Bitcoin-Backed Loans: Borrow Instead of Selling

Short answer: With a bitcoin-backed loan, you deposit bitcoin as collateral and get euros or francs in return, without selling. You keep your sats, but you pay interest. If the price falls too far, the lender sells your collateral. The loan is only safe if it stays small: the liquidation price has to sit far below the Power Law floor.

Why borrow instead of selling at all?

You have saved bitcoin over years and now need money: for a car, a renovation or to bridge a bear market in retirement. Selling feels wrong. The sats are gone, and when the price recovers, you don't get them back.

A bitcoin loan promises a way out: you pledge your coins and get money. Later you repay the loan and get your coins back. If bitcoin rises strongly in the meantime, that was cheaper than selling.

That sounds simple, and the principle is ancient: banks call it a Lombard loan and have lent money against shares this way for decades. With bitcoin, though, there is a volatility that no stock portfolio knows. That's why the size of the loan decides everything.

How a bitcoin loan works

Three numbers determine every bitcoin loan:

1. Loan-to-value (LTV): the loan divided by the value of your collateral. If you borrow €20’000 against 1 BTC at €64’554, that is 31%.
2. Liquidation threshold: at this loan-to-value, the lender sells your collateral to save its money. The threshold is in the contract; the calculator on this page assumes 80%.
3. Interest: either you pay it every month from your income, or it is added to the debt. Then your loan grows, and with it the liquidation price.

From these three numbers follows the liquidation price: the bitcoin price at which your collateral is sold. It is the one number you need to know.

Many lenders send a margin call first, for example at 70% loan-to-value. Then you can deposit more bitcoin or repay part of the loan. That only helps if at that moment you have bitcoin or money to spare and can be reached.

How big a crash can your bitcoin loan survive?

The higher the loan-to-value, the smaller the price drop the loan can withstand. The table shows this at a liquidation threshold of 80%.

For comparison: this is how far bitcoin fell from its high in past bear markets.

Source: daily closing prices from /power-law/btc-daily.csv, as of Nov 12, 2026.

The tables show an uncomfortable result: if you borrow at the high, you only survive a typical bear market with a loan-to-value of 10% or less. Even 20% would not have been enough in 2013 and 2017.

The 2021 example: a loan at the high

On Nov 8, 2021, one bitcoin cost $67’525. Anyone who borrowed against 1 BTC that day experienced the following:

• 50% loan-to-value ($33’763): liquidation price $42’203. On Jan 7, 2022, bitcoin closed below it, two months after the loan began.
• 30% loan-to-value ($20’258): liquidation price $25’322. Reached on Jun 13, 2022.
• 25% loan-to-value ($16’881): liquidation price $21’102. Reached on Jun 16, 2022.

In all three cases the collateral was sold near the bottom. From late February 2024, bitcoin was back above $60’000. Exactly what the loan was meant to prevent happened, only at the worst price.

The floor as a yardstick

Instead of guessing how low bitcoin can fall, you can use the Power Law floor as a yardstick. It sits at 42 % of the Power Law line. Since 2016, the daily close has been below it on only 13 days, and only narrowly then: at the 2022 low and on Jun 30, 2026, at 0.414 times the line. How the floor is calculated is explained in the methodology.

The rule is: your liquidation price should stay well below the floor for the entire term. Because the floor rises every year in the model, the gap widens over time as long as your debt doesn't grow faster.

This leads to something important: how much you can safely borrow depends on where the price is right now.

• At the 2021 high, the price stood at 2.75 times the trend. A liquidation price below the floor allowed at most 12% loan-to-value.
• Today the price is only 6% above the floor, in the "accumulation" zone. A liquidation price below the floor would mathematically be possible here up to about 75% loan-to-value.

The 75% is a limit, not a recommendation. The floor is not a law, and it has been undercut before. If you want to sleep soundly, keep the liquidation price at no more than half the floor. With 1 BTC as collateral, that is around €24’000 of loan today, or 38% loan-to-value.

Worked example: €20’000 against 1 BTC

Suppose you deposit 1 BTC and borrow €20’000 for three years at 10% interest. The interest is added to the debt, so you pay nothing during the term.

Is that worth it compared with selling? Selling would cost you 0.31 BTC today. To repay, you need €26’964 in three years. How many sats that is depends on the price then:

That's the core of it: borrowing instead of selling only wins if bitcoin rises faster than the interest rate. In the Power Law model, the floor currently rises by around 35% a year. But if the price moves sideways for three years, you have lost more sats with the loan than with a sale.

Who lends against bitcoin?

Besides the price risk, you carry a second risk: that something happens to the lender while it holds your coins.

The bankruptcies of Celsius (July 2022), BlockFi (November 2022) and Genesis (January 2023) showed what re-lending means: customers whose bitcoin was held there as collateral ended up as creditors in the insolvency. The whole story is told in the article Exchange collapses from Mt. Gox to FTX.

With a multisig loan, your coins sit at an address that needs two of three keys. The lender can't move them alone, and you can check the address in the blockchain at any time. How multisig works is explained in the article Multisig wallets.

We leave out loans on other blockchains, for which you first have to swap bitcoin into a token: they bring additional risks that have nothing to do with bitcoin itself.

Questions to ask every lender

1. At what loan-to-value does the margin call come, and at what level the liquidation?
2. Is everything sold on liquidation, or only as much as necessary?
3. Where are my coins held, and may the provider re-lend them?
4. Can I check the collateral myself in the blockchain?
5. What fees apply, at signing, on liquidation and on early repayment?
6. What happens to my coins if the provider becomes insolvent?

Taxes: a loan is not a sale

A loan is usually more favourable for taxes than a sale, because you don't dispose of anything. The details depend on the country (as of 2026):

• Germany: bitcoin you have held for more than a year can be sold tax-free. So for old coins the loan brings no tax advantage, only for coins held less than a year. If your coins are liquidated, that is a sale. If the lender transfers your coins to itself and may reuse them, the tax office may already see that as an exchange. Have this confirmed beforehand. More in Bitcoin taxes in Germany.
• Austria: gains on bitcoin bought from March 2021 onwards are taxed at 27.5%, no matter how long you hold them. If you sell €20’000 worth of coins that you bought at €30’000 per BTC, around €10’700 of that is gain and around €2’900 in tax is due. Here the loan genuinely saves tax, as long as it isn't liquidated.
• Switzerland: capital gains on private assets are generally tax-free. For the direct federal tax, you can deduct interest on debt up to the amount of your investment income plus CHF 50’000, and the debt lowers your taxable wealth.

Borrowing and psychology

A loan against bitcoin feels like money that costs nothing. You see the price rise, the loan-to-value fall, and the next loan is tempting. That is exactly how the loans come about that get liquidated in the next bear market.

Then there's the pressure: if your loan has a narrow margin, you check the price every day during a crash. The calm you have earned as a long-term holder is gone. How to endure volatility without making mistakes is explained in HODL psychology: enduring volatility.

Calculate your own loan

The "Borrow instead of selling" calculator shows you the loan-to-value, the liquidation price and how far the floor stays above your liquidation price, month by month over the entire term. You set the interest rate, the liquidation threshold and whether you pay the interest under "More settings".

A loan is a tool in a larger plan. How goal, time frame and selling rules fit together is shown in the guide Set and plan your bitcoin goal. If you want to bridge a bear market in retirement, Withdrawal strategies with bitcoin compares the loan with a buffer in euros or francs. The academy goes deeper into the "Plan and live" stage.