Owning Bitcoin can create an interesting problem: what if you need access to money, but don’t want to sell your Bitcoin?
Crypto-backed lending offers another option. Instead of selling, Bitcoin can be used as collateral to borrow cash or stablecoins. Once the loan and interest are repaid, the Bitcoin is returned.
For example, someone holding £100,000 of Bitcoin might need £30,000 for a property deposit. Rather than selling £30,000 of their Bitcoin, they could potentially borrow against it and keep their exposure to BTC.
This is already happening. Coinbase allows eligible customers to borrow USDC against Bitcoin through the Morpho lending protocol, and crypto-backed lending is increasingly being explored for much larger loans too.
There is a risk. If Bitcoin’s price falls significantly, the value of the collateral falls with it. The borrower may need to provide more collateral, repay part of the loan or potentially have their Bitcoin automatically sold to cover the debt.
Borrowing against valuable assets isn’t a new idea. People have borrowed against property and investment portfolios for generations. What’s changing is the asset being used as collateral.
Bitcoin isn’t just something people are buying and selling anymore. It is increasingly becoming something people can borrow against too.
