Bitcoin Backed Loans

In most jurisdictions, borrowing against Bitcoin is not a taxable event because you are not selling or disposing of your Bitcoin. However, you may owe taxes if your collateral is liquidated and sold. Interest payments on loans may also have tax implications depending on how the loan proceeds are used. Tax laws vary by country and situation, so consult a tax professional familiar with cryptocurrency taxation in your jurisdiction.

If Bitcoin's price drops significantly, your Loan-to-Value (LTV) ratio increases. Most lenders have two thresholds: (1) Maintenance LTV - you'll receive a margin call asking you to add more collateral or partially repay the loan, and (2) Liquidation LTV - the lender will automatically sell some or all of your Bitcoin to repay the loan. To avoid liquidation, start with a conservative LTV (30-50%), monitor your loan regularly, and be prepared to add collateral if prices drop. Some lenders offer alerts when you approach critical LTV levels.

There's no one-size-fits-all. Risk-aware borrowers choose 30 - 50% starting LTV to create a buffer and ensure that they have the ability to post additional collateral under extreme conditions.

If BTC price falls and LTV breaches the liquidation threshold, the lender sells collateral (often automatically) to repay the loan and charges a liquidation fee. You can reduce this risk by starting at a conservative LTV and monitoring top-up alerts.

Most centralized finance (CeFi) lenders require Know Your Customer (KYC) verification to comply with anti-money laundering regulations. This typically involves submitting government-issued ID, proof of address, and sometimes additional documentation. Some decentralized finance (DeFi) platforms may offer loans without KYC. Check each lender's requirements in their detail page.

Borrowing may be better if: (1) You believe Bitcoin will appreciate and want to maintain exposure, (2) Selling would trigger significant capital gains taxes, (3) You need temporary liquidity and plan to repay, or (4) The loan interest is lower than your expected Bitcoin returns. Selling may be better if: (1) You need certainty and want to avoid liquidation risk, (2) You have low or no capital gains, (3) You believe Bitcoin will decline in value, or (4) You want to simplify your finances. Use our Sell vs Borrow calculator to compare scenarios with your specific numbers.

Policies vary. Some lenders allow fee-free prepayment; others charge an early-repayment or break fee. Check the contract.

CeFi (Centralized Finance) custody means a qualified third-party custodian like BitGo, Anchorage, or Fireblocks holds your Bitcoin in secure storage. The lender controls when collateral can be moved or liquidated, though institutional custodians provide security measures and sometimes insurance. DeFi (Decentralized Finance) custody uses multisig escrow (typically 2-of-3) where keys are distributed between you, the lender, and potentially a third party. You retain one key and participate in custody decisions, offering more control and transparency but requiring more technical knowledge.

Custody determines who controls keys and how your BTC is safeguarded. Multisig escrow or qualified custodians with segregated addresses can reduce single-point-of-failure risk. Avoid rehypothecation for stronger assurances.

Yes, you can lose your Bitcoin if: (1) The Bitcoin price drops and your loan reaches the liquidation LTV threshold, triggering automatic sale of your collateral, (2) You default on loan payments (though most Bitcoin loans are interest-only with principal due at maturity), or (3) In rare cases, if a lender experiences security breaches or bankruptcy (counterparty risk). To minimize risk, choose a conservative starting LTV (≤50%), understand the lender's custody model and liquidation thresholds, and monitor your loan regularly.

Minimum loan amounts vary significantly by lender, ranging from $1,000 to $100,000 USD. The Bitcoin amount you need depends on: (1) The minimum loan size in USD/fiat, (2) The current Bitcoin price, and (3) The maximum LTV offered by the lender. For example, if a lender requires a minimum $5,000 loan at 50% LTV, you'd need $10,000 worth of Bitcoin as collateral. Check each lender's detail page for their specific minimum loan requirements. Some lenders specialize in smaller retail loans while others focus on institutional borrowers with higher minimums.

Both exist. Fiat (e.g., USD, AUD, EUR) goes to a bank account; stablecoins (e.g., USDC) go to a wallet.

Sharp price drops (liquidation risk), custody/operational risk, and legal/jurisdiction risk. Keep LTV conservative, know your custody setup, and read the contract.