Tap That BTC

The guides

From Shallow Water to Deep

Start at the top with how the loans work, then where to borrow, then the risks. The marks you have read are filled in.

Shallow waterBorrowing BasicsHow bitcoin-backed loans work, loan-to-value and liquidation lines, interest and fees, and borrowing versus selling.
  1. Mark 01 · 5 min readHow Bitcoin-Backed Loans Work: Borrowing Without Selling

    A bitcoin-backed loan lets you borrow dollars or a dollar stablecoin while your bitcoin sits as collateral. How the loan is set up, who holds the coins, why there is usually no credit check and no fixed schedule, and the one rule that decides everything: the loan-to-value ratio.

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  2. Mark 02 · 4 min readLoan-to-Value and Margin Calls: The Ratio That Decides Your Loan

    Loan-to-value (LTV) compares what you owe with what your collateral is worth, and it moves every time bitcoin’s price does. How LTV is calculated, the warning bands Coinbase publishes for an 86% liquidation threshold, worked examples at three loan sizes, and why onchain loans skip the old-style margin call.

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  3. Mark 03 · 4 min readInterest Rates on Crypto Loans: Variable, Fixed and the Fees on Top

    What you actually pay to borrow against bitcoin: variable rates set by an onchain market, fixed rates with a maturity date, processing and platform fees, and how interest feeds back into your loan-to-value. Why a headline rate is not the full cost, and why yields promised to crypto depositors in 2022 deserved suspicion.

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  4. Mark 04 · 4 min readCrypto Loans vs Selling Bitcoin: Comparing the Two Ways to Raise Cash

    Selling bitcoin is a taxable disposition with a known result; borrowing against it postpones the sale but adds interest, fees and liquidation risk. A side-by-side comparison using IRS rules and Coinbase’s published loan terms, three situations where each choice tends to fit, and the outcome that combines the worst of both.

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Open waterWhere to BorrowCoinbase’s loans from its own terms, centralized versus onchain lenders, how to compare lenders and who holds your collateral.
  1. Mark 05 · 4 min readCoinbase Bitcoin-Backed Loans: How They Work, From Coinbase’s Own Terms

    A plain reading of Coinbase’s published terms for its crypto-backed loans: USDC borrowed through the Morpho protocol, bitcoin converted to cbBTC as collateral, variable and fixed rates, the 86% liquidation line and 4.38% penalty, loan protection, availability outside New York, and what Coinbase itself lists as the risks. Not an endorsement.

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  2. Mark 06 · 4 min readCentralized vs DeFi Crypto Lending: Who Holds the Collateral

    Crypto loans come in two shapes: a company that takes your coins into its own custody, and an onchain protocol where a smart contract holds the collateral and liquidates it automatically. What each model protects you from, what it exposes you to, and what the 2022 failures and today’s onchain products show about both.

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  3. Mark 07 · 4 min readHow to Compare Crypto Lenders: A Checklist Built From Regulators’ Warnings

    Rates are the last thing to compare. A checklist for any crypto lender drawn from SEC, FTC, CFTC and FinCEN material: who holds the collateral and whether it is lent out, the liquidation rules, every fee, registration, insurance claims, proof-of-reserves claims, availability in your state, and how you get your bitcoin back.

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  4. Mark 08 · 4 min readCustody and Rehypothecation: What Happens to Your Collateral

    When you pledge bitcoin for a loan, someone holds it. Custody explained from the SEC’s bulletin: self-custody versus a third party, commingling, rehypothecation (a lender using your collateral for its own purposes), how wrapped bitcoin and smart contracts change the picture, and what to ask before your coins leave your wallet.

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Deep waterRisks & RulesLiquidation, taxes on crypto-backed loans, what the 2022 lender bankruptcies showed and the scams to avoid.
  1. Mark 09 · 4 min readLiquidation Risk Explained: What Happens When Your Collateral Is Sold

    Liquidation is the forced sale of your collateral when a crypto loan’s loan-to-value crosses its threshold. How it is triggered, what the penalty costs, why it can happen faster and worse than expected, how loan protection and fixed-rate maturity change the picture, and the habits that keep a loan far from the line.

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  2. Mark 10 · 4 min readTaxes on Crypto-Backed Loans: What the IRS Rules Say and Don’t Say

    Borrowing against bitcoin is not a sale, but several things around the loan can be. What IRS digital asset rules cover, what they do not address, how a liquidation is a disposition with a gain or loss, the role of wrapped bitcoin, Form 1099-DA and Form 8949, the Form 1040 digital asset question, and the records to keep. Not tax advice.

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  3. Mark 11 · 4 min readLessons From Crypto Lender Bankruptcies: Celsius, Voyager and BlockFi

    In 2022 crypto lenders that promised bank-like safety froze withdrawals and filed for bankruptcy. What regulators later said happened at Celsius and Voyager, what the SEC found about BlockFi’s lending product, what customers lost, and the warning signs a borrower or depositor can check for today.

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  4. Mark 12 · 4 min readCrypto Loan Scams to Avoid: Fake Lenders, Advance Fees and Promised Yields

    Scams around crypto loans borrow the look of real lenders. The patterns regulators describe: fake platforms that take your collateral, advance fees demanded in crypto, guaranteed returns for lending your bitcoin, impersonators of real companies, and romance-driven investment pitches. The red flags, and where to report.

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Before you cast off

Five Checks Before You Borrow

Tick these off before any bitcoin leaves your wallet.

  1. Know your liquidation price

    Loan-to-value is what you owe divided by what your collateral is worth. On Coinbase, a bitcoin loan is liquidated if it reaches 86%, with a 4.38% penalty. Work out the bitcoin price that triggers it. More in Loan-to-Value and Margin Calls: The Ratio That Decides Your Loan.

  2. Borrow far below the maximum

    In our example, a loan that starts at 20% LTV survives a drop of about 77% in bitcoin’s price; one that starts at 70% survives about 19%. More in Liquidation Risk Explained: What Happens When Your Collateral Is Sold.

  3. Find out who holds the collateral

    The SEC warns that some custodians use deposited crypto as collateral for their own purposes, a practice called rehypothecation. More in Custody and Rehypothecation: What Happens to Your Collateral.

  4. Count every cost

    Interest, fees added to the principal and any platform fee in the rate. On Coinbase, a processing fee is charged each time you borrow and interest accrues on it. More in Interest Rates on Crypto Loans: Variable, Fixed and the Fees on Top.

  5. Keep the records

    A liquidation is a sale, and the IRS treats a sale of digital assets as a disposition with a gain or loss. Keep the purchase records for pledged bitcoin. More in Taxes on Crypto-Backed Loans: What the IRS Rules Say and Don’t Say.

Harbor notices

Questions From the Dock

Short answers from lenders’ terms and regulators’ records, each with the guide that goes further.

Does Coinbase lend against bitcoin?

Yes. Coinbase offers USDC loans with crypto as collateral through the Morpho onchain lending protocol, to verified customers in the U.S. excluding New York, with limited access in the UK and Canada. See Coinbase Bitcoin-Backed Loans: How They Work, From Coinbase’s Own Terms.

Is a crypto-backed loan a taxable event?

Coinbase says it will not treat the borrow transaction as a taxable event, but the IRS virtual currency FAQ does not address loans. A liquidation sells collateral, which is a disposition. See Taxes on Crypto-Backed Loans: What the IRS Rules Say and Don’t Say.

Do I get a margin call before liquidation?

Not necessarily. Coinbase emails when a loan enters its Danger band and says it cannot prevent collateral from being liquidated on Morpho. See Loan-to-Value and Margin Calls: The Ratio That Decides Your Loan.

Are there monthly payments?

On Coinbase’s variable-rate loans, no: there are no due dates or minimum payments, but interest keeps accruing. Fixed-rate loans must be repaid in full by maturity. See Interest Rates on Crypto Loans: Variable, Fixed and the Fees on Top.

Is my collateral insured?

Do not assume so. The FTC says the FDIC does not insure crypto assets at all, and it charged Voyager with falsely claiming customers’ dollars were FDIC insured. See How to Compare Crypto Lenders: A Checklist Built From Regulators’ Warnings.

What happened to Celsius borrowers and depositors?

The CFTC says Celsius froze withdrawals on June 12, 2022 and filed for bankruptcy on July 13, 2022. Customers became claimants in the bankruptcy. See Lessons From Crypto Lender Bankruptcies: Celsius, Voyager and BlockFi.

Should I borrow or sell?

It depends on your tax position, how quickly you can repay and how far the loan is from liquidation. Selling is a taxable disposition; borrowing adds interest and the risk of a forced sale. See Crypto Loans vs Selling Bitcoin: Comparing the Two Ways to Raise Cash.

Someone wants a fee in crypto before releasing my loan. Is that normal?

No. The FTC says no legitimate business is going to demand you send cryptocurrency in advance; that is always a scam. See Crypto Loan Scams to Avoid: Fake Lenders, Advance Fees and Promised Yields.