How Bitcoin-backed loans work: collateral, loan-to-value, interest and repayment

A Bitcoin-backed loan lets a borrower pledge Bitcoin as collateral and receive dollars, USDC, or another currency without selling the Bitcoin. The provider tracks loan-to-value (LTV), which compares the loan balance with the market value of the pledged Bitcoin. Interest and fees raise the balance, and a falling Bitcoin price raises LTV. When LTV reaches a threshold in the agreement, the borrower may have to add collateral, repay part of the loan, or have some Bitcoin sold. The terms that matter most are who controls the collateral, whether it can be rehypothecated (lent on or reused by the provider), the rate type, every fee, the repayment deadline, and state availability.

What a Bitcoin-backed loan is

A Bitcoin-backed loan is a secured loan. The Bitcoin stands behind the debt, so the lender can look to the collateral if the borrower does not repay. The borrower generally keeps economic exposure to Bitcoin's price, which means the collateral's gains and losses still belong to the borrower, while the loan balance does not shrink when the price falls.

Providers build these loans in several ways. Some are centralized lenders, some are exchange or platform products, some use institutional custody or multisignature wallets, and some route loans through smart contracts on a blockchain. Coinbase (opens in a new tab) and Unchained (opens in a new tab) both publish terms for their own versions, and the two structures are not the same.

How the loan works from application to payoff

A representative sequence runs as follows, and each provider changes some steps.

1. The borrower applies, completes identity and eligibility requirements, selects Bitcoin as collateral, and chooses an amount and currency.
2. The provider sets a permitted LTV or collateral-to-principal ratio.
3. The borrower sends Bitcoin to the address, custodian, multisignature wallet or protocol named in the loan documents.
4. The provider or protocol disburses dollars, USDC or another approved asset.
5. Interest accrues at a fixed or variable rate, and some fees are added to the principal.
6. The borrower makes scheduled payments, interest-only payments or voluntary repayments, depending on the product.
7. If the collateral loses value, the borrower may need to add Bitcoin or repay part of the balance.
8. If a liquidation threshold, maturity event or default occurs, collateral may be sold or transferred to repay the debt and fees.
9. After full repayment, remaining collateral is released or returned under the agreement.

The mechanics differ in practice. At Coinbase, Bitcoin collateral is converted to cbBTC and transferred to a Morpho smart contract (opens in a new tab), with USDC deposited to the borrower's Coinbase account. Variable-rate loans there have no set term or minimum payment, while fixed-rate loans carry a maturity date. At Circle, the borrower deposits BTC, mints cirBTC, supplies it to a lending market, receives USDC, repays in USDC and gets the collateral released (opens in a new tab). Unchained's terms (opens in a new tab) require the borrower to transfer the posted Bitcoin under separate loan and control agreements.

How loan-to-value is calculated

LTV equals the outstanding loan balance divided by the current market value of the Bitcoin collateral, multiplied by 100.

A worked example with assumed numbers, not anyone's actual offer, shows the effect. A $40,000 loan against Bitcoin worth $100,000 starts at a 40% LTV. If Bitcoin's value drops to $70,000 and the balance stays at $40,000, LTV is about 57%. If it drops to $50,000, LTV is 80%. Accrued interest and added fees raise the balance too, so LTV can climb even when the price holds still. The example leaves out fees, interest and any provider's actual limits.

What LTV triggers a margin call or liquidation

A margin call is a demand to add collateral or repay part of the loan, and liquidation is the sale of collateral to cover the debt. Each provider sets its own thresholds, and the three published examples use different structures.

Sources: Arch loan terms (opens in a new tab), Coinbase borrow page (opens in a new tab), Unchained loans (opens in a new tab) and Unchained terms (opens in a new tab). Unchained's example means $300,000 of Bitcoin posted for a $150,000 loan, and its terms require additional Bitcoin or a partial repayment when the required ratio is breached. These are different term structures, not directly comparable offers.

What a Bitcoin-backed loan costs

Cost has several separate parts: the interest rate, the APR (which folds in certain fees), an origination or processing fee, any platform fee, and a liquidation fee. The figures here are published by each provider, and none of them shows that one provider costs less than another, because they differ in date, rate type, loan size, LTV, term and state.

• Arch. Under its May 19, 2026 terms, the interest-rate range is 7.25% to 10.49%, depending on loan size (opens in a new tab), and the origination fee is 0.25% to 1.49%. A typical partial-liquidation fee is 2%, subject to state-law limits. The current rate and APR appear in the borrower's dashboard.
• Unchained. Its loan page calculator (opens in a new tab) displayed a 14% interest rate and a 14.18% APR, with 12 payment terms, interest-only payments every 30 days and a final principal payment. Those are estimates as of November 10, 2025 and may change. The origination fee is included in the total borrowed but excluded from the amount disbursed, so the borrower receives less than the amount that accrues interest. The fee amount for a given loan is a question for Unchained.
• Coinbase. Variable rates depend on supply and demand (opens in a new tab) and may include a Coinbase platform fee. The processing fee (opens in a new tab) is 2% on the first $250,000 and 1% above $250,000, as of October 3, 2026. It is added to the principal and then accrues interest. The rate itself is shown in the loan interface and moves with market conditions and product type.

A variable rate can change during the loan, and a fixed rate holds only for its stated term. Both are worth confirming against the signed terms, along with the repayment schedule and any early-repayment terms.

What happens if Bitcoin falls

When the price falls, LTV rises, and the agreement decides what follows. The provider may require additional collateral, require a partial repayment, or sell some or all of the Bitcoin once a liquidation threshold is hit. Under Arch's published terms, partial liquidation happens at 80% LTV, and Coinbase collateral can be liquidated at 86% to repay the loan and cover a penalty fee.

The time allowed to respond, whether notice comes first, and whether a sale is partial or total all vary by provider, and the loan documents answer them. A sale of Bitcoin can also carry tax consequences, which is a question for a tax professional. Inversado lists financial professionals by city and category for lending, tax and planning questions.

Who controls the Bitcoin collateral

Control is where the structures differ most.

• Qualified custodian. In Arch's long-term product guide, Bitcoin is stored with a qualified custodian and not rehypothecated (opens in a new tab). At Circle, the BTC behind cirBTC is safeguarded through Circle National Trust (opens in a new tab), a federally chartered trust bank and qualified custodian, and borrowed cirBTC is supplied to a third-party lending protocol whose terms vary by market.
• Key agents and multisignature. Under Unchained's terms (opens in a new tab), one or more third-party key agents may hold private keys at the direction of Unchained, a servicer or an issuer. In Unchained's collaborative custody model, no single party can move or rehypothecate the Bitcoin alone (opens in a new tab).
• Smart contract. At Coinbase, Bitcoin collateral may be withdrawn from Coinbase, converted to cbBTC and transferred on-chain (opens in a new tab) into a Morpho smart contract, which is a different arrangement from a lender-held Bitcoin account.

Whether a lender may rehypothecate pledged Bitcoin is answered by the provider's loan, custody and control documents. The question to put to any lender is whether the agreement permits lending, pledging onward or other use of the collateral, and whether the collateral is segregated from the lender's own assets.

Do Bitcoin-backed loans affect credit

A credit check and credit-bureau reporting are two different things. A "no credit checks" label on Coinbase's product page describes that product's application process. Reporting is provider-specific. In 2024, BlockFi's alleged failure to report payment performance to credit bureaus (opens in a new tab) was among the alleged violations cited in a California DFPI enforcement action, and that action does not describe how any current provider reports.

Default usually reaches the collateral first. Unchained's terms say that after default it may sell some or all of the collateral (opens in a new tab) to repay principal, interest and other amounts due. Any balance left unpaid after a sale, any collection activity and any contractual reporting obligation depend on the loan documents, so each is a question for the lender.

Counterparty risk, regulators and state availability

The collateral can be exposed to the failure of the lender, custodian, exchange or protocol, and protection depends on the legal agreement, how assets are segregated and how a bankruptcy would treat them. The CFPB's complaint bulletin from November 10, 2022 (opens in a new tab) reported crypto complaints involving fraud, theft, hacks, frozen accounts, unexpected costs and poor customer service, and a CFPB advisory (opens in a new tab) warned that crypto companies may not offer the help or refunds a bank, debit card or credit card would. FDIC and SIPC protection does not automatically apply to Bitcoin held with a crypto lender.

On the securities side, the SEC's February 14, 2022 action against BlockFi (opens in a new tab) found its retail Interest Accounts were securities and cited a false and misleading statement about the risk level of its loan portfolio. The SEC's July 13, 2023 action against Celsius (opens in a new tab) alleged an unregistered crypto lending product and said Celsius presented itself as safe while, the SEC alleged, it ran significant risks with customers' assets. Those cases concern specific products. An SEC Office Hours statement (opens in a new tab), updated February 16, 2024, adds that the protections that apply depend on what the platform does, not on whether the asset is Bitcoin, gold or cash. A July 22, 2026 statement by an SEC commissioner (opens in a new tab) said parties that manage LTV limits and liquidation thresholds may need to analyze whether their activities involve federal securities laws.

Availability is also provider-specific. Coinbase's product is available in the United States excluding New York. Not all Unchained products are available in all states or for all amounts, and under Arch's terms, minimum loan amounts and availability depend on jurisdiction. States regulate consumer and commercial lending, money transmission, digital-asset activity and securities differently. As one example, California generally requires finance lenders and brokers to be licensed under the California Financing Law, and it runs a separate Digital Financial Assets Law for certain crypto activity, both overseen by the DFPI (opens in a new tab). A reader in any state can confirm a provider's licensing with that state's financial regulator or NMLS Consumer Access, keeping in mind that a license record does not mean every product is approved or safe.

Questions to ask before signing

These questions cover custody, liquidation, fees, licensing, insolvency, repayment and tax records.

• What is the starting LTV, and what levels trigger a warning, a margin call, a partial liquidation and a full liquidation?
• Do the thresholds include accrued interest and fees, and how often is the Bitcoin price updated?
• How much time is there to add collateral or repay, and can liquidation happen without notice?
• Who holds the private keys, and is the custodian independent and qualified?
• Can the lender lend, reuse or rehypothecate the Bitcoin, and is it segregated from the lender's assets?
• What happens if the lender, custodian, exchange or protocol fails?
• Is the rate fixed or variable, what is the APR, and which fees does it include?
• Are there origination, processing, platform, withdrawal, early-repayment, rollover or liquidation fees?
• What is the maturity date, and is a monthly payment required?
• Is there a credit check, and are payments, defaults or liquidations reported to credit bureaus?
• Is the provider licensed for the borrower's state?
• What currency is disbursed, and what conversion or network fees apply?
• What happens to remaining collateral after payoff or liquidation?
• Which tax records will the provider supply?

Frequently asked questions

These answers cover details that come up once the basics are clear.

Can the lender sell my Bitcoin?

Yes, when the agreement allows it after a threshold, default or maturity event. Under Arch's terms, liquidation can be partial, and Unchained's terms allow a sale of some or all collateral after default, so whether a sale is partial or total is a point to settle in writing.

Do Bitcoin-backed loans always pay out in dollars?

No. Disbursement can be dollars, USDC or another approved asset, depending on the provider. Coinbase deposits USDC to the borrower's account and Circle's loans are borrowed in USDC, which brings conversion and network questions to put to the provider.

Is a fixed rate the same as a variable rate?

No. At Coinbase, variable rates depend on supply and demand in the lending market, and fixed-rate loans have a maturity date. A fixed rate holds for its stated term, while a variable rate can move, so the rate type changes both the cost estimate and the payment planning.

What happens to the Bitcoin after the loan is repaid?

The provider or protocol releases or returns the remaining collateral under the loan documents. At Circle, the borrower repays in USDC and the collateral is released, and the timing and any fees on that release are questions for the specific provider.

Where to go next

A borrower comparing structures can continue with the Bitcoin borrowing series, which covers liquidation, custody, lender risk and tax questions in separate guides. For tax, lending or bankruptcy questions about a specific situation, a licensed tax professional or attorney can answer them, and Inversado's directory lists financial professionals by city and category.