Bitcoin-backed loans use actual Bitcoin as collateral. Margin loans use Bitcoin ETF shares. Rate, custody risk, and liquidation mechanics differ significantly — here's how to choose.
If you hold Bitcoin and need cash without selling, you have two main options: a Bitcoin-backed loan (from specialized lenders) or a margin loan (from your brokerage against ETF or equity positions). Both let you borrow against your holdings — but they're very different products with different risk profiles.
Bitcoin-backed loans use your actual Bitcoin as collateral. You send Bitcoin to the lender's custody (or a multisig arrangement), receive USD, and repay over the loan term. If Bitcoin's price falls below a threshold, the lender liquidates your collateral.
Providers: Ledn, Unchained Capital, Nexo, Coinbase, Debifi
Typical terms:
A margin loan uses your brokerage assets (stocks, ETFs, bonds) as collateral. If you hold Bitcoin ETFs like IBIT or FBTC, you can margin against them. Brokerages extend credit based on the value of your portfolio.
Providers: Interactive Brokers, TD Ameritrade, Schwab, Fidelity
Typical terms:
| Feature | Bitcoin-Backed Loan | Margin Loan (ETF) |
|---|---|---|
| Collateral | Actual Bitcoin | Bitcoin ETF shares |
| Interest rate | 6.9-14% | 5-10% |
| LTV limit | 20-50% | 30-50% |
| Term | Fixed (3-36 months) | Open (no fixed term) |
| Self-custody possible | Yes (some lenders) | No |
| ETF/account access | Keep wallet | ETF pledged |
| Custody risk | Lender holds BTC (usually) | Broker holds ETF |
| Tax on collateral | No taxable event | No taxable event |
| Liquidation | Explicit threshold | Maintenance margin call |
| Speed | 1-5 business days | Same day |
In the current environment (early 2026):
Bitcoin-backed loans: 6.9-14% APR. Nexo's lowest tier is 6.9% (with loyalty tokens). Coinbase is 8% flat. Unchained and Ledn are 9-14%.
Margin loans at brokerages: Typically 6-9% for mid-tier balances. Interactive Brokers often has the lowest margin rates in the industry (~5-6% in recent years).
Winner on rate: Margin loans from discount brokerages are typically cheaper, especially at Interactive Brokers. However, you need to hold Bitcoin ETFs rather than actual Bitcoin.
Bitcoin-backed loans: Most lenders hold your actual Bitcoin in their custody during the loan. If the lender fails (exchange bankruptcy), your collateral is at risk. Exceptions: Unchained and Debifi use collaborative multisig where no single party controls your Bitcoin.
Margin loans: Your Bitcoin ETF shares are pledged to the broker. The broker is a regulated US institution. ETF shares are protected by SIPC (up to $500,000 for securities). The counterparty risk is lower than most Bitcoin lenders.
Self-custody consideration: Bitcoin-backed loans let you borrow against actual Bitcoin you own. With a margin loan, you must convert to an ETF first — giving up direct Bitcoin ownership.
Both products liquidate your collateral if prices fall far enough. The question is how much buffer you have:
Bitcoin-backed loan at 30% LTV: Bitcoin must fall 62.5% before hitting an 80% LTV liquidation threshold.
Margin loan at 30% LTV on IBIT: IBIT tracks Bitcoin directly. A 62.5% Bitcoin price decline would trigger the same liquidation threshold (maintenance margin of ~25% for equity).
The liquidation risk is similar in percentage terms — because both track Bitcoin's price. The difference is in the notification and response time:
Bitcoin lenders typically send multiple margin call warnings before liquidating. Terms are clearly defined.
Margin loans can be called quickly. Brokers may execute portfolio liquidation with limited notice if the account drops below maintenance margin.
Both approaches avoid triggering a taxable Bitcoin sale:
However: if your lender liquidates your Bitcoin collateral due to a margin call, that is a taxable event (the lender sold your Bitcoin at market price). Same for margin loan forced liquidation of ETF shares.
Choose Bitcoin-backed loan if:
Choose margin loan if:
Margin loans from discount brokerages (especially Interactive Brokers) typically have lower rates (5-7%) than Bitcoin-backed loans (7-14%). If you hold Bitcoin ETFs, margin borrowing is usually cheaper.
No. Using Bitcoin as loan collateral is not a taxable event. Only if the lender liquidates your Bitcoin (margin call) does a taxable sale occur.
Generally no. IRA accounts typically cannot use margin. Bitcoin-backed loans are available regardless of account type.
At 30% LTV, a 50% Bitcoin price decline raises LTV to 60% — still below most lenders' liquidation thresholds. You'd likely receive a margin call (requiring additional collateral or partial repayment) but not immediate liquidation. At 50% initial LTV, a 50% decline would push LTV to 100% and trigger liquidation.
Compare all Bitcoin loan options in our Bitcoin Loan Directory. See also: Bitcoin Loan Interest Rate Comparison and Bitcoin Loan LTV Guide.
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