How to Borrow Against Bitcoin: A Plain English Guide

You've held Bitcoin for years. The price is up. You need cash, but selling feels like cutting the branch you're sitting on.

That tension is exactly why Bitcoin-backed loans exist. You deposit BTC as collateral, borrow against it, and keep your entire position intact. No taxable event, no lost upside.

The concept is simple enough. The execution has a lot of moving parts, though, and the difference between a good setup and a bad one can cost you thousands, or your entire stack if things go sideways. This guide covers everything: how these loans actually work under the hood, what rates look like right now, where the hidden risks are, and which platforms are worth your time in 2026.

Why borrow instead of selling?

Three things drive most people to Bitcoin loans instead of the sell button.

Tax. Selling Bitcoin triggers capital gains. In the US, long-term gains above $44,625 are taxed at 15%. For someone sitting on a $200,000 BTC position with a $30,000 cost basis, that's a $25,500 tax bill just to access their own money. A loan against the same position costs a few percent in interest and zero in tax.

Conviction. If your thesis is that Bitcoin hits six figures and stays there, selling now to buy back later is a bet against yourself. Borrowing lets you access liquidity while staying fully exposed to upside.

Speed. On-chain lending can fund a position in minutes. Selling BTC, waiting for exchange withdrawals, converting to fiat, and pushing it through a bank wire takes two to five business days in practice.

There are other reasons too. Some holders use Bitcoin-backed stablecoins to earn yield on the borrowed funds, effectively getting paid while their BTC sits in a vault. Others use the loans for business expenses, avoiding the accounting headache of selling an asset they intend to hold permanently.

Not every situation calls for a loan, though. If you need the full value of your BTC (not 50-70% of it), or if you can't stomach the possibility of liquidation, selling might genuinely be the better move. Borrowing works best for people who want partial access to their BTC's value and have the risk tolerance to manage a collateralised position.

How Bitcoin-backed loans actually work

The mechanics are the same whether you use a centralised platform like Ledn or a DeFi protocol like Ducat. The differences are in who holds your BTC and what rules govern the loan.

You deposit Bitcoin. The platform locks it as collateral, and in return you receive a loan denominated in USD, USDC, or another stablecoin. The ratio between your loan and your collateral is the loan-to-value ratio (LTV). Most platforms offer 40-70% LTV, meaning £10,000 of BTC gets you £4,000 to £7,000.

The collateral stays locked until you repay the loan plus interest. Once repaid, you get your BTC back.

If Bitcoin's price drops while the loan is open, your LTV rises. Drop far enough and the platform liquidates some or all of your collateral to cover the loan. More on that in a minute.

CeFi vs DeFi: two different trust models

CeFi platforms (Ledn, Nexo, Arch Lending) work like traditional lenders. You create an account, pass KYC, deposit BTC to their custody, and they manage everything from there: collateral, rates, liquidations. Familiar, relatively frictionless. The tradeoff? Counterparty risk. Your BTC is sitting in someone else's hands, and you're trusting them not to do anything stupid with it.

Celsius taught the industry what happens when a CeFi lender makes bad bets with customer deposits. Ledn responded by introducing Proof of Reserves audits and using BitGo as custodian. Nexo moved to Ledger Vault and Fireblocks for institutional-grade custody. Arch uses Anchorage Digital, a federally chartered crypto bank. These are real improvements. But the fundamental structure remains: you trust the company. And as the Z21 risk data shows, Ledn's risk score (49) is nearly double that of Unchained (29), even though both call themselves Bitcoin lenders.

DeFi protocols flip the model. Smart contracts hold the collateral and code enforces liquidation rules automatically. No company can rehypothecate your BTC (lend it out to someone else without telling you) because the protocol's rules are publicly auditable.

The tradeoff with DeFi is complexity. You need a wallet, you manage your own keys, and if you make a mistake, there's no customer support line.

Ducat sits in the DeFi camp but solves a specific problem that most DeFi protocols don't: it runs directly on Bitcoin L1. No wrapped BTC, no Ethereum bridge, no EVM smart contracts. Vaults live on the Bitcoin network itself, which removes the bridge risk that has caused billions in losses across crypto since 2021.

What a Bitcoin loan costs in 2026

Rates vary wildly. There are now 16+ platforms offering Bitcoin-backed loans. The rates, custody models, and risk profiles vary enormously. The table below uses data from , which tracks all active Bitcoin lending platforms in real time (as of April 2026, BTC at ~$72,300).

Lower-risk platforms (Risk Score under 50)

Platform	APR	Max LTV	Custody	Rehypothecation	Payout	KYC
Unchained	14.18% fixed	50%	DeFi, 2-of-3 multisig	No	USD	Yes
DeBiFi	9.5-21.5% fixed	70%	DeFi, 5-of-4 multisig	No	USDC, USDT, USD	Varies
Arch	8.49-11.84% fixed	60%	CeFi, Anchorage	No	USDC, USD	Yes
Ledn	11.9% fixed	50%	CeFi, BitGo	Limited	USDC, USD	Yes

Higher-risk platforms (Risk Score 50+)

Platform	APR	Max LTV	Custody	Rehypothecation	Payout	KYC
Aave	3.6% variable	73%	CeDeFi, BitGo	No	USDC, USDT, ETH	No
Strike	10.5-14% fixed	50%	CeFi, in-house	Limited	USD	Yes
Nexo	17.9% variable	50%	CeFi, Ledger Vault	Yes	USDC, USDT, USD	Yes
SALT	9.95-14.45% fixed	70%	CeFi, BitGo/Fireblocks	Yes	USDC, USDT, USD	Yes
Lava	8.5-9.5% fixed	50%	DeFi, DLC	No	USDC, LavaUSD	No
Firefish	5.5-16.5% fixed	50%	DeFi, pre-signed txns	No	USDC, EUR, CHF	Yes
Coinbase	4% variable	75%	CeDeFi, Coinbase Custody	No	USDC	Yes
Binance	2.9% variable	78%	CeFi, in-house	Yes	USDC, USDT, ETH	Yes
Ducat	0%	Up to 70%	DeFi, Bitcoin L1	No	UNIT, USDC	No

A few things jump out from the data.

The cheapest headline rates (Binance at 2.9%, Aave at 3.6%, Coinbase at 4%) all come with trade-offs. Binance rehypothecates your BTC and has a risk score of 90. Aave requires wrapping your BTC on Ethereum, adding bridge risk. Coinbase uses cbBTC (their own wrapped version) and has the same bridge concern. Cheap money is never free.

Nexo's 17.9% variable rate is eye-watering. That's their base rate without NEXO token holdings. The tiered system can bring it lower, but you need to hold a significant portfolio of NEXO tokens to qualify. For most users, Nexo is one of the most expensive options on the market despite its brand recognition.

The rehypothecation column is worth staring at. Only Nexo, SALT, and Binance explicitly rehypothecate (lend out your collateral to third parties). Ledn and Strike are marked "Limited," meaning certain account types involve rehypothecation but standard loans may not. Every DeFi protocol listed scores "No" because smart contracts can't rehypothecate by design.

Unchained has the lowest risk score (29) of any platform. Their 2-of-3 multisig means you hold one key, Unchained holds one, and a third-party backup holds one. Nobody can move your BTC without two keys agreeing. The trade-off is cost: 14.18% fixed APR is high.

Ducat charges no ongoing interest. The protocol uses a one-time origination fee model instead. Over a 12-month loan, that typically works out cheaper than platforms charging 10%+ APR. And with no KYC, no rehypothecation, and everything running on Bitcoin L1, it's the only option that keeps your BTC fully on the Bitcoin network with zero counterparty exposure.

For detailed rate breakdowns and historical rate changes, see our .

Step by step: how to borrow against Bitcoin

1. Pick a platform

Your choice boils down to a few honest questions. How much do you trust someone else to hold your BTC? What interest rate can you stomach for the next 6-12 months? Do you want the self custody and transparency of a DeFi vault, or would you rather a company managed everything for you?

For most people borrowing under $50,000, Ledn or Nexo are the easiest starting points. Both have clean interfaces, reasonable rates, and established track records. For holders who want their BTC to stay on Bitcoin's own network and don't mind managing a vault, Ducat is the better fit.

Our guide compares them in detail.

2. Deposit your BTC

Transfer Bitcoin to the platform's designated address. On CeFi platforms this is a deposit address in their custody system. On Ducat it opens a vault on Bitcoin L1, which you can verify on any block explorer. Either way, wait for on-chain confirmation before moving to the next step.

3. Choose your LTV

This is the decision that determines whether you sleep well at night or check your phone at 3am. Most guides say "borrow conservatively." Useless advice without numbers. So here's what it actually means:

At 30% LTV, Bitcoin needs to fall over 60% before you face liquidation. That's a deep bear market. You'd have weeks, probably months, to respond.

At 50% LTV, a 35-40% BTC drop puts you in the danger zone. That can happen in a few weeks during a correction.

At 70% LTV, a 15-20% drawdown, which Bitcoin does casually, starts triggering margin calls.

Our recommendation: start at 30-40% LTV. You can always borrow more later if you need it. You can't un-liquidate a position.

4. Receive your funds

Most platforms disburse in USDC. Some offer bank wires, which add one to three business days. Nexo gives the widest range of payout currencies including GBP and EUR.

Ducat lets you choose between UNIT (its Bitcoin-native stablecoin) and USDC. UNIT has some advantages if you're staying in the crypto ecosystem, particularly around composability with other Bitcoin DeFi apps. For converting to fiat, USDC is more practical.

To understand how stablecoin borrowing works in more depth, check our guide on .

5. Monitor your position

Watch your LTV as Bitcoin's price moves. Every platform shows this in your dashboard. Set up alerts for when your LTV crosses 50%, 60%, and 70%. Some platforms send email or SMS notifications automatically. Don't rely on those alone.

6. Repay and reclaim your BTC

Pay back the principal plus any interest accrued. Your collateral is released. On most CeFi platforms, repayment can be in fiat or stablecoin. On DeFi protocols, you'll repay in the token you borrowed.

What happens if Bitcoin's price drops?

This is the question that separates people who use Bitcoin loans successfully from people who get burned by them.

Say you borrowed $50,000 at 50% LTV against $100,000 of BTC. Bitcoin falls 30% and your collateral drops to $70,000 overnight. Your LTV has now jumped to 71%. Most platforms start sending warnings around the 65-70% mark and pull the liquidation trigger between 80-85%.

At this point you have a few moves available. You can add more BTC to the vault, which immediately reduces the LTV. You can repay part of the loan. Or you can sit tight and accept the risk, which is a valid choice if you believe the price will recover quickly.

Liquidation means the protocol sells enough of your BTC to bring the LTV back within limits. You keep the cash you borrowed. You lose a chunk of your collateral, plus a liquidation penalty (typically 5-15% of the amount liquidated).

A worked example makes this clearer. You deposited 1.5 BTC when the price was $67,000, giving you collateral worth $100,500. You borrowed $50,000 against it. Then Bitcoin drops to $43,000 over a rough fortnight. Your collateral is now $64,500 and your LTV has climbed to 77.5%. The platform liquidates 0.4 BTC at market ($17,200) to drag your LTV back to roughly 60%. You still owe the rest of the loan, and your collateral has shrunk to 1.1 BTC. Painful, but you still have a position. If you'd started at 30% LTV, that same price drop wouldn't have triggered anything.

The single best protection is starting with a lower LTV. At 30%, Bitcoin must fall roughly 65% before liquidation is even on the table. For context, the 2022 bear market saw Bitcoin fall 77% peak to trough, according to . That's your stress test. If your position can survive a 2022-level crash, you're in good shape for anything short of an extinction event.

For a deeper look at how collateral management works on Bitcoin L1 specifically, read our .

The rehypothecation problem (and why it matters)

Rehypothecation is a word most people only learn after a platform collapses. It means the platform takes your deposited BTC and lends it to someone else behind the scenes. Banks have done this with savings accounts for centuries. Celsius did it with customer crypto, and it was one of the main reasons the whole thing blew up.

When a platform rehypothecates your collateral, it introduces risks you can't see. If their borrower defaults, your BTC is exposed. The 2022 contagion (Celsius, BlockFi, Voyager) was largely a chain of rehypothecation gone wrong, each company had lent out customer assets that they couldn't get back when the music stopped.

How do you know if your platform does this? Ask directly. Check their terms of service. Look for Proof of Reserves audits.

Ledn publishes monthly Proof of Reserves through Armanino (now their second auditor since switching in late 2025). Nexo publishes real-time attestations through Armanino as well. Both explicitly state that standard loan collateral is not rehypothecated, though Ledn's "Growth" accounts (which pay yield) do involve lending out assets.

DeFi protocols handle this differently. The rules are baked into public, auditable smart contracts, so rehypothecation is either impossible by design or at least visible to anyone who can read code. Ducat's vaults, for instance, lock BTC using FROST threshold signing in a multisig arrangement. Your BTC physically cannot be moved without your direct participation. If you want the technical details on how that works, our goes deep.

Stablecoin lending and USDC yields

One thing the Content Gap data confirmed: a lot of people searching for Bitcoin-related lending are actually looking for stablecoin yields. Queries like "usdc apy," "stablecoin interest rate," "earn interest on usdc," and "does usdc pay interest" all rank highly among Ducat's competitors.

This makes sense. If you want to earn yield on bitcoin holdings without selling, borrowing stablecoins against your BTC and putting them to work is one of the few ways to do it. A common strategy: borrow USDC against your BTC, then deposit that USDC into a lending protocol that pays 4-8% APY. You're effectively earning yield funded by your BTC collateral.

USDC interest rates and stablecoin savings account yields as of April 2026:

USDC lending on Aave pays around 3.5-5% APY depending on the chain. Coinbase offers 4.1% through their USDC rewards programme. Nexo pays up to 12% on stablecoins, though again, the top tier requires substantial NEXO token holdings. The realistic range for most users is 5-8%.

Does USDC pay interest worth chasing? Depends entirely on your borrowing cost. If you're paying 12% APR to borrow crypto and earning 5% APY on the USDC, you're bleeding 7% net. If you're borrowing at 0% (Ducat's model) or 2.9% (Nexo's best tier), the maths works out. Barely, in Nexo's case. Comfortably, in Ducat's. The best USDC yield in 2026 is roughly 5-8% APY on the major platforms, so anything above that in borrowing costs makes the strategy a net loser.

Risks worth knowing about

Not all risks are created equal. Some will actually bite you. Others are theoretical edge cases that crypto Twitter loves to argue about but rarely materialise in practice.

Liquidation risk. The big one. A sharp BTC price drop can wipe out your collateral position in hours. Manage it with a conservative LTV and alerts. This risk is identical across CeFi and DeFi.

Platform insolvency (CeFi only). If a custodial platform fails, your collateral may be frozen or lost entirely. The Celsius bankruptcy took over two years to partially resolve. Proof of Reserves helps, but it's not a guarantee.

Smart contract bugs (DeFi only). Code can have vulnerabilities. Major protocols like Aave have been audited dozens of times and have bug bounty programmes. Newer protocols carry more risk here.

Bridge and wrapped BTC risk. Using wBTC on Ethereum means trusting BitGo's custody of the underlying BTC, plus the bridge infrastructure. The November 2024 controversy around wBTC's custody transfer to a Justin Sun-affiliated entity showed how quickly trust in wrapped tokens can erode. If your goal is avoiding counterparty risk, borrowing through an Ethereum bridge partly defeats the purpose.

Regulatory risk. Crypto lending has been targeted by the SEC. Nexo settled with the SEC in January 2023. The CLARITY Act (passed in late 2025) brought some clarity to DeFi regulation in the US, but enforcement actions continue. Our covers what this means for borrowers.

Interest rate changes. Variable-rate loans (common in DeFi) can spike when borrowing demand surges. We've seen Aave's rates jump from 2% to over 15% during peak demand periods in 2024 and early 2025. Fixed-rate products avoid this volatility but charge a premium upfront for the predictability.

Who should (and shouldn't) borrow against Bitcoin

Borrowing makes sense if you're a long-term holder who needs partial liquidity, a BTC holder with large unrealised gains who wants to avoid capital gains tax, or someone with a clear repayment plan and the discipline to manage an LTV position.

It probably doesn't make sense if you need more than 50-60% of your BTC's value in cash (the LTV constraints make this inefficient), you can't tolerate the possibility of partial liquidation, or you're borrowing to speculate on other assets with borrowed money (this compounds risk in both directions).

A useful gut check: if Bitcoin dropped 40% tomorrow, would you panic, or would you calmly add collateral? If the answer is panic, a lower LTV or a different approach entirely might be better.

Getting started

Pick a platform from the comparison table above. Start with a test amount you can afford to lose entirely (seriously). Set your LTV at 30-40%. Monitor the position for a full month, ideally through at least one 5-10% BTC price swing, before putting real money in.

If you want your BTC to stay on the Bitcoin network with no bridge or custodian involved, . If you prefer the simplicity of a managed CeFi service, Ledn's standard Bitcoin-backed loan is the most transparent option in that category.

For a side-by-side comparison of exactly how Ducat and Ledn differ on custody, rates, and liquidation mechanics, read our .

Frequently asked questions

Is borrowing against Bitcoin a taxable event?

In most jurisdictions, no. Taking a loan against BTC is not a disposal for tax purposes, so it doesn't trigger capital gains. Repaying the loan and getting your BTC back isn't taxable either. The interest you pay may or may not be deductible depending on how you use the funds. This isn't tax advice, and rules vary by country. The covers the US side, though it doesn't address collateralised lending directly yet.

What's a safe LTV to borrow at?

30-40% for most people. At 30% LTV, Bitcoin needs to fall over 60% before liquidation is on the table. That gives you time to react, even in a crash. Going above 50% LTV means you're one bad week away from margin calls. Not impossible to manage, but it requires active monitoring.

Can I borrow USDC against my Bitcoin?

Yes, on most platforms. Ledn, Nexo, and Aave all disburse loans in USDC. Ducat lets you choose between USDC and UNIT (its Bitcoin-native stablecoin). The choice usually depends on what you plan to do with the funds. USDC is easier to convert to fiat. UNIT has advantages if you're staying within the Bitcoin DeFi ecosystem.

What happens to my Bitcoin if the lending platform goes bankrupt?

On CeFi platforms, your BTC may be frozen and pulled into the bankruptcy estate. The Celsius saga dragged on for over two years, and customers ended up with roughly 73 cents on the dollar. Proof of Reserves audits and segregated custody help, but they're not bulletproof protections. On DeFi protocols, the smart contract holds your BTC independently of any company. If the team behind the protocol disappears tomorrow, your vault still exists on-chain and you can still repay and withdraw.

How does crypto lending work compared to traditional loans?

The biggest difference is the collateral model. Traditional loans use credit scores and income verification. Crypto loans use your BTC as collateral with no credit check required. Approval is instant (or near-instant) because the collateral is liquid and the platform can liquidate it automatically if needed. The downside is over-collateralisation: you need to deposit more value than you borrow, typically 1.5x to 3x the loan amount, depending on the LTV you choose.

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Before you borrow, check these five things:

• What's your liquidation price at your chosen LTV?
• Does the platform lend out your collateral to third parties?
• What's the total annual cost (APR plus any origination fees)?
• Can you add collateral quickly if BTC drops 30% overnight?
• Is there a lock-up period, or can you repay anytime?