Bitcoin-Backed Loans: How Borrowing Against BTC Works
Edited by Steinar Vigdel Kolnes, Editor, Oslo
Bitcoin-backed loans let holders borrow against their BTC, but falling prices can trigger demands for more collateral or liquidation.
A Bitcoin-backed loan allows a borrower to pledge BTC as collateral in exchange for funds, rather than selling the cryptocurrency outright. The borrower takes on a repayment obligation while the Bitcoin secures the debt.
The amount available to borrow depends on the collateral’s value and the lender’s loan-to-value limit. Interest rates, repayment schedules and custody arrangements vary by provider.
Bitcoin’s price volatility creates a key risk: a decline can leave the loan insufficiently collateralized. Depending on the terms, the borrower may need to add collateral or repay part of the debt, or face liquidation of the pledged BTC.
Source: Decrypt
