Bitcoin as collateral: how do bitcoin-backed loans work?

Collateralisation means pledging an asset as security for a loan. The borrower gives the lender an asset as a pledge. If the borrower does not repay, the lender can keep or sell the asset. This lowers default risk for the lender. Secured loans therefore usually have lower interest rates than unsecured loans. The maximum loan size depends on the value of the collateral. Lenders often give 70–90% of the collateral value as a loan.

Examples of secured loans

Classic examples are mortgages and car loans. The house or car is the security the bank can seize if the borrower cannot pay. Business loans are also often secured by company assets such as property, securities, or inventory. If the company becomes insolvent, lenders can sell these assets to cover losses. Because of this extra protection, banks charge lower interest, which reduces the borrower’s financing costs.

Collateral also plays a role in investing. Brokers offer margin loans. If an investor has enough assets in the account, they can borrow to buy more shares. The existing securities act as collateral. Gains help repay the loan; losses are covered by selling the pledged assets. Brokers usually require that the collateral value stays above a set percentage of the borrowed amount. If losses are large, the investor must add funds (a margin call) or the position is closed automatically. Investors can also bet on falling prices (short selling) by selling borrowed assets. Bitcoin can also be shorted on margin.

Bitcoin as loan collateral

In recent years, both traditional institutions and crypto firms have offered loans in fiat currency that are secured by bitcoin. The idea is simple: instead of selling bitcoin, a holder pledges BTC to the lender and receives, for example, a loan in US dollars or euros. During the loan term, the lender (or an escrow agent) holds the bitcoin. After full repayment, the borrower gets the bitcoin back, including any price increase during the term.

The main benefit is liquidity without selling your bitcoin. You stay invested if the price rises later. There is also no taxable sale event. In some cases, interest costs may even be tax-deductible (for example, for business use—local rules apply). These loans are almost always over-collateralised: you receive only part of the bitcoin value as a loan, for example 50% of the current BTC price, to absorb volatility. At most providers, the loan-to-value (LTV) is roughly 50–75%, depending on risk. If the bitcoin price drops a lot, you may receive a margin call and must add more bitcoin. If you do not top up and the collateral is no longer sufficient, the collateral can be liquidated. The lender sells all or part of the BTC to repay the loan. This protects the lender, but the borrower can lose their BTC in a sharp downturn.

Platforms for bitcoin-backed loans

New services now offer bitcoin-secured loans outside the traditional banking system. Examples include Firefish and Lendasat, which both run peer-to-peer marketplaces for secured bitcoin loans, and Strike.

Firefish

Firefish is a European marketplace for bitcoin-secured loans. It connects borrowers and lenders. Firefish itself is neither the lender nor the borrower. Borrowers pledge bitcoin as collateral, while investors lend fiat money. The collateral is held in a multi-signature wallet.

The process is straightforward for borrowers. After registration and verification (opening an account and doing KYC), you post a loan request with amount, term, and interest. When a lender accepts, you transfer your BTC into escrow (multisig) and receive the loan amount in fiat directly to your bank account. For lenders, the flow is also familiar. You browse requests, accept one, and transfer funds to the borrower. Lenders do not need to handle bitcoin. They operate only in fiat (for example, euros), like a normal loan. Bitcoin sits in the background as collateral.

The platform charges a fee of about 1.5% of the loan amount. The interest rate is set freely between the parties and depends on term and market demand. According to user reports, rates are often around 10–12% per year. Terms and repayment are flexible. A common structure is a bullet loan: no instalments during the term; the borrower repays principal plus interest in one payment at the end. Early repayment is possible. During the term, Firefish monitors the collateral ratio. If it falls below set levels, the borrower is notified to add collateral. If they do not, the BTC is liquidated automatically in full or in part so the lender can recover the capital from the collateral.

Lendasat: loans without KYC

Lendasat takes a more decentralised approach. The young company offers bitcoin-secured loans with the slogan “never sell bitcoin again”. Like Firefish, Lendasat connects private borrowers and lenders, but it focuses on self-custody and privacy. According to its description, Lendasat is a non-custodial instant-loan service that uses bitcoin as collateral. It uses smart-contract-like tools (including Discreet Log Contracts) on bitcoin sidechains such as ARK.

In practice, the borrower’s bitcoin is locked in a 2-of-3 multisig, similar to Firefish. Lendasat or its automated protocol holds one key as a neutral arbiter; the borrower and lender hold the other two. No single party can move the BTC alone. When the loan is repaid, the coins are released automatically back to the borrower. Lendasat cannot take the BTC without proper consent, which reduces trust risk.

A key difference: Lendasat does not require personal data or KYC. No ID and no credit check. The only requirement is bitcoin as collateral. This targets privacy-minded users worldwide.

Terms: loans are usually over-collateralised to protect the lender. LTV varies by agreement. As a rough comparison: if you pledge 1 BTC worth 100,000 dollars, you might borrow up to 75,000 dollars. More conservative users might borrow only 25,000 dollars. Interest rates are set by the marketplace and typically range around 7–20% per year. There is also a one-time platform fee of 1.5% of the loan amount. Repayment is flexible, with early payoff allowed at any time, but the contract usually requires paying the full interest for the original term. There are no monthly instalments by default. Instead, the borrower repays principal plus interest and fees by the end date, then the BTC is released. If the BTC price swings a lot during the term, a staged liquidation process applies. At roughly 80% and 85% LTV, you receive automatic alerts to add collateral. At 90% LTV, the position is liquidated to protect the lender. Excess value goes back to the borrower.

Strike: bitcoin-backed loans in the United States

Strike is a bitcoin payments app that, in 2025, offers BTC-secured consumer and business loans in selected US states. Typical terms include up to 50% LTV, around 12 months duration, and either one-time payment at the end (no monthly instalments) or monthly interest-only payments. The annual percentage rate starts in the high single digits to low double digits, depending on structure. If collateral thresholds are breached, liquidation can occur. The pledged BTC is held custodially by Strike or partners. Availability and terms depend on the jurisdiction.

Risks: why bitcoin-backed loans are tricky

If you take a loan against bitcoin, you give up self-custody for the pledged amount. The coins sit with a custodian or in escrow. This creates counterparty risk (operational failure, hack, insolvency, frozen accounts, jurisdiction and contract risks). Even if providers forbid rehypothecation, you still rely on processes, partners, and legal frameworks.

Bitcoin is very volatile. If the price falls, your LTV rises quickly. This can trigger margin calls that require extra collateral on short notice. If you cannot add funds in time, forced liquidation can follow, often at the worst moment. Result: you lose your bitcoin, still pay interest and fees, and miss the recovery. If the price rises, you still pay interest on a loan that you might no longer need. Over-collateralisation ties up capital and exposes you to sequence-of-returns risk.

Practical issues make this harder. Price oracles and spreads can trip liquidation levels earlier than expected. High on-chain fees or network congestion can delay top-ups. Bank transfer hours can conflict with a 24/7 bitcoin market. Legal and tax effects vary by country. Reporting and verification duties can change.

This is not suitable for beginners. If you want to benefit from bitcoin long term without stress, use regular purchases (DCA) and self-custody with a clean security plan. Learn more here:

• How does Dollar-Cost Averaging (DCA) help your investment?
• The right security level for your bitcoin wallet Bitcoin-backed loans require knowledge, caution, ongoing monitoring, liquidity reserves for top-ups, and a high risk tolerance.

Key takeaways

• Collateral lowers default risk and interest costs. Loan size depends on collateral value. For bitcoin, plan a conservative LTV of about 50–75%.
• Using bitcoin as collateral gives you liquidity without selling, but you give up self-custody and take counterparty risk. Volatility can trigger margin calls and forced liquidations.
• Not for beginners. If you want a low-stress path, use DCA and self-custody. If you still choose a loan, keep LTV low, hold a reserve for top-ups, and monitor your position continuously.