Borrow Against Bitcoin with the Best BTC Loan Rates

Live Bitcoin loan rates for February 8, 2023:

1 result

Nexo

$11,587

USD loan amount

Collateral of 1 BTC ($23,175) at 50% LTV

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Milk Road calculates your exact loan options based on the inputted collateral and each platform's available LTVs (loan-to-value ratios).

ClickAll Nexo loan optionsto see additional LTV options for this platform.

13.9% APR

    All loan offers from this lender. The more money that is borrowed (LTV) the higher the rate (APR)
  • LTV

    APR

  • 50%

    13.90%

Nexo, founded in 2018, is one of the world's leading BTC loan platforms. Nexo supports over 5M users in 200+ countries and offers Bitcoin loans to USA customers.

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BTC-Collateralized Loan Guide

  • December 23, 2022
  • 8 Min Read

Key Points

  • You can use your Bitcoin as collateral to access capital without selling your BTC.
  • Avoid creating a taxable event by using your Bitcoin as collateral for a loan.
  • Choose from centralized lenders or a growing number of DeFi protocols.

What Does it Mean to Borrow Against Bitcoin?

Buy and hold takes on a special meaning for Bitcoiners, but the investment strategy can also tie up capital you may want to use for other purposes. One potential solution is to borrow against your Bitcoin, unlocking its value to build your next project, make your next investment, or reallocate in some other way.

By using your Bitcoin as collateral, you can borrow up to 30%, 50%, or even more of its stored value to access cash without selling your Bitcoin. This strategy allows you to keep your Bitcoin while it continues to appreciate and avoid capital gains taxes that may result from selling your Bitcoin.

How Do Bitcoin Loans Work?

With a Bitcoin loan, you provide Bitcoin as collateral in exchange for a loan funded in USD (or another fiat currency), a stablecoin equivalent, or another cryptocurrency. Cryptocurrency loans differ from traditional lending in that the collateral makes the loan viable, rather than your credit history or income. In the event of default, the lender can use the crypto you’ve deposited to satisfy the loan balance.

Because BTC’s value can be volatile, lenders structure the loan to be overcollateralized, meaning the initial value of the collateral is higher than the loan amount. This structure allows some room for changes in the value of Bitcoin, reducing the risk of a margin call, which is a demand from the lender that you either pay down the loan or provide more collateral.

Quick Sip

Stablecoin: A stablecoin is a cryptocurrency designed to track the value of a fiat currency. For example, Tether (USDT) tracks the value of the US dollar. Some lenders only use stablecoins for funding.

As an Example:

Let’s say you want to borrow $10,000. Depending on which lender you choose, you’ll need to deposit more than $10,000 in BTC to fund the loan. One popular platform requires a $20,000 deposit to fund a loan of this amount or a 50% loan-to-value ratio. Others may let you borrow a higher percentage of your collateral.

A Bitcoin loan can be fixed-term interest-only or interest and principal. Some lenders also offer a line of credit you can access as needed. You’ll need to deposit the required amount of Bitcoin to a custodial account with the lender. Once you’ve made the deposit, the lender funds the loan, and you can use the money for any purpose, sometimes in just minutes.

Top 3 Bitcoin Loan Platforms For 2022

Borrowing options range from small loans up to larger funding of $2 million or more. Interest rates range from 0% to more than 10%.

Crypto Accepted for Collateral Origination FeesInterest RatesMinimum Provided LoansMaximum Provided LoansStandout Feature
LednBTC2% admin fee7.9%$500$1,000,000Ledn offers proof-of-reserves, letting you verify your deposit at any time
NEXOBTC ETH XRP LTC & more0%0% - 13.9%$50$2 millionBorrowing rates as low as 0% to 1.9% for Gold and Platinum
CoinLoan.ioETH BTC SOL XRP & more1%4.95% - 11.95% (BTC-backed loans)$10070% of collateralBorrow or repay in multiple cryptocurrencies

Ledn

Founded in 2018, Ledn places its focus on the Bitcoin community and selected Bitcoin-centric financial services. The Toronto-based company prides itself on transparency, security, and privacy. Choose from Bitcoin-backed loans, which provide funding in USD or USDC, or B2X, a Bitcoin loan combined with a BTC purchase to increase your holdings.

Borrowing With Ledn

  • Transparency: Verify your deposit with Ledn’s innovative proof-of-reserves feature
  • Fast turnaround: Get funding in 24 hours or less
  • Borrow from $500 to $1,000,000 with 50% LTV
Crypto Accepted for Collateral Origination FeesInterest RatesMinimum Provided LoansMaximum Provided LoansStandout Feature
BTC2% admin fee7.9%$500$1,000,000Ledn offers proof-of-reserves, letting you verify your deposit at any time

Nexo

As an all-in-one crypto platform, Nexo offers a convenient way to buy, sell, earn yield, or borrow. With Nexo’s credit line wallet, you can borrow up to 50% of your Bitcoin’s value. Rates favor Gold and Platinum loyalty level users, ranging from 0% for platinum loyalty level users up to 13.9% for base level users.

Borrowing With Nexo

  • Low rates for Gold and Platinum users
  • No origination fees and low minimum loans
  • Borrow up to $2 million
Crypto Accepted for Collateral Origination FeesInterest RatesMinimum Provided LoansMaximum Provided LoansStandout Feature
BTC ETH XRP LTC & more0%0% - 13.9%$50$2 millionBorrowing rates as low as 0% to 1.9% for Gold and Platinum

CoinLoan.io

With the ability to use 14 different crypto assets as collateral and fund loans in 15 crypto assets, CoinLoan offers more versatility compared to BTC-only lenders. You can borrow in stablecoins such as USDT, USDT, or BUSD with loan terms of seven days up to three years and with an LTV option of 20% to 70%.

Borrowing With CoinLoan.io

  • Repay your loan with any supported asset
  • Borrow crypto to crypto, crypto to fiat, or fiat to crypto
  • Unlimited number of loans
Crypto Accepted for Collateral Origination FeesInterest RatesMinimum Provided LoansMaximum Provided LoansStandout Feature
ETH BTC SOL XRP & more1%4.95% - 11.95% (BTC-backed loans)$10070% of collateralBorrow or repay in multiple cryptocurrencies

Tax Advantages

Bitcoin loans can be attractive for a number of reasons, but tax advantages remain one of the key reasons BTC investors choose asset-backed loans.

  • Capital gains taxes: If you sell your Bitcoin to access capital in the US, you’ll create a tax liability for either short-term or long-term capital gains, depending on how long you’ve held your Bitcoin. For those with sizable gains, the tax costs can be significant. Using a loan to access capital avoids the need to sell and create a taxable event.
  • Deductible interest: In some cases, particularly for loans used to fund real estate or business-related purchases, the interest for your loan may be tax-deductible. Discuss your specific situation with a qualified tax advisor.

What Do I Need to Get a Bitcoin Loan?

Unlike a traditional loan, for which you’ll typically need to provide income documentation and likely a bevy of other paperwork, to get a Bitcoin loan, you just need enough Bitcoin as collateral. The amount of Bitcoin you can provide as collateral drives the amount you can borrow.

Expect an easy process with minimally intrusive forms; some platforms ask how you’ll use the funds. To complete the loan, however, you’ll need access to the private keys to place your collateral in a custodial wallet with the lender.

Ultimately, one of the most important assets you’ll need in the transaction is knowledge. It’s important to understand key terms, such as loan-to-value (LTV) and margin calls, and how they can affect your loan.

What is Loan-to-Value (LTV), And How Does it Affect Loan Rates?

Loan-to-value compares the loan balance to the value of your collateral. For example, if you borrow $10,000 and the Bitcoin you deposit for collateral is worth $25,000, then the loan-to-value is 40%.

Unlike home loans or auto loans, where LTV also comes into play, Bitcoin loans use a more volatile asset, so LTV can change rapidly. You’ll find most loans don’t allow high LTV ratios, typically capping the loan at about 50% LTV.

This LTV limit helps to safeguard the loan; a low LTV acts as a buffer against price volatility. Between 2021 and 2022, Bitcoin’s value fell by over 70%. Using the previous example, if the value of your collateral fell by just 60%, you only have about $10,000 in collateral for a $10,000 loan.

In this example, the lender will require you to pay down part of the loan, bringing the LTV back in line with the loan terms, or post more collateral to reduce the LTV. In most cases, the lender would liquidate the collateral when LTV reaches 80% to 90%.

A loan with a higher LTV is riskier for the lender, so while you’ll find LTV limits as a safeguard against margin calls, you may also find lower interest rates for loans with a lower LTV.

Interest-Only Loans vs. Interest & Principal vs. Credit Lines: How do They Compare?

You’ll find three distinct types of loans offered by Bitcoin lenders.

  • Interest-only loans: With an interest-only loan, you don’t pay down the principal each month. Instead, you’ll pay interest only, with a lump sum due at the end of the loan term. You may be able to roll the balance over into a new loan.
  • Interest and principal: An interest and principal loan is similar to an auto or home loan, wherein your monthly payments cover interest but also pay down the loan balance.
  • Credit lines: Similar to a line of credit you might have based on your home equity, a Bitcoin-backed line of credit lets you access cash based on the amount of BTC you deposit. With a line of credit, you only pay interest on the amount you draw from the credit line, and there is no fixed term.

A given loan type may not be the best fit for the way you want to deploy capital. Some lenders may offer more than one type of loan. With several well-established lenders to choose from, you have options.

Margin Calls

A margin call refers to a notice from the lender informing you that you’ll need to add more collateral (or pay down the balance) to maintain an acceptable LTV ratio for the loan. Some lenders use the term collateral call.

With crypto loans, LTV and margin are linked. The “margin” is your collateral for the loan, and if the value of your collateral falls below a certain threshold, the lender’s risk increases. A fall in collateral value increases the loan’s LTV ratio.

A change in the value of Bitcoin can send you scrambling to pay down the loan, add more collateral, or even cause a liquidation if you can’t meet a margin call.

For example, if you provide $20,000 worth of Bitcoin as collateral on a $10,000 loan, the initial LTV is 50%. But if the value of the Bitcoin falls to 15,000 without any change in the loan balance, the LTV rises to 66-67%. With many lenders, you can expect a margin call if the LTV rises that high. If the value of the collateral falls much further, the lender may liquidate the collateral to settle the loan balance.

Here are the LTV guidelines from one well-known lender:

  • Target LTV (50%): In this case, the target LTV is the ratio at which the loan started and the level at or below which the lender wants the ratio to remain.
  • Margin Call LTV (70%): Expect a margin call notice from the lender when the LTV reaches 65 to 70%, assuming a 50% target LTV. This level varies depending on the initial LTV and sometimes by collateral type.
  • Liquidation LTV (80%): If the value of the collateral continues to fall and you haven’t added collateral (or paid down the loan), the lender can liquidate your collateral to pay the loan balance.

BTC Loan Comparison

Several lenders offer a calculator that helps you understand the total costs for the loan as well as monthly payments. Before choosing, compare loan costs and loan types available from the providers you’re considering.

Different types of loans have differing interest costs as well. For example, here we compare an interest-only loan compared to a loan that requires interest and principal payments.

Interest-OnlyInterest and Principal
Borrowed Sum$50,000$50,000
Interest rate9%9%
Term of Loan12 months12 months
LTV50%50%
Monthly Repayment$375 for 11 months with a final payment of $50,375 on month 12$4,373 monthly (12 payments)
Total Owed$54,500$52,471
Total Interest Charged$4,500$2,471

How do Taxes on Bitcoin Loans Work?

Funding from a Bitcoin-backed loan isn’t taxable because it’s not income, nor is it a realized investment gain. This aspect of Bitcoin loans makes Bitcoin loans appealing to many investors.

However, if you have an unrealized gain on the Bitcoin you’ve posted as collateral and the lender is forced to liquidate the collateral, you’ll have a realized gain on the amount of Bitcoin the lender had to liquidate.

A forced liquidation can result in a capital gains tax liability.

As another consideration, most lenders separate yield-bearing products from borrowing products, but the Alchemix protocol offers a BTC loan that uses your collateral to generate yield. Consult your tax advisor to understand the tax implications before you choose a yield-bearing loan.
Fees For Borrowing Against BTC

Fees for Bitcoin loans are straightforward in most cases.

  • Origination fee (Administration fee): Some loans require a one-time fee for admin expenses. Some lenders call it an administration fee. Although it’s a one-time fee, BTC loans are typically short-term loans, so a one-time fee can have a big impact on borrowing costs.
  • Withdrawal fee: With some lenders, you may have to pay to withdraw your Bitcoin from the platform.
  • Liquidation fee: Check the fine print for details on fees for liquidations. On some platforms, you could pay up to 7% of the collateral value.

You’ll also want to consider conversion fees and costs associated with moving capital where it needs to be.

For example, a loan may fund in USDC, but maybe you need USD – and you need it in the bank. Moving the money will add to the loan cost. As another example, if you’re using a DeFi platform, there may be costs to moving your assets to and from the platform.

Are There Any Risks When Borrowing Against Bitcoin?

Bitcoin loans can bring distinct risks, some of which are unique to collateralized lending and specifically crypto loans.

  • Custodial risks: To fund a Bitcoin loan, you’ll need to deposit to a custodial wallet, which can bring its own risks. Much like an exchange, the platform can become a target for hackers. Research storage and security measures before depositing your Bitcoin.
  • Rehypothecation: When you pledge your Bitcoin as collateral, that act is called hypothecation. If the lender then pledges the asset again for its own purposes, it’s called rehypothecation, and some lenders use this mechanism to gain access to lending funds. Consider this risk carefully and research the lender before committing your coins.
  • Asset exposure risks: Early 2022 saw some lenders pushed to the brink of bankruptcy – and beyond, due in part to exposure to riskier assets. Some borrowers may prefer a Bitcoin-only lender.
  • Margin call: As discussed earlier, a margin call is a requirement for additional collateral or to pay the loan down so that the LTV is within the target range. A margin call can cause you to sell other assets or add more collateral at an inopportune time. Choosing a low LTV ratio can provide a larger buffer.
  • Forced liquidation: If you’re unable to meet the margin requirements, the lender can liquidate your Bitcoin to satisfy the loan balance. Loans with lower LTV ratios can help reduce the risk of liquidation.

DeFi Loans

While they make the process easier, centralized finance (CeFi) platforms aren’t the only way to borrow against your Bitcoin. A growing number of decentralized finance (DeFi) protocols now offer ways to borrow against crypto assets.

You can think of DeFi protocols as programs that automate the lending process in a permissionless way using smart contracts.

  • Tax risks (liquidation): While taking a Bitcoin loan isn't a taxable event, a forced liquidation can create a taxable event for capital gains, assuming your cost basis is below the liquidation value.
  • Tax risks (self-repaying loans): Notably, the Alchemix protocol offers self-repaying loans that use your Bitcoin collateral to generate yield. Yields generated by your deposit may be taxable as investment income or create another type of tax liability. Discuss the possible implications with your tax advisor.

Quick Sip

Smart Contract: A smart contract is a program that runs on the blockchain allowing transactions to complete automatically. If the conditions defined in the contract are met, then the transaction defined in the contract proceeds.

A protocol is just a set of rules. If the loan transaction conforms to the protocol requirements, it’s authorized without human intervention and funded through a lending pool of peers who can earn yield by providing liquidity.

Some common DeFi lending protocols include the following:

Note: Because current DeFi protocols don’t run on Bitcoin's blockchain, you’ll need to convert your Bitcoin to a tokenized version, such as wBTC, which is a token on the Ethereum network designed to provide 1:1 value for BTC.

In Conclusion

Bitcoin loans come in all shapes and sizes, offering a solution to many borrowing needs and allowing you to keep the asset as it grows in value.

While there are often tax advantages to borrowing against your Bitcoin rather than selling, the practice also brings risks of liquidations or surprise tax bills. Keep an eye on borrowing costs, as well, and consider LTV ratios carefully.

A well-chosen and well-managed Bitcoin loan can be a powerful part of your financial strategy.

Frequently Asked Questions

  • Can I Get a Loan For Bitcoin?

    Expand to learn more

    You can use Bitcoin as collateral for a loan on several lending platforms as well as a growing number of decentralized lending protocols.

  • Are Bitcoin Loans Safe?

    Expand to learn more

    Bitcoin loans come with a number of risks, including margin calls and liquidation of your collateral.

  • Can I Get a Bitcoin Loan Without Collateral?

    Expand to learn more

    Some providers, such as Goldfinch.finance, offer crypto loans without collateral. However, borrowing rates trend much higher compared to Bitcoin-backed loans.

  • How Much Can You Borrow Against BTC?

    Expand to learn more

    Some lenders, such as SALT Lending and Ledn, allow BTC-backed loans for $1 million or more.

  • Are There Any Free Bitcoin Loans?

    Expand to learn more

    A few lenders, including Nexo, let borrowers borrow with 0% interest. However, 0% perks may be reserved for higher membership or loyalty tiers, possibly adding different costs to the platform.

  • Are There Any Instant Bitcoin Loans?

    Expand to learn more

    Typically, lenders can complete funding within 24 hours. But some platforms, such as Nexo’s BTC-backed line of credit, offer instant approval.

  • Are There Any Bitcoin Loans Without Deposits?

    Expand to learn more

    Expect to make a deposit for crypto loans. The exception would be flash loans offered by DeFi platforms such as AAVE, in which the loan is paid back from the proceeds of an executed smart contract.

Contributors

  • Avatar of Eric Huffman

    Eric Huffman is a staff writer for MilkRoad.com. In addition to crypto and blockchain topics, Eric also writes extensively on insurance and personal finance matters that affect everyday households.

  • Avatar of Shannon Ullman

    Shannon Ullman is a senior editor for MilkRoad.com. Shannon specializes in cryptocurrency and personal finance. Her work has appeared in publications like The Motley Fool and Insider.