Bitcoin Loans: Keeping the Coin, Spending the Cash
The word “loan” used to conjure something heavy. A bank, a queue, a pen chained to a desk. But increasingly, for some, it looks more like a few clicks and a wallet app. In a landscape where assets are no longer limited to cash, property or stocks, Bitcoin is taking on a new role—not just as a store of value or investment, but as collateral.
For people who hold Bitcoin and don’t want to part with it, borrowing against it is becoming a viable option. It’s no longer an abstract concept, this idea of unlocking liquidity while keeping your coins. The process, once niche and complex, has become sharper in practice—streamlined, predictable, and less intrusive than traditional borrowing. The focus here is practical: access to cash, without having to sell. Not everyone wants to exit their position. Some just want to tap into it.
How Bitcoin Loans Work in Practice
Bitcoin loans allow you to use your cryptocurrency—typically BTC or ETH—as collateral to borrow cash. Your Bitcoin isn’t sold or spent. It’s held in custody while you receive a percentage of its value in USD or another fiat currency. This is called a loan-to-value (LTV) ratio. With platforms like Figure, that ratio can go up to 75%. If your Bitcoin is worth $40,000, you could borrow up to $30,000. The coin stays in qualified custody. You get the cash. You remain exposed to Bitcoin’s price movement—for better or worse.
The appeal of Bitcoin loans lies in their flexibility. No credit score is required. There are no prepayment fees, and in some cases, borrowers can defer interest payments. That makes them attractive not just to crypto-native users but also to people who are asset-rich but credit-light—those who may be starting businesses, consolidating debt, or covering large costs like home upgrades or car purchases. It’s not about betting big. Often, it’s about breathing room.
Use Cases and Motivations
There are two broad camps among borrowers: those looking to access liquidity without incurring a tax event by selling their Bitcoin, and those looking to leverage existing holdings for further investment. The former might include someone renovating their home. The latter might involve someone who wants to buy additional crypto without selling their current stash. In either case, the borrower keeps hold of their original asset—at least, in principle.
That’s the psychological pivot. Selling Bitcoin is an exit. A loan is a pause. People use this kind of borrowing to bridge gaps, to reallocate capital, or just to keep options open. A person might take a Bitcoin loan to pay off high-interest credit card debt, secure a down payment, or fund a short-term need. They’re not trading coins for cash—they’re unlocking one to access the other.
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Risk, Security, and What Happens When Prices Fall
There’s no such thing as a risk-free loan, and Bitcoin’s volatility means that risk management is baked into the system. If the market drops and your LTV gets too high, a margin call is triggered. You’re notified that your collateral no longer covers the loan. You can either deposit more Bitcoin or pay part of the loan back to rebalance. If you don’t, the collateral may be liquidated.
Security, in this context, refers not just to personal safety but structural design. With providers like Figure, the crypto collateral is not rehypothecated—meaning it won’t be lent out again. It remains with a qualified custodian, under lock and key. That addresses one of the chief concerns of crypto lending: trust. Custody remains a sensitive topic in digital finance, and “who holds the keys” is still a dividing line for many. Here, it’s spelled out. The investor retains beneficial ownership. The platform doesn’t touch it beyond collateralisation.
Terms and Flexibility
Most crypto-backed loans, like the one offered by Figure, offer fixed interest rates—in Figure’s case, between 12.5% and 15%, depending on your LTV and collateral. Repayments are interest-only, and can be deferred (for a fee) until maturity. That’s a marked difference from traditional personal loans, which often involve higher origination fees and less favourable rates. There’s no penalty for early repayment. No hidden charges if the borrower decides to close out the loan ahead of time.
Eligibility is determined by your crypto, not your credit. A soft pull may occur, but it doesn’t affect your credit score. That’s important. It makes these loans available to people building their financial life outside the traditional scorecard—freelancers, entrepreneurs, digital nomads. What matters isn’t what you owe, but what you hold.
The Evolution of Loans
It’s a subtle shift, but a meaningful one. People aren’t just speculating on Bitcoin anymore—they’re building around it. Using it as a foundation for borrowing, not just a bet on price. Bitcoin loans don’t promise wealth or safety, and they shouldn’t be romanticised. But they do offer another tool.
The real value may be in the optionality. Holding onto your asset while still having access to liquidity opens up choices. It gives people a way to use what they have without surrendering it. That’s not just convenient. It’s a different way to think about value—and about debt.
FAQs
Q: How do Bitcoin loans work?
A: You deposit Bitcoin as collateral and receive a loan in fiat currency, typically up to 75% of your crypto’s value. Your Bitcoin is held in custody and returned when the loan is repaid.
Q: What happens if the value of my Bitcoin drops?
A: If your LTV exceeds the agreed limit, you may face a margin call. You’ll need to add collateral or repay part of the loan to avoid liquidation.
Q: Is my Bitcoin safe during the loan?
A: At Figure, collateral is held by a qualified custodian and is not rehypothecated. You retain beneficial ownership, and the platform cannot use the crypto elsewhere.
Q: What can I use the loan for?
A: Borrowers commonly use funds for debt consolidation, large purchases, home renovations, or even reinvesting in crypto.
