Selling Bitcoin to cover a short-term cash need is one of the most common β and most costly β mistakes crypto investors make. A crypto-backed loan lets you get the cash you need while keeping your Bitcoin.
Here is how they work and what you need to know before taking one.
The core idea: your crypto as collateral
A crypto-backed loan works like a secured personal loan or a mortgage, except the collateral is cryptocurrency rather than property.
You deposit your Bitcoin (or Ethereum, or another supported asset) into the lender's custody. The lender gives you cash β in fiat currency β up to a percentage of your crypto's current value. You repay the loan plus interest over the agreed term. When repaid in full, your crypto is returned.
You keep the economic upside on your crypto throughout the loan. If Bitcoin doubles during the period, your gains are intact (minus the interest you paid). If you had sold instead, you would have missed that entirely.
Loan-to-value ratio: the key number
The loan-to-value (LTV) ratio is the percentage of your collateral's value you can borrow. If Bitcoin is worth Β£40,000 and the LTV is 50%, you can borrow Β£20,000 by pledging 1 BTC.
LTV ratios typically range from 30% to 70% on crypto loans. Lower LTV means:
- You need to pledge more crypto relative to what you borrow
- But you have a larger buffer before a margin call is triggered
Higher LTV ratios feel attractive β you get more cash per unit of crypto β but leave less room for price movement before you risk losing your collateral.
What is a margin call?
Crypto is volatile. If the value of your collateral falls significantly during the loan period, the lender may issue a margin call: a demand that you either top up your collateral or repay part of the loan to restore the LTV ratio to a safe level.
If you cannot meet a margin call, the lender may liquidate some or all of your collateral to cover the outstanding balance.
Example: You borrow Β£20,000 against 1 BTC worth Β£40,000 (50% LTV). The margin call threshold is at 75% LTV. If Bitcoin falls to Β£26,667 (your Β£20,000 loan is now 75% of your collateral), you receive a margin call.
Understanding this mechanism is critical before taking a crypto-backed loan. Never borrow so much that a moderate price drop would trigger liquidation of crypto you cannot afford to lose.
How interest works
Interest rates on crypto-backed loans range from roughly 5% to 15% APR depending on:
- The LTV ratio (higher LTV = higher rate)
- The loan term
- The provider and their funding costs
- Whether the loan is fixed or variable rate
Interest is typically calculated daily and paid monthly, or deducted upfront from the loan proceeds.
Why not just sell?
Several situations make a loan preferable to selling:
Capital gains tax: In most jurisdictions, selling cryptocurrency triggers a taxable event. If your Bitcoin has appreciated significantly, selling realises a large capital gain. A loan is not a sale β no taxable event occurs.
Long-term conviction: If you believe Bitcoin will be worth substantially more in 3β5 years, selling to cover a short-term need destroys your long-term position. A loan preserves it.
Speed: Selling crypto and moving fiat through the banking system can take days. A crypto-backed loan can fund in hours.
Who are crypto-backed loans for?
They work well for:
- Long-term crypto holders who need short-term liquidity
- Investors who want to avoid a taxable disposal event
- People who need cash quickly without selling assets
- Those who believe their crypto will appreciate and want to retain the upside
They are not suitable if:
- You cannot afford to lose the collateral if prices fall sharply
- You need to borrow more than 50β60% of your crypto's value
- You have no plan to repay within the loan term
a0bank instant crypto loans
a0bank's instant cash loans are backed by any of ten supported cryptocurrencies: Bitcoin, Ethereum, USDT, BNB, Solana, XRP, USDC, Cardano, Avalanche, and Dogecoin.
There is no credit check β creditworthiness is determined entirely by your collateral. Funds are typically received within 24 hours of approval. Your crypto stays in your a0bank account as collateral throughout the loan term; you continue to see its balance and any appreciation.
Open an a0bank account to access instant crypto-backed loans alongside your savings and debit card.