If you're holding Bitcoin, you've likely wondered: how can I put this asset to work without selling it?

It's a thoughtful question, and one that many Bitcoin holders grapple with as they watch their holdings appreciate over time.

The good news is that you have options, two primary paths each designed to serve different needs and goals.

1) The first approach is taking out bitcoin loans: using your holdings as collateral to access liquidity while maintaining ownership and upside potential.

2) The second is lending your Bitcoin for yield: supplying your Bitcoin to platforms where borrowers pay you interest for its use.

Both crypto lending strategies allow you to extract value from your holdings without triggering a taxable sale, but they serve fundamentally different purposes.

Let's explore both approaches with care, so you can make an informed decision about which aligns with your financial goals.

What Are Bitcoin Backed Loans?

Bitcoin backed loans, also called crypto backed loans, allow you to borrow against your Bitcoin holdings as collateral to secure a cryptocurrency loan, typically in stablecoins or fiat currency. Unlike crypto loans without collateral, these require you to pledge your Bitcoin, but you retain the upside exposure, and if its value appreciates, those gains remain yours.

You're simply accessing liquidity today while betting on tomorrow's upside.

Here's how it works when you borrow against Bitcoin:

You deposit your BTC with a lending platform, and based on the loan-to-value (LTV) ratio, often around 50%, you can borrow up to half of your Bitcoin's current value. For example, if you hold $100,000 in Bitcoin, you might access $50,000 in cash. You pay interest on the borrowed amount (typically ranging from 3-12% APR as of early 2026), and when you repay the loan, you receive your Bitcoin back.

Why Bitcoin holders choose bitcoin loans:

Many prefer crypto loans because they preserve their long-term position. If you believe Bitcoin will appreciate significantly, paying 5-8% annually to borrow can be worthwhile if your Bitcoin grows 20% or more. When you borrow against crypto for cash, you maintain full exposure to price appreciation while accessing funds for other opportunities, whether that's covering expenses, investing elsewhere or managing cash flow without selling an appreciating asset.

These btc loans also offer tax efficiency. Selling Bitcoin triggers capital gains taxes, which can be substantial depending on your holding period and tax bracket. Bitcoin loans avoid this entirely, allowing you to access liquidity while deferring tax obligations.

The trade-off? When you borrow against BTC, you're taking on debt, which means interest payments and the risk of liquidation if Bitcoin's price drops significantly. Most platforms will issue margin calls or automatically liquidate some collateral if your LTV ratio climbs too high, typically around 80-90%. This makes bitcoin backed loans better suited for those with conviction in Bitcoin's long-term trajectory and the ability to manage short-term volatility.

What Does It Mean to Lend Bitcoin for Yield?

To lend bitcoin for yield takes the opposite approach to crypto loans. Instead of borrowing, you're the one supplying Bitcoin to others who need it, earning interest on your deposit. Think of it as putting your Bitcoin in a high-yield savings account. Crypto lending platforms pay you (often 4-10% APY) for allowing borrowers to use your assets through btc lending programs.

Centralized platforms handle cryptocurrency lending through custody arrangements, while decentralized protocols use liquidity pools where your Bitcoin is made available to borrowers automatically via smart contracts. You earn interest daily, and in many cases, you can withdraw your funds at any time (subject to platform liquidity).

Why Bitcoin holders choose to lend bitcoin:

Lending cryptocurrency appeals to those who want passive income without taking on debt. If you're planning to hold Bitcoin long-term anyway, earning 4-8% annually through btc lending while you wait can feel like free money. There are no margin calls, no liquidation risks, and no obligation to repay anything, you're simply earning a return on an asset you already own.

This strategy works particularly well in stable or sideways markets, where Bitcoin isn't experiencing dramatic price swings. It's also suited for conservative holders who prefer steady, predictable returns over leveraged exposure through crypto backed loans.

The risks? Counterparty risk is the biggest concern when you lend bitcoin. When you participate in crypto lending, you're trusting the platform to safeguard your assets and return them on demand. The 2022 collapses of several major crypto lending platforms, where billions in customer funds were lost, serve as a sobering reminder of what can go wrong.

Even reputable platforms can face liquidity crunches or insolvency. Additionally, many platforms engage in rehypothecation (re-lending your Bitcoin multiple times), which increases systemic risk.

Returns from lending cryptocurrency can also be disappointing. In low-demand environments, yields can drop below 1%, barely outpacing traditional savings accounts while carrying significantly more risk.

Which Approach Fits Your Goals?

The right choice between bitcoin loans and btc lending depends on what you're trying to achieve:

Choose crypto loans if you:

• Want to avoid triggering capital gains taxes

• Need immediate liquidity for a specific purpose

• Are comfortable managing debt and monitoring collateral ratios

• Believe Bitcoin will significantly outperform your borrowing costs

• Want to maintain full upside exposure to Bitcoin's appreciation when you borrow against bitcoin

Choose lending bitcoin if you:

• Want passive income from crypto lending without taking on debt

• Are holding Bitcoin long-term with no immediate liquidity needs

• Are comfortable with counterparty risk in exchange for yield

• Don't need leverage or additional exposure

• Prefer a "set it and forget it" strategy

It's worth noting that these aren't mutually exclusive. Some sophisticated holders use both strategies: taking out btc loans against one portion of their Bitcoin for liquidity while lending another portion for yield through cryptocurrency lending platforms.

The key is understanding your own risk tolerance, liquidity needs, and market outlook.

Moving Forward Thoughtfully

Both bitcoin backed loans and crypto lending offer legitimate ways to extract value from your Bitcoin holdings without selling. The question isn't which is objectively better but which serves your specific situation more effectively.

If you're exploring bitcoin loans as a way to borrow against crypto for cash while maintaining your position, platforms like Arch offer thoughtfully designed solutions with transparent terms and a focus on customer partnership. Whatever path you choose, whether taking out crypto backed loans or participating in btc lending programs, we suggest you to take time to understand the mechanics, evaluate the risks, and select partners who prioritize your long-term success.

Your Bitcoin holdings represent more than just an investment. They're a financial tool with multiple applications. The most important step is choosing the approach that aligns with your goals and helps you move forward with confidence.

About Arch

Arch is building a next-gen wealth management platform for individuals holding alternative assets. Our flagship product is the crypto-backed loan, which allows you to securely and affordably borrow against your crypto. We also offer access to bank-grade custody, trading and staking services.

Disclaimer: This article is for informational purposes only and does not constitute investment advice. Cryptocurrency investments are volatile and risky. Always conduct your own research before making investment decisions.