Getting a Bitcoin-backed loan allows you to unlock liquidity without needing to sell your Bitcoin. This guide goes through the top Bitcoin loan providers along with the pros and cons of each platform.

Why Take Out a Bitcoin Loan?

Bitcoin loans provide immediate access to funds while maintaining exposure to potential future appreciation. It is also tax-efficient since it avoids triggering capital gains taxes associated with selling Bitcoin at a profit.

Individuals often borrow against their cryptocurrency to make other forms of investments, cover expenses, or consolidate other forms of debt, mirroring the use cases of a traditional loan.

For more information, check out our post on why people take loans against their crypto.

Types of Bitcoin Lenders

There are two types of Bitcoin lending platforms: centralized and decentralized.

Centralized platforms require users to send collateral to them. These platforms typically provide user-friendly interfaces with direct customer support from the team.

Decentralized platforms, instead operate via smart contracts, eliminating the need for intermediaries. It is important to note that DeFi loans typically offer variable interest rates and are paid out in stablecoins like USDC or USDT, not fiat currency. Additionally, decentralized platforms require wrapped Bitcoin, which adds complexity and can count as a taxable event.

Bitcoin Loan Risks

The main risks involved with borrowing against your Bitcoin include:

• Liquidation: Since the price of crypto is volatile, the collateral value can plummet which can lead to your collateral being liquidated without notice.

• Smart Contract Vulnerabilities: Smart contracts can have bugs or be exploited despite having thorough security audits, putting your collateral at risk.

• Platform Risk: Platforms can be hacked or collateral can be mismanaged leading to a loss of client funds.

• Wrapped Bitcoin Risk: There is no hard peg mechanism to ensure the price of wrapped BTC equals BTC.

How to Choose A Bitcoin Lending Platform?

Choosing a Bitcoin lending platform depends on a few factors such as:

• Security: CeFi lenders should hold your collateral in qualified custody without rehypothecating funds, and DeFi lenders must be audited and should have a strong operating history.

• Loan terms: While loan terms will vary across lending providers, it is important to understand key terms such as loan APR, loan to value (LTV), and payment terms (fixed vs variable interest).

• Reputation: Positive reviews and recommendations from others help confirm the legitimacy of the platform.

• Customer Support: If it’s your first time borrowing against your Bitcoin, it may also be helpful to use a platform with customer support.

Best Bitcoin Loan Providers

• Arch: Best centralized lender

• Aave: Best decentralized lender

• Compound: Best decentralized lender for extra rewards

• Coinbase Prime: Best lender for large institutional clients

• MarginFi: Best decentralized lender on Solana

  
  

Arch

Arch is the best crypto lending platform in the US to borrow against Bitcoin and other assets at competitive rates. Arch securely holds collateral with leading custodians in cold storage, never touching your collateral.

Pros

• No rehypothecation

• Collateral securely held in leading qualified custody

• APR: ~16%, LTV: up to 65%

• Same day stablecoin or fiat disbursement into your bank or wallet

Cons

• Only operational in the US

Aave

Aave is the leading DeFi lending platform. They offer users the ability to lend and borrow various cryptocurrencies, including Bitcoin, Ethereum, and other ERC-20 tokens.

Pros

• High Loan-to-Value (LTV) ratio of 73% with low interest rates

• Offers loans against many additional assets as well

• Supports flash loans

Cons

• Difficult to get started for beginners

• Variable interest rates only

• Loan disbursement only in stablecoins, not fiat to your bank account

Compound

Compound is the oldest DeFi lending platform operating on the Ethereum blockchain, allowing users to deposit assets, earn interest, and borrow from diverse lending pools.

Pros

• Low interest rates with an loan-to-value (LTV) ratio of up to 70%

• Earn Compound’s governance token, COMP, for borrowing on the platform

• Offers loans against many additional assets as well

Cons

• Difficult to get started for beginners

• Variable interest rates only

• Loan disbursement only in stablecoins, not fiat to your bank account

Coinbase Prime

Coinbase Prime is the institutional offering of Coinbase. While Coinbase recently shut down their retail borrowing program, they provide lending and other financial services to large institutional clients.

Pros

• Supports $10M+ loans for institutions

• Offers bespoke loan terms for large clients

Cons

• Difficult and time-intensive onboarding process

• Don’t support lending for retail customers

• Can’t support smaller-sized loans

MarginFi

Marginfi is a decentralized lending and borrowing protocol on Solana. Similar to Aave and Compound, they allow users to deposit funds to earn interest or borrow funds against their crypto assets.

Pros

• Low-interest rates with high loan-to-value (LTV) ratios

• Supports additional assets on the Solana ecosystem

Cons

• Difficult to get started for beginners

• Variable interest rates only

• Loan disbursement only in stablecoins, not fiat to your bank account