Bitcoin’s incredible rise has created an interesting situation for many investors.
You might be sitting on significant bitcoin wealth but find yourself needing cash for a property purchase, business opportunity, or other investment.
Selling your bitcoin could mean missing out on future gains and facing a hefty tax bill – but there’s another option worth considering.
You can now borrow money using your bitcoin as security, much like taking out a loan against your house or other assets.
This approach lets you access the value locked in your bitcoin without having to sell it. It’s becoming more common in the UK, with several specialist lenders and private banks now offering this service.
Let’s look at how bitcoin-backed lending works, who offers these loans in the UK, and what you’ll need to know before deciding if it’s right for you.
What is Bitcoin-backed lending?
Bitcoin-backed lending works similarly to a bridging loan secured against your house or investment property.
You keep ownership of your bitcoin while using it as collateral. The lender holds your bitcoin for the duration of the loan, and you get it back once you’ve repaid what you borrowed.
These short-term loans differ from traditional borrowing in several ways.
With a standard bank loan, lenders look at your income and credit score to decide if they’ll lend to you. For bitcoin-backed loans, the focus shifts to the type and value of your bitcoin holdings. Your credit status matters less because the lender has your bitcoin as security.
Our bitcoin-linked loans range from £100,000 upwards, with terms between 3 and 12 months.
You’ll usually be able to borrow up to 50% of your bitcoin’s value – this lower percentage helps protect against bitcoin’s price changes. If bitcoin’s value drops significantly, you might need to add more bitcoin as security or repay part of the loan early.
The process is straightforward: you transfer your bitcoin to the lender’s secure digital storage system, they lend you the agreed amount, and you make regular repayments. Once you’ve repaid the loan, your bitcoin is returned to you. This means you can access funds without selling your bitcoin and potentially benefit from any increase in bitcoin’s value during the loan term.
How Bitcoin loans work in practice
Getting a loan against your bitcoin might sound complex, but the process is quite similar to other types of secured lending. Understanding how it works in detail will help you decide if it’s the right option for you.
The lending process
Let’s break down how a bitcoin-backed loan comes together.
First, you’ll speak with a specialist broker about how much you want to borrow and for how long. They’ll assess the current value of your bitcoin and approach lenders on your behalf. For Bitcoin you can usually borrow 40-50% of its current value.
Once you’ve agreed on the loan terms, you’ll need to prove you own the bitcoin – this involves a simple verification process. The lender will then set up a secure custody arrangement with a licensed cryptocurrency custodian.
These companies specialise in safely storing digital assets and have robust security measures in place.
Loans start from £100,000, with no upper limit. Terms range from three months to twelve months. Interest is charged each month and can either be paid or rolled back into the loan arrangement.
To manage price fluctuations, lenders monitor bitcoin’s price closely. If its value falls below a certain point, you’ll receive an alert. You might need to either add more bitcoin as security or repay part of the loan early to maintain the agreed loan-to-value ratio.
This is known as a margin call.
What happens to your bitcoin
During the loan term, your bitcoin sits in the custodian’s secure storage.
Think of it like putting valuable jewellery in a bank safety deposit box – it’s there, it’s safe, but you can’t access it until specific conditions are met.
The custodian uses what’s called “cold storage” – meaning your bitcoin is held offline where hackers can’t reach it. They’ll have insurance in place to protect against theft or loss.
While you won’t be able to trade or move your bitcoin during the loan term, you’ll still benefit if its value increases.
When you’ve repaid the loan in full, the release process begins. The lender instructs the custodian to return your bitcoin to your wallet. This usually happens within 24-48 hours of your final payment clearing.
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Who offers Bitcoin-backed loans in the UK?
While bitcoin lending is still a relatively new market, several types of lenders now accept bitcoin as security. Each has different requirements and ways of working, so it’s worth understanding your options.
High-street banks don’t yet offer bitcoin-backed loans, but you’ll find these services through specialist lenders, private banks, and some fintech companies.
Private banks often combine these loans with other banking services and might ask you to move some of your regular banking to them. Specialist lenders, on the other hand, focus purely on the loan itself.
To qualify for a bitcoin-backed loan, you’ll need to meet certain requirements. Most lenders ask for bitcoin holdings worth at least £200,000 to consider lending £100,000. They’ll want to see proof that you own the bitcoin and may check how long you’ve held it. Some lenders also look at your experience with cryptocurrency investments.
There are numerous online platforms that offer smaller loans against Bitcoin, anywhere from £500. These are not available through our service, which has a minimum loan value of £100,000.
Key considerations
Before you take out any bitcoin or altcoin loan, it’s important to understand the risks and costs involved. Making an informed decision means looking at all aspects of this type of borrowing.
Understanding the risks
When you borrow against bitcoin, the main risk comes from changes in bitcoin’s value.
If bitcoin’s price falls sharply, you might receive a margin call – this means you’ll need to either add more bitcoin as security or repay part of your loan early. For example, if you borrowed £100,000 against £200,000 worth of bitcoin, a significant price drop might trigger a margin call to maintain the lender’s security level.
You’ll need to think about how you’d handle this situation.
Some borrowers keep extra bitcoin ready just in case, while others make sure they have access to other funds they could use to pay down the loan if needed.
If you can’t meet a margin call or stop making repayments, the lender could sell some of your bitcoin to recover their money. They’ll give you notice before doing this, but it’s important to understand it could happen.
Costs involved
Bitcoin-backed loans come with several costs.
You’ll pay an arrangement fee when setting up the loan, usually around 1-2% of the amount you’re borrowing. Monthly interest rates are higher than more conventional loans.
Other costs might include custody fees for storing your bitcoin safely and legal fees for setting up the loan agreements. Some lenders also charge an early repayment fee if you want to pay off your loan before the end of the term.
Make sure you understand all the charges before signing any agreements. Ask your lender or broker for a full breakdown of fees and get everything in writing. Remember to factor in these costs when working out if the loan makes financial sense for your situation.
How to apply for a Bitcoin-backed loan
Getting a bitcoin-backed loan requires a few steps.
The first is providing proof of your bitcoin ownership and its value. You’ll need statements from your crypto wallet or exchange showing your holdings and their history. Lenders will also ask for standard identification documents like your passport and proof of address, plus information about where your bitcoin came from.
The verification process doesn’t take long.
Lenders need to check your bitcoin ownership is genuine and ensure everything meets UK financial regulations. They’ll look at how long you’ve held your bitcoin and verify it hasn’t come from any questionable sources.
Most applications move through these stages:
- Initial discussion about how much you want to borrow
- Providing proof of your bitcoin holdings
- ID verification and background checks
- Agreeing loan terms and receiving your offer
- Setting up the bitcoin transfer to the lender’s custody service
- Final checks and releasing your funds
Once everything’s approved, you could receive your money within 24 hours.
The whole process often takes 5-7 days from first contact to receiving funds, though it can be quicker if you have all your documentation ready.
If you’re planning to use the loan for a specific purpose, like buying property, let your broker know early on. They can then work to your timeline and make sure everything’s in place when you need it.
lombard loans
The role of specialist brokers
With crypto-backed lending still being relatively new, working with a specialist broker makes a real difference to your borrowing experience and the terms you receive.
A broker who understands both traditional lending and cryptocurrency can help you find the right lender for your situation. They’ll know which lenders accept bitcoin as security and what each one looks for in borrowers.
This saves you time and helps avoid applications to lenders who might not be suitable.
Good brokers have trusted relationships with a wide network of lenders, from private banks to specialist finance companies. This means they can secure better terms than you’d get by approaching lenders directly.
They also know about lenders who aren’t widely advertising these services.
Your broker will help present your application in the best light, explaining any complex aspects of your financial situation to lenders. They’ll handle the paperwork and chase updates, keeping your application moving forward. If any issues come up during the process, they’ll work with the lender to resolve them quickly.
Most importantly, a broker can explain all your options clearly, helping you understand if a bitcoin-backed loan is the right choice for your needs. They’ll also be there throughout your loan term if you need advice about things like margin calls or early repayment.
Alternative options to consider
Before deciding on a crypto-loan, it’s worth looking at other ways you could access funds. Your best option will depend on what you need the money for, how quickly you need it and your overall financial situation.
If you need a smaller amount, some peer-to-peer lending platforms now accept cryptocurrency as security. These might work for loans under £100,000, though they often come with higher interest rates than traditional lenders.
Traditional options like mortgages, personal loans, or business finance might suit you better if you have a good income and credit history. These usually offer longer repayment terms and more predictable monthly payments.
If you have property then short term bridging loans can be used to raise capital quickly. Many bridging loans are set up using a second charge and we also have access to equitable charge loans.
Business owners might also consider asset finance or invoice finance as alternatives, particularly if you need ongoing access to funds rather than a one-off loan.
In Summary
Bitcoin-backed loans can be a smart way to access funds without selling your bitcoin holdings. They’re becoming more established in the UK, offering a genuine option for borrowers with significant crypto assets.
If you’re considering this route, start by working out exactly how much you need to borrow and for how long. Think carefully about how you’d handle any margin calls if bitcoin’s value falls. Make sure you understand all the costs involved and have a clear plan for repayments.
Your next step is to approach a specialist broker, like Bridging Finance London, who can explain your options in detail.
They’ll help you understand which lenders might be suitable and what terms you could expect. Look for a broker with experience in both cryptocurrency and traditional lending – they’ll be best placed to advise on your specific situation.
Remember, while bitcoin and crypto linked loans can be useful, they’re not right for everyone.
FAQ
Our lenders have a minimum loan size of £100,000 which requires a crypto value of at least £200,000.
These are short-term loans.
Bitcoin-backed loans usually range from 3 to 12 months, depending on the lender and your requirements. Some lenders offer revolving credit facilities.
Small fluctuations are fine.
However, if Bitcoin’s value falls below certain thresholds, you might receive a margin call requiring you to either add more Bitcoin as security or repay part of the loan early.
Your Bitcoin is held in secure cold storage by a licensed custodian until you repay the loan.
With all documentation ready, loans can be arranged in 5-7 days, sometimes faster.
Some lenders accept other major cryptocurrencies such as XRP and Ethereum, but Bitcoin remains the most widely accepted.
Read more: Can I Borrow Against My Cryptocurrency?
Cold storage means keeping your Bitcoin in a secure offline system, away from the internet.
When you take out a Bitcoin-backed loan, the lender will transfer your Bitcoin to cold storage – think of it like a high-security digital vault that hackers can’t access because it’s not connected to any networks.
Most lenders use specialist companies called custodians who provide this service. They store your Bitcoin on hardware devices kept in secure facilities with features like:
- 24/7 security monitoring
- Multiple layers of access control
- Insurance against theft or loss
- Regular security audits
- Backup systems in different locations
Cold storage is much safer than leaving Bitcoin in an online wallet or exchange. Your Bitcoin stays in cold storage until you’ve repaid your loan, at which point it’s transferred back to your wallet.
A margin call happens when Bitcoin’s value falls below a set threshold agreed in your loan terms.
For example, if you borrowed £100,000 against £200,000 of Bitcoin, your loan starts at 50% loan-to-value (LTV). If Bitcoin’s price drops and the LTV rises above the agreed limit (often around 65-70%), you’ll receive a margin call.
When this happens, you’ll need to either:
- Add more Bitcoin as security to bring the LTV back down
- Repay part of your loan early to rebalance the ratios
- Or in some cases, provide additional security in another form
Lenders will give you a set time to respond to a margin call, usually 24-48 hours. If you don’t take action, they can sell some of your Bitcoin to protect their position.
Yes, you can borrow against shares, gold and other valuable assets.
These are often called asset-backed loans or Lombard loans. They work in a similar way to Bitcoin-backed lending but with some key differences.
For shares, lenders usually accept stocks listed on major exchanges like the FTSE 100. You might be able to borrow up to 60-70% of your share portfolio’s value. The shares are held in a controlled account during the loan term.
For gold, lenders will accept both bars and coins, as long as they meet certain quality standards. The gold needs to be stored with an approved custodian during the loan.
The minimum loan amount for these types of lending usually starts from £100,000.
Altcoins are any cryptocurrencies other than Bitcoin – the name comes from ‘alternative coins’.
While some UK lenders accept major altcoins like Ethereum as loan security, most prefer Bitcoin because it has a longer history and more stable market.
If you want to borrow against altcoins, you’ll find:
- Fewer lenders willing to accept them
- Lower loan-to-value ratios compared to Bitcoin
- Higher interest rates to reflect increased risk
- More stringent security requirements
The most commonly accepted altcoins for loans are:
- Ethereum
- XRP
- Cardano
- Solana
- BNB
Read more: Can I Borrow Against My Cryptocurrency?
