Introduction

If you’ve built up some Bitcoin gains and need cash for a business, home, or new investment, selling might feel like the wrong decision, especially if you believe prices will keep climbing. Good thing you don’t have to.

Bitcoin-backed loans let you borrow cash while keeping your crypto. Think of it like a home equity loan, but your Bitcoin is the collateral.

This article covers how Bitcoin loans work, their benefits, and how to choose a platform. If you want liquidity without triggering capital gains tax or giving up long-term upside, this approach can be a smart move.

What Is a Bitcoin-Backed Loan?

A Bitcoin-backed loan is simple: you deposit Bitcoin with a lender, they hold it as collateral, and you receive cash or stablecoins in return. You keep ownership and since you’re borrowing, not selling, there’s no taxable event.

Selling Bitcoin after it appreciates triggers capital gains taxes. Borrowing against it does not. Your Bitcoin stays in custody, potentially growing in value while you use the loan.

Lending options fall into two categories:

• Centralized platforms like Arch Lending, which operate more like regular banks and fintech platforms and handle custody, support, and more.

• DeFi protocols, which run entirely on smart contracts but can be difficult to navigate.

DeFi offers transparency and self-custody, while centralized lenders usually provide smoother onboarding, clearer terms, and regulatory oversight.

Why Borrow Against Bitcoin?

Keep Your Upside

Borrowing lets you stay exposed to Bitcoin’s price movement. If it doubles during your loan term, you still benefit once you repay and reclaim your collateral. You can even upsize your loan to get more cash out.

Avoid Capital Gains Tax

Selling appreciated Bitcoin can mean losing up to 37% to taxes. Borrowing is tax-neutral since you’re not selling, just securing a loan.

Fast Access to Cash

While banks can take weeks, Bitcoin loans often fund within 24–48 hours. Some platforms even do same-day approvals.

No Spending Restrictions

Unlike some traditional loans that restrict how you use the money, Bitcoin loans typically come with no strings attached. You can use the funds however you like: business, real estate, debt consolidation, or personal expenses.

Flexible Repayment

Lenders offer many options such as amortized schedules, interest-only payments or balloon payments at the end, giving you room to manage cash flow.

How it Works

Step 1: Choose a Platform

Compare platforms by custody security, interest rates, loan terms, and reputation.

Step 2: Deposit Collateral

Send your Bitcoin to the platform’s secure wallet.

Step 3: Loan Details

You’ll receive an offer based on the loan-to-value (LTV) ratio, typically 45–60%.

Step 4: Accept Terms

Review the interest rate, loan duration, and any fees. Once you accept, funds are typically wired to your bank account or sent as stablecoins.

Step 5: Monitor Collateral

If Bitcoin’s price drops, you may need to add collateral or repay part of the loan to avoid liquidation. Lending platforms typically give margin call notices.

Step 6: Loan Repayment

Pay back the principal plus interest to unlock your Bitcoin. Platforms should allow early repayment without penalties.

Terms to Know

Loan-to-Value (LTV)

The ratio of your loan amount to your Bitcoin’s value. A 50% LTV on $100,000 of Bitcoin equals a $50,000 loan. Lower LTVs reduce liquidation risk.

Annual Percentage Rate (APR)

Rates range from roughly 9%–15%, depending on the lender and market.

Loan Terms

Most loans last 12–24 months. Shorter terms usually offer better rates but require faster repayment.

Liquidation Thresholds

If Bitcoin’s value drops and your LTV exceeds around 80–85%, the lender may liquidate part of your collateral. Know your threshold and monitor it closely to avoid liquidations.

Why Arch Lending Stands Out

Arch Lending stands out by focusing on what matters most to serious Bitcoin holders: security, terms, and customer service.

Arch partners with Anchorage, one of the industry’s most trusted custodians, providing institutional-grade protection for your Bitcoin. Unlike some lenders, Arch does not rehypothecate (re-lend) customer assets, removing a major risk that’s burned borrowers elsewhere.

Beyond Bitcoin, Arch also accepts Ethereum and Solana as collateral, offering competitive loan-to-value ratios and fixed terms of up to 24 months. High-net-worth clients value their white-glove service, which includes direct support from start to finish.

The application process is straightforward: no credit checks, quick loan disbursements, and transparent pricing with no hidden fees. You can always speak directly with the team.

Understanding Tax Implications

The tax advantage is one of the biggest draws of Bitcoin loans but it’s worth knowing the details.

The Upside

Borrowing against Bitcoin is not a taxable event. The IRS treats the loan as a liability, not income, so you don’t owe tax on the borrowed funds. Selling the same Bitcoin would trigger capital gains tax on any appreciation.

When Taxes Can Apply

Certain situations can create taxable events. If your lender liquidates collateral due to non-payment or margin calls, that's treated as a sale for tax purposes. Similarly, if you repay the loan using appreciated cryptocurrency instead of cash, you'll owe capital gains tax on that crypto's appreciation.

Deducting Interest

Loan interest may be deductible depending on how you use the funds. Business use usually qualifies, investment use sometimes does, and personal use typically does not. Always check with a tax professional.

Keep Records

Document everything: loan agreements, collateral transfers, payments, and how you used the funds. Clean records make tax time easier and protect you in an audit.

Managing Risk

Handle Volatility

Bitcoin’s volatility is both its strength and its risk. Keep a healthy collateral buffer above minimum LTV requirements, and use platforms that send margin call alerts if prices drop.

Know Your Custody

Understand where and how your Bitcoin is stored. Platforms using segregated, insured custody offer better protection than those pooling client assets. Ask what happens in the event of a bankruptcy.

Diversification Strategies

If you hold multiple assets, using a mix (e.g., Bitcoin and Ethereum) can lower concentration risk and improve overall LTV flexibility.

Platform Due Diligence

Research the platform’s track record, regulation, and financial stability. The lending space has had its failures, stick with secure and compliant firms.

Common Use Cases

Bitcoin loans can fund a range of needs:

• Real Estate: Use as a down payment or for renovations without selling crypto.

• Business Growth: Access working capital or finance expansion while keeping Bitcoin exposure.

• Debt Consolidation: Refinance high-interest debt at a lower rate.

• Investment Opportunities: Act on time-sensitive deals without missing Bitcoin’s upside.

• Emergency Expenses: Cover short-term costs without triggering capital gains tax.

Conclusion

Borrowing against Bitcoin lets you unlock liquidity without giving up your holdings or triggering taxes. When managed wisely, it’s a flexible and efficient way to access capital while keeping long-term upside.

The key is choosing a secure, transparent lender. Arch Lending delivers on both fronts: institutional custody, clear terms, and dedicated service.

Frequently Asked Questions

What happens if Bitcoin's price drops significantly during my loan?

If Bitcoin's value decreases, your LTV ratio increases. Most platforms issue margin calls when LTV reaches certain thresholds, requiring you to add collateral or make a payment. If you can't meet the margin call, the lender may liquidate enough collateral to bring the LTV back to acceptable levels.

Can I add more collateral after taking out a loan?

Yes, most platforms including Arch Lending allow you to add collateral at any time. This can help you avoid liquidation during market downturns or potentially negotiate better terms.

Are there prepayment penalties?

Policies vary by platform. Arch Lending doesn't charge prepayment penalties, allowing you to repay your loan whenever it makes financial sense. Always verify prepayment terms before committing to a loan.

What's the minimum Bitcoin amount needed for a loan?

Minimums vary significantly across platforms. Some DeFi protocols have no minimums, while institutional lenders may require $10,000 or more in collateral.

How quickly can I access funds?

Once approved and collateral is confirmed, most platforms disburse funds within 24-48 hours, depending on if its a fiat or stablecoin disbursement.

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.