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Bitcoin-Backed Loans Explained: How They Work and Who Offers Them
Bitcoin-backed loans allow holders to borrow cash or stablecoins without selling Bitcoin. This guide explains how the collateral, loan-to-value (LTV) ratio, and liquidations work. The market has seen a cautious recovery since 2022, with centralized lending tripling from its low. Bitcoin-backed loans are a secured loan with BTC as collateral, where you deposit Bitcoin with a lender or lock it in a smart contract. In return, you get a loan worth a fraction of the Bitcoin's value, paid in fiat currency or a stablecoin. The key number is the LTV ratio, which typically ranges from 30% to 70%, with many lenders starting at 50%. At a 50% LTV, $100,000 of Bitcoin gets you a $50,000 loan. The guide covers the two main types of Bitcoin-backed loans: Wrapped Bitcoin, a token on another blockchain backed 1:1 by real BTC, and the traditional Bitcoin-backed loan.