How they work, what they cost, how people lose their coins, and how to pick a lender you can trust with your collateral.
A bitcoin-backed loan is a cash loan secured by your bitcoin. You post BTC as collateral, a lender sends you dollars, and you get the bitcoin back when you repay, including any price gains it made along the way. Don't repay, or let the loan get too big relative to the collateral, and the lender sells your bitcoin to cover it.
Because the loan is fully secured, most lenders skip what makes normal borrowing slow. There is usually no credit check, no income verification, and no paperwork beyond identity. Approval takes minutes to days, and funding is often same-day. The lender isn't betting on your paycheck. They're betting on the bitcoin staying worth more than the loan.
All of that runs on one number: LTV.
Every bitcoin-backed loan runs on loan-to-value (LTV): your loan amount divided by your collateral's value. Borrow $50,000 against $100,000 of bitcoin and you're at 50% LTV. Three thresholds define the loan:
Max LTV is the most you can borrow at the start, commonly 50% for bitcoin. Margin call is the LTV where the lender demands action: add collateral or pay down the loan. Liquidation is the LTV where the lender stops asking and starts selling.
Here's what trips people up: your LTV moves even when you do nothing. If bitcoin's price falls, your collateral is worth less and your LTV rises on its own.
Borrowing less than the maximum is the simplest safety tool you have. The same 1 BTC with only $30,000 borrowed starts at 30% LTV and doesn't liquidate until bitcoin falls below $37,500. Our calculators compute liquidation prices per lender from live terms.
The real cost of a bitcoin-backed loan is the effective APR: the interest rate plus mandatory fees. Two lenders can both advertise "7%" and differ by two full points once fees are counted.
Here's the trick to watch for. Some lenders advertise the interest rate (borrowing cost only). Others advertise APR, which folds mandatory fees in. A 7% rate with a 2% origination fee costs about 9% on a one-year loan. A 7.5% APR with no fees costs 7.5%. The bigger headline number is the cheaper loan.
Fees to look for: origination or admin fees (one-time, often 1 to 2%, sometimes deducted from what you receive), annual capital charges, prepayment penalties (rare among bitcoin lenders, but check), and processing fees on repayment. Rate structure matters too: fixed rates are locked for the term, variable rates can rise while you hold the loan.
This is why every table on BitClarity headlines effective APR with fees included, and sorts by it. Rates also tier heavily by loan size: the same lender might charge several points less on a $1M loan than on a $50K one. The live comparison table shows the current spread, checked against lender sites daily.
Yes. If your LTV reaches the lender's liquidation threshold, they sell your bitcoin to repay the loan. It usually happens at a market bottom, and it can add a tax bill on top. Avoiding it is the whole job of managing one of these loans.
Plan for real bitcoin volatility, not calm markets. Since 2014, bitcoin has had four separate drawdowns deeper than 50%, and 30% pullbacks happen even inside bull markets. In 2021 it went from roughly $60,000 to $30,000 in weeks, then recovered. A loan that can't survive a move like that turns ordinary volatility into permanently lost coins.
The number that matters is your cushion: how far bitcoin can fall before liquidation. It's set by the gap between your starting LTV and the liquidation threshold. Borrowing at max LTV always minimizes it, which is why "how much can I borrow" and "how much should I borrow" are different questions.
Before liquidation comes the margin call: add collateral (a top-up) or pay down principal, within some window. Lenders differ a lot here. Some give 24 to 72 hours and multiple warnings; some auto-liquidate the moment a threshold is crossed. Read this fine print before you borrow, because otherwise you'll be reading it in a panic. Some lenders also liquidate partially, selling just enough to restore a healthy LTV, rather than closing the whole position.
Want to watch this play out as the price moves in both directions? See what happens to your loan when bitcoin moves: the same loan walked through a rising and a falling market, with the margin-call timeline and your options at each step.
Depending on the lender, your bitcoin sits with the lender itself, with a custodian, in a shared multisig, or stays under your own control. This is the part most borrowers skip, and it matters more than the rate.
In 2022, borrowers at Celsius, BlockFi, and Voyager made their payments and lost their bitcoin anyway. All three companies held customer collateral, reused it, and went bankrupt, freezing billions. Rates are printed on the pricing page; this risk lives in the custody arrangements, so most people never price it in. You should.
For custodial lenders, four protections separate the trustworthy ones from the 2022 casualties. No rehypothecation: your collateral is never lent out or reused, so it can't get trapped in someone else's failure. Segregated collateral: your coins sit in a distinct wallet, not a commingled pool. Qualified custodian: a regulated entity holds the assets under actual rules. Proof of reserves: the lender publishes verifiable evidence the collateral exists, strongest when attested by an independent accounting firm.
These four facts are the heaviest-weighted input to the BitClarity Score. We source each one from the lender's own disclosures, and every lender page shows them with source links and verification dates. Cheap loans from opaque lenders are not cheap.
Borrowing makes sense when the tax cost of selling would exceed the interest, or when you want to keep your bitcoin exposure. Selling is simpler and carries no liquidation risk. Both have real costs.
The case for borrowing: selling usually triggers capital gains tax on your appreciation, while a loan generally does not create a taxable event in the US (debt isn't income). For long-term holders with large gains, a year of interest can cost far less than the tax bill. And selling ends your upside: if bitcoin doubles after you sold, that gain is gone. Borrowers keep it.
The case against: borrowing adds liquidation risk that selling doesn't have, interest compounds against you, and in a deep crash you can lose the coins anyway, at worse prices, plus fees. The tax math also depends entirely on your situation and jurisdiction, and we're a comparison site, not your accountant. Run the numbers both ways before deciding.
A quick sense of the trade: on 1 BTC bought at $20,000 and now worth $100,000, selling half to raise $50,000 realizes about a $40,000 gain and a one-time tax bill, and ends that half's upside. Borrowing $50,000 instead keeps all your bitcoin and triggers no tax event, but costs interest every year the loan is open. Large gain plus short loan tends to favor borrowing; small gain plus a loan you'll carry for years can favor selling. We break the tax side down in full on do you pay tax on a bitcoin loan?
Check four things, in this order: survival, custody, true cost, fit.
Survival: what cushion do the max LTV and liquidation threshold leave you, and what is the margin-call process like during a sharp overnight drop? Custody: who holds the keys, and which of the four protections back the arrangement? True cost: effective APR with fees included, at your actual loan size, fixed or variable. Fit: minimum loan size, your jurisdiction, KYC requirements, loan currency.
Notice what's last: the headline rate, the thing every ad leads with. A percentage point of APR on a $50,000 loan is about $42 a month. Your entire collateral rides on the other factors.
This ordering is how the BitClarity Score weights things: counterparty safety heaviest, then liquidation cushion, then cost, then accessibility. The score is computed by formula from the data on the page, and affiliate relationships never touch it.
The process is short compared to any bank loan. You pick a lender and loan size, complete signup and KYC (identity verification, usually minutes, generally no credit pull), and review the offered terms: rate, APR, LTV thresholds, and the margin-call procedure, which is the part to read twice. Then you send bitcoin to the collateral address. This is the moment the custody model becomes real: with multisig or self-custodial lenders you keep a key or on-chain control; with custodial lenders the coins are now in their hands. Funding follows, often the same day, in dollars or stablecoins.
Then comes the part people underprepare for: living with the loan. Know your liquidation price from day one. Decide in advance what you'll do if bitcoin approaches it: top up, pay down, or accept the risk. Keep spare collateral or cash where you can actually reach it. When the loan ends, repay principal plus interest and the collateral comes back. Many lenders also let you roll into a new term, at whatever rates prevail then.
Borrowing at max LTV. The most common and most punished mistake. It minimizes your cushion in an asset that routinely drops 30%. If the loan only works at maximum leverage, the loan doesn't work.
Comparing interest rate to APR. You'll pick the more expensive lender while feeling clever. Compare effective APR to effective APR, fees included, at your loan size.
Ignoring custody because the rate was good. Every Celsius borrower had a rate they liked. Check rehypothecation policy, segregation, and proof of reserves before wiring collateral, not after.
Having no margin-call plan. A margin call with no accessible funds and no plan is just a slower liquidation. Decide your response before you borrow.
Not knowing your liquidation price. If you can't name the bitcoin price where you get liquidated, you don't understand your own loan yet. It's one calculation: loan amount ÷ liquidation LTV ÷ BTC posted.
Forgetting the loan exists in a bull market. Rates roll over, unpaid interest compounds, and a loan opened casually in euphoria gets managed badly in a crash. Put your term dates on a calendar.
Ready for real numbers? The comparison table has every lender's live, daily-verified terms, and each lender page shows the custody facts with sources. That's the point of this site: everything in this guide, kept current, so you can decide with full information.
Do I need a credit check? Usually no. Your bitcoin is the collateral, so most lenders skip the credit check and approve in minutes after identity verification (KYC). A handful of self-custodial and DeFi options skip KYC too.
What's the minimum I can borrow? It varies a lot, from a few hundred dollars at the most accessible lenders to six figures at the institution-focused ones. The comparison table shows each lender's minimum.
Can I lose more than my bitcoin? Typically the collateral is the only thing at stake, so your other assets aren't on the hook if bitcoin falls. This isn't universal, so confirm each lender's terms before you borrow.
What happens if I can't repay? The loan is settled from your collateral. If you don't repay by the end of the term, or your LTV reaches the liquidation line first, the lender sells enough bitcoin to cover what you owe and returns the rest.
Can I repay early? Usually yes, and often with no prepayment penalty, though a few lenders charge a minimum amount of interest. Check the terms if you might repay quickly.
Is the interest tax-deductible? Usually not, if you borrow for personal spending. There can be exceptions for investment or business use, but it depends on your situation. See do you pay tax on a bitcoin loan? for the full picture.
How fast do I get the money? Often the same day once your collateral is posted, and sometimes within minutes on self-custodial or DeFi products.
What if bitcoin crashes overnight? Your LTV can climb toward the liquidation line fast, which is exactly why your starting LTV and the margin-call terms matter so much. See what happens to your loan when bitcoin moves.
Do I keep my bitcoin's upside? Yes. You still own the collateral, so if bitcoin rises while the loan is open, that gain is yours, not the lender's.