If you hold Bitcoin, Ethereum, or other digital assets, you have likely considered what it would take to access the value locked in your portfolio without selling. Crypto-backed loans offer exactly that: the ability to borrow US dollars against your cryptocurrency, keeping your holdings intact while putting cash in your hands. Whether you need liquidity for a real estate purchase, a business opportunity, or simply want to avoid triggering a taxable event, understanding how these loans work is the first step toward making an informed decision.

This guide covers everything you need to know -- from the basic mechanics and key terminology to the risks, benefits, and how to evaluate a lending platform you can actually trust.

What Is a Crypto-Backed Loan?

A crypto-backed loan is a secured loan where cryptocurrency serves as collateral. You deposit digital assets -- typically Bitcoin (BTC), Ethereum (ETH), or Solana (SOL) -- into a custodial account controlled by the lender. In return, you receive a fiat loan (US dollars) disbursed to your bank account via wire transfer or ACH.

The concept mirrors traditional secured lending. Just as a homeowner can take a home equity loan using their property as collateral, a crypto holder can borrow against the value of their digital assets. The critical difference is speed and accessibility: crypto-backed loans typically fund in days rather than weeks, and they require no credit check.

Your crypto remains as collateral for the duration of the loan. Once you repay the principal plus interest, your assets are returned in full. If the value of your collateral drops significantly during the loan term, you may face a margin call -- a request to add more collateral or partially repay the loan.

The key point is this: you never sell your crypto. You retain full ownership and benefit from any price appreciation that occurs while the loan is outstanding.How Do Crypto-Backed Loans Work? A Step-by-Step Breakdown

Understanding the process from application to repayment removes much of the uncertainty. Here is how a typical crypto-backed loan works, step by step.

Step 1: Determine How Much You Can Borrow

The amount you can borrow depends on two factors: the current market value of your crypto and the loan-to-value (LTV) ratio offered by the lender. At Arch Lending, borrowers can access up to 60% LTV, meaning if you deposit $100,000 worth of Bitcoin, you can borrow up to $60,000.

A lower LTV provides a larger buffer against market volatility, reducing the likelihood of a margin call. Many experienced borrowers intentionally choose an LTV below the maximum to give themselves additional protection.

Step 2: Apply and Get Approved

Most crypto-backed lenders -- Arch Lending included -- do not require a traditional credit check. Approval is based on the value of your collateral, not your credit score or income history. The application process is straightforward and typically takes minutes, not days.

At Arch Lending, every borrower is assigned a dedicated account representative who guides them through the process. This white-glove approach ensures you understand your loan terms, LTV thresholds, and repayment options before you commit.

Step 3: Transfer Your Collateral

Once approved, you transfer your cryptocurrency to a secure custodial wallet managed by the lender. This is a critical step, and the security of your collateral should be a top consideration when choosing a platform.

Arch Lending partners with Anchorage Digital, the only federally chartered cryptocurrency bank in the United States, for institutional-grade custody. Your assets are protected by $250 million in insurance coverage and are never rehypothecated -- meaning they are never lent out, traded, or used for any purpose other than securing your loan.

Step 4: Receive Your Funds

After your collateral is confirmed on-chain, funds are disbursed directly to your bank account. Arch Lending pays out in fiat (USD) via wire transfer or ACH. There is no need to interact with an exchange or convert anything yourself.

Step 5: Make Interest Payments

During the loan term, you make periodic interest payments. Arch Lending offers rates starting at 8.49% APR, which is competitive with or lower than many traditional personal loan rates -- and significantly lower than credit card interest.

Interest-only payments keep your monthly obligations manageable. The principal balance remains the same throughout the term until you choose to repay.

Step 6: Repay and Reclaim Your Crypto

When you repay the loan in full -- principal plus any remaining interest -- your collateral is released and returned to a wallet address you specify. If the value of your crypto has increased during the loan period, you benefit from that appreciation without having triggered a taxable event.Key Terms You Need to Know

Before taking out a crypto-backed loan, familiarize yourself with these essential concepts. Understanding the terminology will help you evaluate loan offers, manage your position, and avoid surprises.

Loan-to-Value Ratio (LTV)

LTV is the ratio of your loan amount to the value of your collateral. An LTV of 50% means you have borrowed half of what your collateral is worth. As the market value of your crypto changes, your LTV changes with it.

Crypto price goes up: Your LTV decreases (safer position). Crypto price goes down: Your LTV increases (riskier position).

Arch Lending offers a maximum LTV of 60%, though borrowing at a lower ratio provides more headroom.

Margin Call

A margin call occurs when your LTV rises above a predetermined threshold due to a decline in your collateral's market value. When this happens, the lender notifies you and typically gives you a window of time to respond. You can restore your LTV by depositing additional collateral or making a partial repayment on the loan.

Margin calls are not automatic liquidations. They are warnings that give you the opportunity to take action.

Liquidation

If your LTV continues to rise past the margin call threshold and you do not take corrective action, the lender may liquidate a portion (or all) of your collateral to repay the loan. Liquidation is the last resort and is designed to protect both the borrower and the lender from further losses.

The best defense against liquidation is choosing a conservative initial LTV and monitoring your position, especially during periods of high market volatility.

Collateral

Collateral is the cryptocurrency you deposit to secure your loan. It acts as the lender's guarantee. Different platforms accept different types of collateral. Arch Lending currently accepts BTC, ETH, and SOL -- the three largest and most liquid proof-of-stake and proof-of-work assets in the market.

Rehypothecation

Rehypothecation is the practice of a lender using your deposited collateral for its own purposes -- lending it out, trading it, or pledging it as collateral elsewhere. This creates counterparty risk: if the lender's activities go poorly, your assets could be at risk even if you are current on your loan.

Arch Lending has a strict no-rehypothecation policy. Your collateral sits in a segregated, insured account at Anchorage Digital and is used for one purpose only: securing your loan.Benefits of Crypto-Backed Loans

Crypto-backed loans offer several compelling advantages over selling your assets or taking on traditional unsecured debt.

Avoid a Taxable Event

This is the number-one reason most borrowers choose crypto-backed loans. In the United States, selling cryptocurrency is a taxable event that triggers capital gains taxes. If you bought Bitcoin at $10,000 and it is now worth $90,000, selling would generate a significant tax liability.

Borrowing against your crypto is not a sale. Under current IRS guidance, taking a loan collateralized by cryptocurrency does not trigger capital gains. You access liquidity while deferring the tax event indefinitely.

No Credit Check Required

Because the loan is fully secured by your collateral, your credit score is irrelevant. This makes crypto-backed loans accessible to borrowers who may not qualify for traditional financing -- or who simply prefer not to add a hard inquiry to their credit report.

Retain Your Upside Exposure

When you sell crypto to raise cash, you lose exposure to any future price appreciation. If Bitcoin rises 50% after you sell, you miss that gain entirely. With a crypto-backed loan, your collateral remains yours. Any appreciation accrues to you, and you reclaim the full amount (minus the interest cost) when you repay.

Competitive Interest Rates

Rates on crypto-backed loans are often lower than unsecured personal loans and dramatically lower than credit card interest. Arch Lending's rates start at 8.49% APR, with the exact rate depending on your LTV and loan amount.

Speed and Simplicity

Traditional bank loans can take weeks to process. Crypto-backed loans fund in days. There is no income verification, no employment documentation, and no lengthy underwriting process. The collateral itself is the underwriting.

For borrowers who need liquidity quickly -- whether for a time-sensitive investment, a real estate closing, or an unexpected expense -- this speed is a meaningful advantage. The entire process, from application to funding, can often be completed in a matter of days.Risks and How to Manage Them

No financial product is without risk. Understanding the risks of crypto-backed loans -- and the specific steps you can take to manage them -- is essential.

Market Volatility and Margin Calls

Cryptocurrency is volatile. A sharp decline in the value of your collateral can push your LTV above the margin call threshold, requiring you to deposit additional collateral or partially repay your loan on short notice.

How to manage it: Borrow at a conservative LTV. If a platform offers 60% LTV, consider borrowing at 40-50% to create a buffer. Keep liquid reserves available to respond to margin calls quickly. Monitor your position regularly, especially during periods of market turbulence.

Liquidation Risk

If you fail to respond to a margin call, your collateral may be partially or fully liquidated. This means some or all of your crypto is sold at market price to repay the loan, potentially locking in losses at the worst possible time.

How to manage it: Set up alerts for price movements. Know your lender's margin call thresholds and response windows before you borrow. Some lenders provide more generous timelines than others -- ask specifically about this during onboarding.

Custody and Counterparty Risk

When you deposit crypto as collateral, you are trusting a third party with your assets. If the custodian is hacked, goes bankrupt, or mismanages funds, your collateral could be at risk.

How to manage it: Choose a lender that uses institutional-grade custody with transparent insurance coverage. Arch Lending uses Anchorage Digital -- the only federally chartered crypto bank in the US -- and provides $250 million in insurance coverage. Equally important: confirm the lender has a no-rehypothecation policy so your assets are never put at additional risk.

Regulatory Risk

The regulatory landscape for crypto lending is still evolving. Changes in federal or state regulations could affect loan terms, tax treatment, or platform availability.

How to manage it: Work with a lender that is already operating within the existing regulatory framework. Arch Lending is registered with the NMLS (license #2637200) and is licensed in 40 US states, meaning it already meets the compliance standards that many platforms do not.Types of Collateral Accepted

Not all crypto-backed lenders accept the same assets. The collateral options available to you affect both your borrowing capacity and your risk exposure.

Bitcoin (BTC)

Bitcoin is the most widely accepted form of collateral across all crypto lending platforms. Its deep liquidity, high market capitalization, and relatively established regulatory treatment make it the gold standard for secured crypto lending.

Ethereum (ETH)

Ethereum is the second most commonly accepted asset. Its strong liquidity and established market infrastructure make it a reliable form of collateral.

Solana (SOL)

Solana is accepted by fewer platforms, but its growing market cap and strong transaction throughput have made it increasingly viable as collateral. Arch Lending is one of the platforms that supports SOL as loan collateral, giving holders of this asset a liquidity option that is not available everywhere.

What About Other Assets?

Some platforms accept a broader range of altcoins, but this comes with trade-offs. Less liquid assets carry higher volatility risk, which typically means lower LTV ratios and higher interest rates. The three assets Arch Lending accepts -- BTC, ETH, and SOL -- represent the most liquid, most stable segment of the crypto market.

How to Choose a Crypto Lending Platform

Not all crypto lending platforms are created equal. The collapse of several high-profile platforms in 2022 and 2023 demonstrated exactly what happens when custody, insurance, and risk management are treated as afterthoughts. Here is what to evaluate.

Regulation and Licensing

Is the platform registered with relevant financial regulators? In the US, look for NMLS registration and state-level licensing. Arch Lending holds NMLS license #2637200 and is licensed to operate in 40 US states.

Custody Solution

Who holds your crypto, and how is it stored? Arch Lending's custody partner is Anchorage Digital, the only federally chartered cryptocurrency bank in the United States.

Insurance Coverage

What happens if the custodian is compromised? Arch Lending provides $250 million in insurance coverage on custodied assets.

Rehypothecation Policy

Does the platform lend out, trade, or otherwise use your collateral while it secures your loan? Arch Lending does not rehypothecate collateral under any circumstances.

Rates and Terms

Compare APR, LTV ratios, loan terms, and payout methods. Arch Lending starts at 8.49% APR with up to 60% LTV and pays out in USD via wire or ACH.

Customer Support

Crypto-backed loans involve real money and real risk. Arch Lending assigns every borrower a dedicated account representative for white-glove service throughout the life of the loan.Crypto-Backed Loans vs. Other Options

How do crypto-backed loans stack up against the alternatives?

vs. Selling Your Crypto

Selling is simpler, but it triggers taxes and permanently removes your exposure to future price appreciation. For long-term holders with significant unrealized gains, borrowing is often the more tax-efficient strategy.

vs. DeFi Lending Protocols

DeFi lending platforms like Aave and Compound allow you to borrow against crypto using smart contracts with no intermediary. However, DeFi introduces distinct risks: smart contract vulnerabilities, oracle failures, and instant automated liquidation with no warning or human intervention.

CeFi platforms like Arch Lending provide regulated custody, insurance coverage, human support, and margin call procedures that give you time to respond. For borrowers who prioritize security and regulatory protection, CeFi is the more appropriate choice.

vs. Traditional Personal Loans

Traditional personal loans require credit checks, income verification, and weeks of processing. Rates vary widely based on creditworthiness and can exceed 20% APR. Crypto-backed loans require no credit check, fund faster, and offer competitive rates starting at 8.49% APR at Arch Lending.

vs. Home Equity Loans (HELOCs)

HELOCs offer low rates but require home ownership, an appraisal, and 30-60 days to close. They also put your home at risk if you default. Crypto-backed loans offer faster funding with no risk to your real property.

Frequently Asked Questions

Do I have to pay taxes on a crypto-backed loan?

Under current IRS guidance, borrowing against cryptocurrency is not considered a taxable event. You do not trigger capital gains when you take a loan. However, tax laws can change, and individual circumstances vary. Consult a qualified tax advisor.

What happens if my crypto goes up in value during the loan?

You benefit from the appreciation. Your LTV ratio decreases (making your position safer), and when you repay the loan and reclaim your collateral, it is worth more than when you deposited it.

What happens if my crypto drops in value?

If the value of your collateral declines enough that your LTV exceeds the margin call threshold, you will be notified and given an opportunity to deposit additional collateral or make a partial repayment.

Can I repay my loan early?

Most crypto-backed lenders, including Arch Lending, allow early repayment. Check the specific terms for any prepayment penalties, though many platforms charge none.

How much can I borrow?

The amount depends on the value of your collateral and the lender's maximum LTV. With Arch Lending's 60% LTV, you can borrow up to $60,000 for every $100,000 in collateral value.

Is my crypto safe while it is used as collateral?

Safety depends entirely on the platform. At Arch Lending, collateral is held by Anchorage Digital with $250 million in insurance coverage and a strict no-rehypothecation policy.

Do I need good credit to get a crypto-backed loan?

No. Crypto-backed loans are secured by your digital assets, not your creditworthiness. Arch Lending does not perform credit checks.

How long does it take to get funded?

Timing varies by platform, but crypto-backed loans generally fund within a few business days of collateral confirmation.

Ready to See What You Can Borrow?

If you hold BTC, ETH, or SOL and want to access liquidity without selling, a crypto-backed loan may be the right tool. Arch Lending offers rates starting at 8.49% APR, up to 60% LTV, and institutional custody through Anchorage Digital -- all backed by $250 million in insurance and a team that answers the phone when you call.

Use the Arch Lending Crypto Loan Calculator to estimate your borrowing power, monthly payments, and LTV in under 60 seconds.

Arch Lending is a crypto-backed lending platform registered with the NMLS (license #2637200) and licensed in 40 US states. Arch Lending is not a bank, broker-dealer, or investment advisor. This content is for informational purposes only and does not constitute financial, tax, or legal advice. Consult qualified professionals for guidance specific to your situation.