Bitcoin-Backed Loans: Borrow Against Your BTC to Buy More
Bitcoin-backed loans let you access USD liquidity without selling your Bitcoin. You deposit BTC as collateral, receive a loan, and get your Bitcoin back when you repay. For committed Bitcoiners, this means never having to sell — and avoiding capital gains tax events. The most aggressive version of this strategy is recursive leverage: borrowing against BTC to buy more BTC, then borrowing against that, creating layered exposure.
The risk is liquidation. If Bitcoin drops enough that your loan-to-value ratio exceeds the lender's threshold, your collateral is sold. This page covers how Bitcoin-backed loans work, the math behind LTV ratios and liquidation levels, and when recursive leverage makes sense. Model your own position with SaylorScope.
How Bitcoin-Backed Loans Work
Platforms like Unchained Capital operate as custodial or multi-signature lenders. You transfer Bitcoin to a shared custody arrangement and receive a USD loan based on your chosen loan-to-value (LTV) ratio. Common LTV options are 40%, 50%, and 60%. A lower LTV means less borrowed cash but a larger price buffer before liquidation.
Loan terms are typically 12 months, renewable, with interest paid monthly or quarterly. At the end of the term, you repay the principal and reclaim your Bitcoin. If you cannot repay, the lender sells enough Bitcoin to cover the outstanding balance.
The recursive leverage play works like this: deposit 1 BTC, borrow $50,000 at 50% LTV, buy 0.5 BTC with the proceeds, deposit that 0.5 BTC, borrow $25,000, buy 0.25 BTC, and so on. After several rounds, you control significantly more Bitcoin than you started with — but a drawdown affects every layer. This is a high-conviction, high-risk strategy.
Break-Even CAGR & Liquidation Levels
For Bitcoin-backed loans used to buy more Bitcoin, the break-even is the CAGR needed for your Bitcoin appreciation to exceed the loan interest cost. The table also shows how far Bitcoin can drop before liquidation at each LTV.
| Initial LTV | Loan Rate | BTC Drop to Liquidation | CAGR Needed (5yr) | CAGR Needed (10yr) |
|---|---|---|---|---|
| 40% | 10% | ~43% drop | ~25% | ~16% |
| 50% | 11% | ~29% drop | ~27% | ~17% |
| 50% | 13% | ~29% drop | ~30% | ~19% |
| 60% | 12% | ~17% drop | ~29% | ~18% |
| 60% | 14% | ~17% drop | ~32% | ~20% |
Liquidation threshold assumed at 70% LTV. Actual thresholds vary by lender. Recursive leverage compounds both the upside and downside of these numbers.
Pros and Cons
Advantages
- +Never sell your Bitcoin — avoid taxable capital gains events
- +No home or traditional assets at risk — only your BTC collateral
- +Recursive leverage can dramatically amplify BTC exposure
- +Multi-signature custody options reduce counterparty risk
- +No credit check required — loan is secured by Bitcoin
Risks
- -Liquidation risk — a price drop can force-sell your Bitcoin
- -Higher rates than home equity products (8-14% typical)
- -Short loan terms (often 12 months) require renewal or refinancing
- -Counterparty risk — your Bitcoin is held by the lender
- -Recursive leverage cascades losses across all layers during drawdowns
Risk Analysis: Liquidation Cascade
The primary danger of Bitcoin-backed loans is a liquidation cascade during a bear market. Consider a recursive position: you start with 2 BTC at $100,000/BTC ($200,000), borrow $100,000 at 50% LTV, buy 1 more BTC, borrow $50,000 against that, buy 0.5 BTC. You now control 3.5 BTC with $150,000 in loans.
Bitcoin at $100,000: 3.5 BTC = $350,000 collateral, $150,000 loans. Average LTV: 43%. Healthy.
Bitcoin drops to $70,000 (-30%): 3.5 BTC = $245,000. LTV: 61%. Approaching liquidation threshold on the highest-LTV layer.
Bitcoin drops to $60,000 (-40%): 3.5 BTC = $210,000. LTV: 71%. Multiple layers in liquidation. Lender sells BTC to cover loans, leaving you with significantly less Bitcoin than you started with.
Net result: You started with 2 BTC and ended up with perhaps 0.5-1 BTC after liquidation, despite Bitcoin still trading at $60,000. The leverage amplified losses.
Frequently Asked Questions
How do Bitcoin-backed loans work?
You deposit Bitcoin as collateral with a lending platform (such as Unchained Capital) and receive a USD loan in return. The loan-to-value (LTV) ratio determines how much you can borrow relative to your Bitcoin value. At 50% LTV, depositing $200,000 in Bitcoin gets you a $100,000 loan. You pay interest on the loan and get your Bitcoin back when you repay. If Bitcoin's price drops enough that your LTV exceeds the liquidation threshold (often 70-80%), the lender can sell some or all of your Bitcoin to cover the loan.
What is the liquidation risk on a Bitcoin-backed loan?
Liquidation occurs when your LTV ratio exceeds the lender's maximum threshold due to a Bitcoin price decline. For example, at 50% initial LTV with a 70% liquidation threshold, a ~30% Bitcoin price drop triggers liquidation. At 40% initial LTV, Bitcoin would need to drop ~43% before liquidation. Choosing a lower initial LTV gives you more buffer against drawdowns, but you receive less cash. SaylorScope stress-tests drawdowns up to 80% to help you find the right LTV for your risk tolerance.
What is the recursive Bitcoin leverage strategy?
Recursive leverage means using a Bitcoin-backed loan to buy more Bitcoin, then using that additional Bitcoin as collateral for another loan, and so on. Each loop gives you less additional exposure (because you lose some to the LTV ratio), but the cumulative effect can significantly amplify your Bitcoin position. The danger is that a price decline hits all layers simultaneously. A 40% Bitcoin drawdown could liquidate multiple loan layers, cascading losses. This is an advanced strategy with high risk.
What interest rates do Bitcoin-backed lenders charge?
Rates typically range from 8-14% depending on the lender, LTV ratio, and loan term. Unchained Capital has offered rates around 12-14% for standard loans. Some platforms offer lower rates for lower LTV ratios or longer commitment periods. These rates are higher than home equity products but come with the advantage of not putting your home at risk. The collateral is Bitcoin itself.
Should I use a Bitcoin-backed loan or sell Bitcoin to raise cash?
If you believe Bitcoin will appreciate significantly, a loan lets you access liquidity without creating a taxable event (selling triggers capital gains tax). The loan interest is the cost of deferring that tax event. If your Bitcoin has large unrealized gains, the tax savings alone can make the loan worthwhile. However, if you need cash and cannot tolerate the liquidation risk, selling may be the safer choice. SaylorScope can model both approaches against your tax situation and growth expectations.
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Disclaimer: This content is for informational and educational purposes only. It is not financial, investment, tax, or legal advice. Bitcoin-backed loans carry significant risk including potential loss of your Bitcoin collateral through forced liquidation. Always consult a qualified financial advisor before taking on leverage. Past performance does not guarantee future results.