How to Get a Bitcoin Loan
[Disclaimer: Ledn is a sponsor]
I’ve been a HODLer of Bitcoin since 2012. Not a perfect one, but I did my best.
In the early days, HODLers thought it would be incredible if Bitcoin just survived. The idea that it could actually become Gold 2.0 or a world reserve currency almost seemed impossible. Now that we’re on the cusp of that happening, the question is now “I’ve got all this wealth, what do I do with it now?” For a HODLer, we’ve been conditioned to HODL no matter the volatility, FUD, and market conditions. So for us, the idea of selling is hard to imagine.
So 3 years ago, I began my journey exploring how to never sell my Bitcoin.
Note that there are no strategies that are risk-free, including HODLing! But I’ll try my best to lay out the risk/reward in the below-borrowing strategy.
You can also lend out your Bitcoin. If you want to read more about that, please check out my previous newsletter where I explore the topic extensively.
Why would you do this?
If you don't want to sell, you can tap into the appreciated value of your Bitcoin by taking out a loan against it.
Essentially you post Bitcoin as collateral, and the lender gives you another asset (dollars). The lender will charge you interest (payment is interest only) and hold your Bitcoin as collateral for the duration of the loan (which can be paid back early).
It requires no credit checks, and funding can happen super quickly.
Now there are tons of risks that come with this that I’ll cover later.
How do you do it?
It’s pretty easy. It literally only takes a few minutes. There are a bunch of providers out there, but I prefer Ledn because they’re one of the few to be Bitcoin-only (which reduces risk. For example, some platforms had Terra exposure) and have undergone a “Proof of Reserves” which is a 3rd party validation that verifies they have all of their Bitcoin.
Create an account at Ledn ($25 bonus for signing up)
Fill out the application. You’ll need:
Copy of your government-issued identification document
Copy of your proof-of-address document
Image of you holding your government-issued ID
Bank account details for funding
Deposit your Bitcoin
Here’s what the loan calculator looks like where you can play around with various funding amounts and loans.
Some other information that you should know:
Loans are funded within 24 hours of approval
Pay off your loans at any time without penalties
No monthly payments are required. Interest is paid at the end of the loan
All interest expenses for the loan may be tax-deductible
When the bitcoin collateral is not lent out by Ledn to institutional borrowers, it is stored at BitGo
You can also get a mortgage using your Bitcoin as collateral, check out their mortgage page for more information!
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While the above may sound like an amazing way to tap into the value of your Bitcoin, there are some substantial risks involved:
Maintaining a healthy LTV (Loan-to-value) ratio: If you don’t collateralize the loan enough if there is a dip the collateral will be liquidated. For example, if you borrowed $50k in USD using $100k worth of Bitcoin as collateral, if Bitcoin’s price falls to a certain level designated by the lender you’ll get a “Margin Call” which means you have to either pay down the loan or post more collateral, otherwise you’ll be liquidated. This is the most important thing to consider when borrowing against your Bitcoin. The co-founder of Ledn had a great blog post on how to monitor and fix this if you do get margin called.
Servicing the debt: You’ll need to be able to pay an 8-10% interest rate at the end of the loan term.
Custody: The lender will custody your Bitcoin for the entire duration of the loan, which means if they get hacked or have an accident, you could lose your Bitcoin. In Ledn’s circumstance, if BitGo (their custodian) got hacked, your funds would be at risk.
Tax: If you get liquidated, and you’ve already spent the loan on something else, then you could be stuck with a large tax bill and not have the ability to pay it!
Borrowing against your Bitcoin is one tool in a tool chest of various financial transactions you can do with your Bitcoin.
I’ve personally used Ledn for earning a yield on my Bitcoin, and have borrowed against my Bitcoin from 2019-2021 without getting margin called :)
If you’re still considering creating an account, if you sign up with the button below you get a $25 bonus!
If you’re a paid subscriber, check the top of this e-mail for the link to your voting form. I’m not a financial expert. Consult an expert before engaging in financial decisions.