capital-gains realization).
- Speed & flexibility. Faster than bank loans; interest-only options exist.
- Credit-light underwriting. Collateral is primary; fewer traditional credit hurdles (still KYC/AML).
Cons
- Volatility & liquidation. Sharp BTC drops can force margin calls or collateral sales.
- Counterparty/custody risk. If collateral is commingled or rehypothecated, your risk grows.
- Fees & APR. Add origination, transfer, and custody fees to the nominal rate.
- Regulatory limits. Availability and terms vary by state; lenders can change policies.
- Scams. Avoid unlicensed “yield/loan” schemes; verify company, audits, and custody setup.
Know Your Liquidation Buffer
Rule of thumb: With LTV = L, collateral value must stay high enough to keep L below the lender’s max. If your loan principal is $P and BTC price is $B with N BTC pledged, your LTV is LTV = P / (N × B). Set N so that even a 30–40% drop won’t breach the liquidation threshold.
Pre-Borrow Checklist
- State coverage & licensing (check lender’s disclosures).
- Custody model (segregated? multi-sig? rehypothecation policy?).
- LTV range, liquidation triggers, and margin-call deadlines.
- Full APR (rate + origination + custody/transfer fees).
- Disbursement/repayment options (bank vs stablecoin), timelines.
- Tax implications for liquidation; consult a qualified tax professional.
Not sure a BTC-backed loan fits your case?
For small, urgent expenses, a short-term personal loan may be simpler but can still be expensive. Compare total costs and risks before you decide.
Educational purposes only — not financial, legal, or tax advice. Availability, rates, and terms vary by lender and by state. Always verify current terms on the lender’s website.
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