What is a Bitcoin Loan?
A Bitcoin loan allows you to borrow cash using Bitcoin as collateral. Instead of selling your Bitcoin and triggering a taxable event, you can unlock liquidity while still holding your BTC.
These loans are often offered by crypto lending platforms, which provide funding based on the amount of Bitcoin you pledge as collateral. If the price of Bitcoin drops too much, you may need to add more collateral or risk liquidation.
Bitcoin-backed loans function similarly to secured loans, where your BTC serves as collateral until the loan is repaid. Here’s the step-by-step process:
Bitcoin loans are beneficial for those who want to access liquidity without selling their BTC.
Here’s why they’re popular:
The LTV ratio determines how much you can borrow against your Bitcoin. It’s calculated as:
Example:
While Bitcoin loans are useful, they also come with risks:
Bitcoin loans are a powerful financial tool for crypto investors who need cash without selling their BTC. However, they come with risks like liquidation and custodial security concerns. Always compare loan terms, understand the LTV ratio, and only borrow what you can repay.
Thinking about getting a Bitcoin loan? Explore Vield.io to borrow against your BTC with low rates and fast approval.
1. What is a Bitcoin loan?
A Bitcoin loan allows you to borrow cash or stablecoins using Bitcoin as collateral. You don’t need a credit check because your BTC secures the loan.
2. How do Bitcoin loans work?
Bitcoin loans work by depositing BTC as collateral with a crypto lending platform. The lender provides funds based on a Loan-to-Value (LTV) ratio. If Bitcoin’s price drops too much, you may need to add more collateral or risk liquidation.
3. What happens if Bitcoin's price crashes while I have a loan?
If Bitcoin’s price drops below the margin call threshold, you may need to deposit more BTC or your collateral could be liquidated. Each lender has a different liquidation threshold.
4. Do Bitcoin loans require a credit check?
No, most Bitcoin loans do not require a credit check because they are backed by collateral.
5. Where can I get a Bitcoin loan?
You can get a Bitcoin loan from platforms like:
6. What are the risks of Bitcoin loans?
The main risks include:
7. How much can I borrow with a Bitcoin loan?
It depends on the Loan-to-Value (LTV) ratio. If a lender offers 50% LTV, you can borrow $5,000 for every $10,000 in BTC collateral.
Looking for a bitcoin backed loan in Australia? Enquire with us today.