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After reaching two new all-time highs in July, bitcoin continues to trade above $100,000. One strategy has become a mantra for bitcoin believers — “never sell your bitcoin”, a phrase popularized by MicroStrategy co-founder Michael Saylor. Long-term holders have consistently fared better than those who attempt to time the market — selling near perceived peaks and missing the reentry point.
Still, holding indefinitely presents its own challenges. Life has a natural timespan, and financial goals don’t wait. For those looking to benefit from bitcoin’s upside without selling their assets, one solution is gaining traction: bitcoin-backed loans.
While traditional banks struggle with high rates and deteriorating loan conditions, an alternative lending system, fast and free of intermediaries, is taking shape in the cryptocurrency world. In mid-July, Coinbase announced that BTC-backed loans on their platform had surpassed $1 billion, signaling the growing acceptance of cryptocurrencies in traditional financial services.
The idea of using real assets like stocks or real estate as collateral for loans is not new. According to EquiLend Data & Analytics, the global securities finance industry generated $856 million in revenue for lenders in April 2025. People have long used this strategy to preserve wealth and minimize tax burdens. So, is it possible for retail investors to apply the same approach in crypto, never selling their assets, and live off bitcoin-backed loans?
There are several ways to access bitcoin-backed loans: custodial services and non-custodial DeFi protocols.
Custodial services are more user-friendly and appealing to newcomers. However, there is an important drawback: investors don’t really control their assets there. Early players like BlockFi and Celsius succeeded until they collapsed due to poor risk management, leaving customers unable to withdraw their funds. The adage still applies: “Not your keys, not your money.”
Non-custodial lending protocols allow users to keep ownership of their private keys and provide access to liquidity through smart contracts.
According to DefiLlama data, Aave protocol is the clear leader among non-custodial lending solutions, with a total value locked (TVL) of approximately $33.2 billion. One of the key concerns of using Aave is the necessity of using wrapped bitcoin, assets that are pegged 1:1 to BTC, with a choice between WBTC, the most well-known but still controversial asset, and cbBTC, issued by Coinbase. This brings additional vulnerabilities along with depeg risk and counterparty risk.
After converting BTC to cbBTC, for example, and depositing it into the Aave protocol, users can borrow assets like USDC. The key is knowing how much to borrow — and more importantly, when to stop.
Aave uses two key metrics to manage borrowing risk. The first is Loan-to-Value (LTV), which defines how much users can borrow as a percentage of their collateral’s current value. For example, if cbBTC is valued at $100,000 and the LTV is 75%, a user could borrow up to $75,000 in USDC.
However, if the price of bitcoin drops even slightly, it could trigger liquidation and a 5% penalty. Given BTC’s volatility, it’s often safer to borrow only 25% to 33% of the collateral’s value to survive price fluctuations and avoid liquidation. That means for each bitcoin deposited, a borrower could reasonably take out about $25,000 in USDC. At the time of writing, the interest rate was approximately 5%.
Suppose an investor needs $120,000 per year to maintain their desired lifestyle. To access that amount through bitcoin-backed loans at 25% LTV, they would need $480,000 in collateral, equivalent to approximately 4.17 BTC at a market price of $115,000.
In the CNBC interview, Saylor forecasted that bitcoin could grow at an average annual rate of 30% over the next 20 years. If his projection holds, in theory, it’s possible to never repay this loan, which cost would be only around 5% per year. With bitcoin appreciation, the liquidation threshold will move up, as well as the “health factor” of the loan, so the user can borrow indefinitely, adding 120K each year.
However, bitcoin’s volatility remains a critical risk. If prices stagnate or decline significantly, liquidation becomes a serious concern. During the prolonged downturn from January 2022 to March 2024, bitcoin dropped from $64,000 to $16,000, a decline of roughly 80%. In such a scenario, the loan in this example would have likely been liquidated.
According to the press release published on Yahoo Finance, asset-based lending was valued at $701 billion in 2024 and is projected to reach $1.3 trillion by 2030. In Aave alone, bitcoin-backed loans already amount $7.55 billion, which is 1% of the market.
It may seem that bitcoin-backed loans are still a niche thing practiced by crypto users only, however, cryptocurrencies start penetrating traditional fintech. For example, Block Earner has recently launched Australia’s first bitcoin-backed home loan. It allows crypto holders to finance property deposits using bitcoin as collateral without having to sell their stash.
Yes, bitcoin is a riskier asset than real estate, but the situation with borrowing against real assets is not a completely safe bet. In a world where the U.S. national debt is growing, the only way to get out of this situation is to devalue it. Sooner or later, USD will be affected. Will it be slow or fast – we will see – but in any case, holding alternative assets for lending or hedging purposes would never hurt.
Besides, some US banks such as JPMorgan already started accepting BTC as collateral. Most likely, other banks will follow the lead, which will serve as a clear signal of the crypto-backed collateral revolution.
While the traditional banking system loses unconditional credibility, bitcoin-backed lending appears as a viable alternative, especially with real-life cases showing up in recent times. This is not a mere attempt to bypass banks – asset-based lending unlocks new ways of capital management, and new opportunities for financial sovereignty.
Since users have an option of not selling their crypto while repaying the loan, such a service may prove to be a safer way to borrow, even despite the asset volatility. As we are moving in the future shaped by tokenized assets, bitcoin has the potential to evolve from a speculative coin into a reliable instrument for global credit infrastructure. Not just private fintech companies adopt this technology – institutional players are already in, which means bitcoin-backed lending has enormous potential.
