HODL and Borrow

Bitcoin's bull run has reached new milestones in 2025 with a new all-time high above $111,000. Bitcoin ETF inflows have surged to over $40 billion, and corporate bitcoin holdings are nearing $85 billion, more than doubling in a year.

New Hampshire, Arizona, and Texas are the first states to approve state-level Bitcoin reserves, and 24 other states have submitted similar proposals, awaiting approval. Pending federal legislation, such as the BITCOIN Act and the GENIUS Act, which aim to establish a Strategic Bitcoin Reserve and regulate stablecoins, respectively, indicate growing institutional confidence.

Liquidity Issues

Given all this, investors might be downright giddy. However, liquidity concerns surrounding cryptocurrency remain a challenge.

Long-term holders, often referred to as HODLers for their “Hold On for Dear Life” attitude towards cryptocurrency, are confident that the rise of crypto will continue. Accessing the value of their current crypto holdings without selling their assets can be difficult. Selling Bitcoin means potentially missing out on future gains and facing hefty capital gains taxes.

As a result, crypto-backed lending has emerged.  This innovation allows crypto investors to use their crypto as collateral in exchange for stablecoin or fiat, giving people liquidity that crypto has been missing. 

Competitor to Traditional Loans

As crypto becomes more regulated and widely accepted, crypto-backed lending is poised to emerge as a serious competitor to traditional bank loans. Investors in crypto now have a way to access their digital wealth without selling and potentially compromising future gains. By bypassing the bureaucratic hurdles of conventional banks, they can access quick cash to finance anything from home renovations to car purchases, all while keeping their crypto wallets intact. However, they also face risks of auto-liquidation, crashes in crypto value, and unexpected losses. To make the most of these opportunities, borrowers will need to carefully weigh the risks of volatility against the speed and flexibility of crypto-backed lending, and choose the platform that best aligns with their financial goals, risk tolerance, and liquidity needs

How Crypto Loans Differ from Traditional Loans

These loans differ greatly from traditional loans, such as Home Equity Loans. Instead of assessing the buyer’s credit risk, crypto loans rely solely on the buyer’s crypto wallet. Repayment schedules tend to be flexible and approval is quick, which appeals to those wanting instant cash at their fingertips and resent the bureaucratic processes of typical banks. With the potential for significant price swings, a crypto loan buyer must closely monitor their loan-to-value ratio, or LTV, to avoid margin calls or forced liquidation. LTV is the ratio of the outstanding loan balance to the market value of the collateral.

For instance, Coinbase’s Morpho platform offers Bitcoin-backed loans with a maximum LTV ratio of up to 86%. By comparison, a typical Home Equity Loan allows a maximum LTV of around 80%-90%. If a borrower puts up $100,000 in Bitcoin as collateral on Morpho, they could access up to $86,000 in USDC. However, single-family homes tend to be more stable than the price of Bitcoin. If the price of Bitcoin dropped enough for the LTV ratio to reach above 86%, instead of foreclosure, the borrower’s Bitcoin collateral would be auto-liquidated to cover the loan, accrued interest, and penalty fee. To avoid this, borrowers often choose to over-collateralize their loan, essentially putting up more Bitcoin than required. In addition, Morpho will notify the borrower of liquidation warnings so the user can put up more crypto as collateral. 

A Safer Solution?

Some lenders are taking a much less risky approach. For instance, Xapo Bank, a Gibraltar-based private bank, offers Bitcoin-backed loans with far more conservative terms, aiming to protect long-term holders from crypto’s price swings and protect lenders. Xapo caps its loan-to-value ratio between 20% and 40%, meaning a borrower pledging $100,000 in Bitcoin would receive between $20,000 and $40,000 in cash. This low LTV reduces the risk of forced liquidation and would require Bitcoin’s price to crash significantly- below $40,000 from its current level- for this to happen. Unlike more aggressive lending platforms, Xapo’s model is designed for stability and security for both the lender and the borrower, something critics have long said is lacking in the broader crypto-backed lending space.

Peering into the Digital Future

Many cryptocurrency platforms have begun distributing crypto-backed loans, with varying LTVs, interest rates, and maximum borrowing amounts. Platforms like NEXO use a loyalty tier system to calculate interest rates. If someone on the highest-rated tier has an LTV below or equal to 20%, NEXO offers them a 0% interest rate. Other platforms such as Celsius are more aggressive, offering customers up to 8.95% interest rates at 50% LTV. 

Select Lenders

Xapo Bank

• Currency: BTC for USD
• Interest Rates: Variable, based on base rates set by the Federal Reserve Bank of New York, typically ~10%
• LTV Ratio: 20%-40%
• Maximum Loan Amount: $1M
• Approval Process: Loans offered invite-only to Bitcoin holders at Xapo Bank
• General Use Case: Secure borrowing for long-term BTC holders

Morpho (Coinbase)

• Currency: BTC for USD
• Interest Rates: Variable, market-driven, typically ~5%
• LTV Ratio: Up to 86%
• Maximum Loan Amount: $100,000
• Approval Process: No credit check, based on BTC collateral
• General Use Case: Flexible, quick loans for BTC holders using DeFi interface.

Figure Markets

• Currency: BTC or ETH  for USD
• Interest Rates: 12.5% to 16.73% APR
• LTV Ratio: Up to 90%
• Maximum Loan Amount: $50,000
• Approval Process: No credit check, based on crypto collateral
• General Use Case: Large purchases, consolidate debt, or reinvest

NEXO

• Currency: Multiple assets as collateral for stablecoins or USD
• Interest Rates: Based on Loyalty Tier
• LTV Ratio: Up to 50%, based on cyptocurrency type
• Maximum Loan Amount: $2 million for individuals, $200 million for private clients
• Approval Process: No credit check, based on Loyalty Tier
• General Use Case: Low-cost borrowing for loyal users with large collateral holdings.