What Are Crypto Loans?

What are crypto loans
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The crypto finance sector is taking on traditional banks and making a big push into the lending field. So what are crypto loans and how can you get one?

Most people want to hold on to their crypto because of the potential for it to increase in value exponentially. Between March 2020 and March 2021, for example, the Bitcoin price rose by around 900% – from approximately $6000 to just over $60,000. Anyone who sold their Bitcoin to fund other investments during this period would likely have made far less from their new investment than if they had simply held on to their Bitcoin. 

Bitcoin Loan Price Chart
Over the course of a year the price of Bitcoin rose over 900%. Source: Brave New Coin

The same can be said of other cryptocurrencies too – as there was massive appreciation in the value of many of them during the 2021 cryptocurrency bull run. Even after the May 2021 retracement most so-called ‘alt-coins’ were still significantly up from their January 2021 prices.

Thus, if people are ‘cash poor’ and don’t want to sell their Bitcoin or alt-coins to raise money for something else, then they can have the best of both worlds – letting the price of their crypto appreciate and at the same time apply its value to other investments. 

Crypto loans provide this opportunity by allowing people to hold onto their Bitcoin and other digital assets and utilize its value by borrowing against it. The sector is becoming increasingly competitive, with many companies now entering the business. Even so, the interest rates offered by providers vary widely. Check here for the latest crypto loan interest rates.

What is a crypto loan?

With a crypto loan, you can deposit cryptocurrency, cash or NFTs with a lender such as Nexo, BlockFi or YouHodler and they, in turn, will lend you cash or another type of cryptocurrency that you can invest somewhere else. If you have money tied up in Bitcoin, this is a great way to keep your BTC while diversifying your holdings. In more recent times the NFT or Non-Fungible-Token sector has taken off, with many investors now holding NFTs for long term gains. Nexo led the market in late 2021 by adding NFTs to the list of digital assets they would accept as collateral for a loan. 

Crypto Loans Borrow Currency
Deposit crypto and borrow national currencies or stablecoins. Source: NEXO

When you pay the loan back with interest, the crypto or other assets you deposited as collateral are returned to you. It’s a pretty straightforward process that gives people the chance to take advantage of other opportunities, without having to sell their crypto nest egg.

Moreover, if you don’t want to borrow anything, but instead are looking for the best yield you can get by lending your crypto, you can deposit it with one of the lenders and earn interest. As with crypto borrowing, this space is also hotting up, and the crypto lending interest rates are also very competitive.

When should you consider a crypto loan?

If they aren’t regularly trading, people who hold Bitcoin and other cryptocurrencies are typically just sitting on it waiting for the value to go up. The potential upside is significant, but there is no telling when it will happen. Prior to the 2021 Bitcoin price surge, the previous crypto bull run was in Q4 2017. At that time Bitcoin surged from around $4500 on the 1st of September 2017, to almost $19,500 at Christmas time. But it quickly fell away after that, bottoming at just over $3000 in December 2018 and moving sideways for almost three years until the most recent bull run in 2021. 

Most crypto holders are in it for the long-term potential, and they don’t want to sell it because they might miss a run. But with these runs so few and far between, there is a definite ‘opportunity cost’ of having money sitting in a cryptocurrency that you could be gaining a better return on elsewhere. Crypto loans address these problems in two specific ways; 

  1. They free up capital for potentially more profitable investments
  2. They negate the need to ‘time the market’ to catch the runs

Once the loan is repaid, the borrower’s Bitcoin is free and clear again. If a bull run occurred while your crypto is being held as collateral, that increase in value is now yours, as you are returned the amount of crypto you provided.

Crypto loans typically have no credit checks 

Another reason to consider a crypto loan is that, depending on the lender, even if you have a bad credit rating you will not be subject to a credit check when taking out a crypto loan. This could be very beneficial if you have maxed out your credit cards and want to consolidate all your borrowing into one loan. With a bad credit report, it will be difficult to find a bank that will lend to you. Crypto loans don’t have that issue. 

Crypto Loans no credit check
Crypto loans typically don’t require a credit check

Torque (the lending arm of Fulcrum), for example, specifically states applicants can get a loan with “no verification, KYC/AML or credit checks.” KYC/AML stands for ‘Know Your Customer/Anti Money Laundering’ and is the identification process that most banks require all applicants to go through before they are granted access to any banking services. 

While it’s likely that not having to do a credit check will continue to be true of crypto loans, the no KYC/AML aspect may be short-lived, as governments around the world are clamping down on the potential this offers for money laundering – particularly when it comes to cryptocurrency. 

How much can you borrow?

This part of crypto borrowing is important to understand. Put simply, the value of the cryptocurrency you deposit as collateral will have to be significantly more than the amount of cash or other cryptocurrency you want to borrow. So your loans will be over collateralized.  

If you are securing your loan with Bitcoin, for example, then you can expect to put in twice as much as you borrow. This is referred to as the Loan to Value ratio (LTV). Most lenders in the crypto finance world start with a required LTV of 50%. This means that to borrow $10,000 cash, you would need to deposit $20,000 worth of Bitcoin. 

A higher LTV ratio will mean higher interest rates. Source: YouHodler

Different lenders have different policies, but the volatility of all cryptocurrencies (except for stablecoins) means that most lenders require that you borrow much less than you put up. Some, like YouHodler for example, will accept an LTV of 90%.

For others, 70-75% is as high as they will go. Importantly, the higher the LTV that is offered, the more risk the lender is taking, and they will therefore charge much higher interest rates to offset their risks. Check the current interest rates here.

What are the risks of crypto loans?

As is the case with any investment and borrowing, there are risks involved. Before you decide to move forward with a crypto loan, you need to understand what they are. 

Loan liquidation

As mentioned, crypto loans are over collateralized. First of all, most lenders only let you borrow a percentage of the Bitcoin you use as collateral. Bitcoin is volatile, and its value can change on a daily basis. You need to have enough collateral to back your loan, even if the value of Bitcoin drops. If it does drop, the lender could call in part of your loan or ask you to invest more Bitcoin to maintain your loan to value ratio. While this doesn’t happen frequently, it can happen. For example, the Bitcoin price fell by about 50% in early March 2020. The sudden drop meant that many borrower’s collateral fell below the required LTV ratio and lenders like Nexo, MakerDAO and others were forced to liquidate many client loans – resulting in millions in losses for their customers. The same thing occurred after the price of Bitcoin fell by about 50% in May 2021.

Security breaches and hacking

Whether your loan provider is operating a decentralized or centralized system, both still remain vulnerable to hacking and market manipulation by technical means. There is no Federal Deposit Insurance with cryptocurrency wallets like there is with traditional bank accounts.

Cryptocurrencies are routinely stolen by hackers and crypto businesses have frequently gone to the wall as a result. To mitigate against this risk you should be completely confident in the lending platform’s custodian.

The custodian is the organization that stores and secures the platform’s cryptocurrency (your collateral). In BlockFi’s case, Gemini is the custodian, while the Celsius Network uses BitGo. These are both well respected in the industry. However, it’s still worth finding out if there is an insurance policy if they get hacked – and up to how much you will be compensated.

Government intervention

It is fair to say that many governments around the world do not look favorably on cryptocurrency. Governments in China and India, for example, have more than once announced sweeping changes to the law relating to cryptocurrencies. China recently banned crypto mining in the country and in 2020 forced the cessation of withdrawals from the exchange OKEX for over a month. In India there is a bill in the Indian parliament currently that will make possession of cryptocurrencies illegal there. In light of this, it is advisable to ensure your provider is operating in a stable jurisdiction that won’t arbitrarily restrict access to your crypto. 


As an industry, crypto lending is still in its infancy. However, the amount of capital that is pouring into the sector continues to increase and the scope of products and services on offer will likely one day rival those of traditional banks and credit providers.

For now, crypto loans offer a convenient way for crypto holders to utilize the value of their Bitcoin and other currencies – without having to sell them – ensuring they don’t miss out when their tokens ultimately ‘go to the moon’.