Borrowing Against Bitcoin: When It Beats Selling and When It Backfires

You can borrow against bitcoin at most US crypto lenders by posting BTC as collateral for a cash or stablecoin loan, typically at 50% of the collateral's value and at rates between roughly 5% and 14% APR as of mid-2026. The loan itself is not a taxable event, which is the main reason holders choose it over selling. Whether that trade actually saves you money depends on your cost basis, your time horizon, and how much price drawdown your loan can absorb before liquidation.

Key takeaways

• Borrowing against bitcoin is not a taxable disposal; forced liquidation of your collateral is (irs.gov/filing/digital-assets).
• US rates in mid-2026 run from about 5% variable at Coinbase to 14.18% fixed at Unchained, with most fixed-rate platforms between 8% and 13% (strike.me, May 2026).
• The standard starting LTV is 50%; Coinbase and Figure go up to about 75%, which cuts your crash buffer to a price drop of roughly 12% before liquidation territory.
• Long-term capital gains are taxed at 0%, 15%, or 20% depending on income (irs.gov/taxtopics/tc409), so the sell-vs-borrow math changes with your basis and bracket.
• Crypto collateral has no FDIC or NCUA insurance, and the CFPB reports frozen accounts and fraud as recurring problems in crypto-asset markets (consumerfinance.gov).

How Borrowing Against Bitcoin Is Structured

The structure is a secured loan. You transfer BTC to the lender, a custodian, or a smart contract, and you receive dollars or USDC against it. Repay the principal plus interest and the collateral comes back with its original cost basis intact. The full lifecycle, from custody models to repayment mechanics, is covered in our guide to how bitcoin loans work.

Two numbers define the deal. The initial LTV sets how much you can borrow: at 50% LTV, posting $80,000 in BTC gets you a $40,000 loan. The liquidation trigger sets how much price decline the position survives. Everything else, rate, term, fees, custody, is negotiable detail around those two figures.

What makes this product different from a home equity loan is the speed of enforcement. Bitcoin is repriced every second, and lenders monitor positions continuously. When the trigger is hit, some platforms give you 72 hours to respond. Others give you nothing. Coinbase routes its loans through the Morpho protocol, where liquidation executes through the smart contract itself once the threshold is crossed, with no margin call and no grace period (strike.me, May 2026).

Sell or Borrow: Running the Tax Math

Most articles about bitcoin loans skip the only comparison that matters: what the alternative costs. The alternative is selling, and selling has a precise price.

A worked example with a low cost basis

Say you hold BTC bought years ago at $30,000 per coin, the price today is $100,000, and you need $40,000 in cash for the next 12 months. You file single, your income puts you in the 15% long-term capital gains bracket, and you have held the coins for more than a year (irs.gov/taxtopics/tc409).

Selling route: you sell 0.4 BTC for $40,000. Your basis on that fraction is $12,000 (0.4 times $30,000), so the taxable gain is $28,000. At 15%, the tax bill is $4,200, due the following April. You also give up all future upside on the 0.4 BTC.

Borrowing route: at 50% LTV you post 0.8 BTC worth $80,000 and draw a $40,000 loan. At a 10% APR, close to the middle of Ledn's June 2026 range of 9.25% to 11.49% (ledn.io, June 2026), twelve months of interest costs about $4,000. No tax is due at origination, though the tax treatment of crypto loans has edge cases worth understanding before you sign (irs.gov/filing/digital-assets).

Year one is close to a wash: $4,200 in one-time tax against $4,000 in interest. The difference shows up in year two. If you still need the money, the seller pays nothing more while the borrower pays another $4,000, bringing the running total to $8,000. Interest recurs; the tax was paid once.

The same example with a high cost basis

Now change one input. Suppose your basis is $80,000 per coin because you bought recently. Selling 0.4 BTC produces a gain of only $8,000 ($40,000 minus $32,000), and the tax at 15% is $1,200. Borrowing still costs about $4,000 a year plus liquidation risk. The loan loses decisively.

That is the decision framework in one sentence: the larger your embedded gain and the shorter your borrowing window, the stronger the case for the loan; the higher your basis or the longer your need, the stronger the case for selling. Tax rules change and individual situations vary, so confirm the numbers with a licensed tax professional before committing collateral.

Where You Can Borrow Against Bitcoin in the US (2026)

The US market has consolidated around a handful of platforms with very different designs. Figures below are as published by each platform in mid-2026 and change frequently; verify current terms directly before applying.

Ledn issues 12-month dollar loans at 50% initial LTV, with APRs from 9.25% to 11.49% depending on loan size, no monthly payments, and no prepayment penalty. Collateral is custodied and, per Ledn, not lent out to generate interest. Minimum loan is $500, and the service is unavailable in about 10 states, including California (ledn.io, June 2026; strike.me, May 2026).

Strike offers a 12-month fixed-term loan at 50% max initial LTV with tiered APRs of 7.75% to 13% and no origination, prepayment, or liquidation fees, plus a revolving line of credit at 13% APR. Its margin policy is unusually explicit: a call at 70% LTV, a 72-hour window to cure, then a partial liquidation back to 65% (strike.me, May 2026).

Coinbase lets eligible US customers borrow up to $5 million in USDC against bitcoin through the Morpho protocol, with variable rates advertised as low as 5% and an initial LTV up to about 75%. The rate floats with pool utilization, proceeds arrive as USDC rather than dollars, and liquidation is full-position with a penalty fee and no grace period (coinbase.com/borrow; strike.me, May 2026).

Unchained serves business borrowers only, with a $150,000 minimum, a 14.18% APR, a 2% origination fee, and a collaborative multisig custody model in which the borrower holds one of three keys (strike.me, May 2026).

None of these balances carries FDIC or NCUA insurance. The CFPB's complaint analysis flags fraud, theft, hacks, and frozen accounts as significant, documented problems across crypto-asset markets, and consumers have no deposit-insurance backstop when a platform fails (consumerfinance.gov).

The Common Mistake: Maxing Out Your LTV

The most expensive error in this product is treating the maximum LTV as the recommended LTV. Borrowing at a 75% initial LTV on a platform with a liquidation threshold around 85% leaves a buffer of roughly 12%: bitcoin only has to fall that far for your position to enter liquidation territory. Bitcoin has moved more than that inside a single month many times.

The consequence chain is worth spelling out. The price drops, the margin call fires, and the cure window, where one exists, opens while you are asleep, traveling, or simply not watching. On full-liquidation platforms, the entire collateral position is sold at a depressed price, a liquidation penalty of up to about 5% is deducted on some platforms (strike.me, May 2026), and the sale is a taxable disposal reported against your original cost basis. A borrower with the $30,000-basis coins from the earlier example would owe capital gains tax on a sale they never chose to make, in the same year they absorbed the market loss.

Compare that with the same loan opened at 50% LTV and a 70% trigger. The collateral value can fall about 29% before the margin call fires. Same product, same platform, radically different survival odds. The extra collateral you post at a conservative LTV is not dead weight; it is the price of sleeping through a bad week.

When Borrowing Against Bitcoin Is the Wrong Tool

This product is built for one situation: a holder with a large unrealized gain who needs cash for a defined, shortish period and can tolerate a forced sale in a crash. Outside that lane, it tends to fail.

It is the wrong tool when your cost basis is high, as the worked example showed, because a small tax bill beats an open-ended interest meter. It is the wrong tool for multi-year needs, since interest compounds across years while a capital gains tax would have been a single hit. It is a poor fit for money you cannot afford to lose alongside the collateral: borrowing against BTC to buy more BTC, or to cover living expenses with no repayment source, stacks leverage on an asset that can drop sharply and quickly.

It is also the wrong tool if you cannot monitor the position. A bitcoin-backed loan is not a set-and-forget product like a mortgage, and even the emerging crypto-backed mortgage programs impose steep collateral haircuts for exactly that reason. If checking a price alert during a market selloff is not something you will reliably do, the margin call mechanics will eventually do it for you, on their terms.

How to Structure the Loan Before You Sign

If the tax math favors borrowing, the remaining work is defensive. Four items belong on the checklist before any collateral moves.

Start the LTV low. A 50% or lower starting ratio at least doubles your drawdown buffer compared with borrowing at the platform maximum, and several lenders price their best terms at that level anyway.

Read the liquidation clause, not the marketing page. You want the exact trigger LTV, the cure window in hours, whether liquidation is partial or full, and the penalty fee. Strike publishes all four; on other platforms you may need to dig through the loan agreement to find them.

Know your custody model. Custodied loans expose you to platform insolvency, in which case you may stand in line as an unsecured creditor. On-chain loans like Coinbase's convert your BTC into a wrapped token inside a smart contract, which removes the corporate custodian and adds contract and bridge risk. Multisig models like Unchained's leave you holding a key but cost more.

Plan the exit before the entry. Decide in advance what you will do at a 20% drawdown: top up from a reserve you actually hold, pay down principal, or accept liquidation. A written plan made in calm conditions beats an improvised one during a selloff. And since both the tax treatment and the platform terms described here can change, confirm the details with a licensed financial or tax professional before you sign.

Sources

• irs.gov
• irs.gov
• consumerfinance.gov
• ledn.io
• strike.me
• coinbase.com