How to borrow against bitcoin: a simple, step-by-step guide

By Ledn

If you hold bitcoin long term, there are times when you need cash but don’t want to sell. Borrowing against bitcoin gives you that option. You pledge bitcoin as collateral and receive a loan, while keeping exposure to its price.

Some borrowers use this when prices are high but volatile and selling feels mistimed. Others use it when prices are lower and selling would lock in a loss.  

At Ledn, we’ve issued more than $10 billion in bitcoin-backed loans since 2018. Here are the questions we hear most often.

What does it mean to borrow against bitcoin?

Borrowing against bitcoin means using your bitcoin as collateral to receive a loan, usually in US dollars or a dollar-linked digital currency. You don’t sell your bitcoin. Instead, you place it under a loan agreement until the loan is repaid or closed.

Selling ends your exposure to bitcoin’s price. Borrowing keeps that exposure, but allows the lender to sell the bitcoin if loan conditions aren’t met.

Most borrowers are solving a cash need. Common uses include paying taxes, funding property purchases, covering business expenses, or smoothing cash-flow gaps. 

How do bitcoin-backed loans work?

Bitcoin-backed loans are structured around collateral. You provide bitcoin worth more than the amount you borrow. That excess is a buffer if prices fall.

Lenders track this buffer using a loan-to-value ratio. This compares the loan amount to the value of the bitcoin securing it. For example, borrowing $50,000 against $100,000 of bitcoin results in a 50% loan-to-value ratio. 

Lower ratios give you more room if prices move. Higher ratios increase the chance that the lender will require action. Actual LTV limits, margin call levels, and liquidation thresholds vary by lender and jurisdiction.

You pay interest for as long as the loan remains open. Some lenders require regular payments. Others allow repayment at any time, provided the loan stays within agreed limits.

While the loan is active, the lender holds the bitcoin. How the lender holds the collateral, and what the lender can do with it, varies by platform and matters as much as the interest rate.

Step by step, how do you borrow against bitcoin with Ledn?

You start by creating an account and completing identity verification. Reputable lenders require this to meet regulatory standards.

Next, you transfer bitcoin to the lender as collateral. The amount you deposit determines how much you can borrow.

You then choose a loan amount and review the terms, including the interest rate, the price levels that trigger required action, and how repayment works.  

Once you confirm the loan, the lender releases funds, often within hours or by the next business day, depending on where you live and the platform you use.

After that, you need to monitor the loan. If prices change, you may need to add bitcoin or repay part of the loan to stay within limits.

What are the risks and considerations? 

Price volatility is the main risk. Bitcoin can move quickly. If its price falls, the loan becomes riskier.

Interest also matters. Even without monthly payments, borrowing has a cost that increases the longer the loan stays open.

Platform reliability matters too. You rely on the lender’s safekeeping setup, controls, and financial discipline. Some lenders publish independent checks showing client assets are accounted for. That improves transparency but doesn’t remove all risk.

What happens if bitcoin’s price falls?

If bitcoin’s price drops, the buffer between the loan and the collateral narrows. When that buffer reaches certain levels, the lender issues a margin call.

A margin call requires you to either add more bitcoin or repay part of the loan to restore the buffer. If you don’t act and prices keep falling, the lender can sell some or all of the bitcoin to cover the loan.

In fast markets, this can happen quickly. You can manage this risk by borrowing conservatively and keeping funds available to respond if needed.

What happens if bitcoin’s price rises?

Rising prices work in the borrower’s favour.

As bitcoin’s value increases, the loan-to-value ratio falls. That widens the buffer and reduces the risk of forced selling. However, this does not eliminate market, operational, or counterparty risk.

Price increases also matter at repayment. Because you keep economic exposure during the loan, any increase in value belongs to you. 

Who is and isn’t a good fit for a bitcoin backed loan?

Bitcoin-backed loans tend to suit people who hold bitcoin long term, understand volatility, and can monitor their position.

They tend to suit you less if you need certainty, can’t respond quickly to market moves, or aren’t comfortable with the risk of forced selling. I 

Availability depends on where you live, and rules differ by country and change over time. 

How Ledn approaches bitcoin-backed lending

At Ledn, we focus on straightforward bitcoin-backed lending with clearly defined risk controls.  Bitcoin used as collateral remains custodied and isn’t lent out for interest.

We set loan limits, price thresholds, and liquidation rules upfront and publish proof-of-reserves to show client assets are accounted for. Loans don’t require traditional credit checks or monthly payments, subject to eligibility and jurisdiction. You can repay early or partially at any time.

Ledn also offers B2X loans, which combine a bitcoin-backed loan with the purchase of additional bitcoin used as collateral.  

Borrowing against bitcoin vs other crypto loan options

Crypto backed loans differ mainly by the assets they accept and how much complexity they introduce. Some platforms focus only on bitcoin. Others support multiple tokens, which adds flexibility but also increases risk when markets move differently across assets.

There’s also a split between centralised lenders and DeFi protocols. Centralised lenders hold collateral under a lending agreement and usually offer clearer support and simpler loan management. DeFi loans rely on smart contracts and wallets, which can reduce onboarding friction but shift risk to code and network conditions.

Final thoughts: is borrowing against bitcoin right for you?

Borrowing against bitcoin lets you raise cash without selling your holdings, while staying exposed to future price moves.

It works best if you hold bitcoin long term, borrow well below your limits, and can monitor your loan as prices change. 

Done deliberately, it’s an opportunity to use your bitcoin without giving it up.

Disclaimer

This article is sponsored by 21 Technologies Inc. and/or its subsidiaries (“Ledn”) and is for general information, discussion, or educational purposes only and is not to be construed or relied upon as constituting legal, financial, investment, accounting, tax, estate-planning, or other professional advice or recommendation.  Please read Ledn’s full Risk Disclosure Statement and Disclaimers.

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This post is commissioned by Ledn and does not serve as a testimonial or endorsement by The Block. This post is for informational purposes only and should not be relied upon as a basis for investment, tax, legal or other advice. You should conduct your own research and consult independent counsel and advisors on the matters discussed within this post. Past performance of any asset is not indicative of future results.