Bitcoin Loans: How to Secure a Collateralized BTC Loan

Bitcoin loans let you unlock liquidity without selling your holdings. By using assets like Runes, Ordinals, or BRC-20 tokens as collateral, you can borrow BTC while maintaining exposure to the upside of your portfolio.

In this guide, we’ll break down what bitcoin loans are, how they work, and how you can borrow bitcoin on Liquidium.

What Are Bitcoin Loans?

Bitcoin loans are lending agreements where you borrow bitcoin, typically against collateral in the form of other digital assets. 

Depending on the loan provider, it can be short-term loans for a few days or longer-term loans, usually for up to 12 months. Interest rates also depend on the loan provider and the asset you’re borrowing against and can be up to 10% or more.

Also, there are bitcoin-backed loans, meaning that you’re borrowing fiat money, stablecoins, or other cryptoassets against your bitcoin. Some BTC lending platforms even allow you to use your bitcoin as collateral to increase your bitcoin stash. 

Alternatively, if you already have bitcoin and want to earn yield on your BTC, you can lend them and earn interest. 

Types of Bitcoin Loans

Bitcoin loans generally come in two forms: collateralized and uncollateralized. 

Collateralized Bitcoin Loans

When securing collateralized bitcoin loans, you offer assets as collateral and get a loan in return. Bitcoin loans are usually overcollateralized, which means that the value of your collateral is going to be higher than the loan you get. In either case, if you repay it on time, you get your collateral back safe and sound. If you don’t, you lose it.

Uncollateralized Bitcoin Loans

Uncollateralized bitcoin loans are much rarer because lenders take on significant risk. Interest rates tend to be quite high on these types of bitcoin loans, and they are generally reserved for institutions as opposed to individuals. 

How Do Collateralized Bitcoin Loans Work?

Collateralized BTC loans are pretty straightforward: you lock up your collateral, get a loan, pay it back (plus interest), and reclaim your assets. For instance, on Liquidium, you can use Ordinals, Runes, and BRC-20 tokens as collateral to borrow bitcoin instantly. 

Here’s how the process typically takes place:

Pick your loan provider

Some lenders are centralized (CeFi), others decentralized (DeFi), so take your time, do some due diligence, and choose wisely, taking into account the factors like security, reputation, loan terms, fees, supported assets, customer support, regulatory compliance, etc.

Deposit your collateral

Once you’ve picked out a platform, you’ll need to accept a loan and lock your asset into a smart contract or an escrow wallet, depending on which platform you’ve chosen, as collateral.

Receive your loan

After locking your collateral, the lender then releases your bitcoin loan. 

Repay the loan plus interest

Stick to the schedule when repaying your loan (alongside interest) in line with the lender’s terms, and you have nothing to worry about.

Get your collateral back

With the loan repaid in full (including interest), you’ll get your collateral right back where it belongs–in your hands.

Pros & Cons of Bitcoin Loans

Lending bitcoin can be a great way to access liquidity, but there are also risks involved as a borrower. Let’s look at the pros and cons of taking out a bitcoin loan. 

Pros

• Liquidity without selling: Using your assets, such as Runes, Ordinals, BRC-20s, as collateral allows you to get BTC when you need it without selling any assets.

• Tax advantages: Borrowing against your assets instead of selling them lets you avoid a taxable event, as a loan isn’t considered income. However, this might depend on your jurisdiction, and you should check with a tax advisor if you decide to choose this route.

• Flexible repayment options: Many platforms offer customizable loan terms that suit your needs, from short-term to long-term options with varying interest rates.

• Put option: Borrowing on Liquidium can also been considered as a put option against volatile market. Because you pay interest (which acts as the options premium) and have the option to default the underlying assets. 

Cons

• Liquidation risks: If the price of your collateral drops sharply before you’re ready to repay your debt, you might lose your collateral.

• Interest costs: Borrowing bitcoin comes with a price, and that’s the interest you pay. The required interest will vary from loan to loan.

• Platform risk: Always do your own research (DYOR) before trusting any lender. Make sure you are only using reputable platforms to secure bitcoin loans. 

How to Secure a Collateralized BTC Loan on Liquidium

You can use Liquidium to unlock instant BTC liquidity by following these simple steps:

Head to Liquidium’s website

Access Liquidium’s website in your browser and launch the app. 

Connect your wallet

Liquidium supports multiple wallets, so take your pick between Xverse, Phantom, Magic Eden, OKX, and others and connect them to the platform.

Find your collateral

Click on ‘Borrow’ in the top left corner of the page and find your collateral. Liquidium allows you to borrow against Ordinals, Runes, or BRC-20 tokens. 

If you’re looking to borrow against your Runes, you can use the Instant Loans feature to streamline your borrowing experience and get the loan faster. If you prefer the custom loans procedure or would like to use your Ordinals or BRC-20s as collateral, you can still use the ‘Manual’ loans process.

Browse loan offers

You’ll see different loan terms with varying interest rates and LTV ratios. Select the one that is most in line with your borrowing needs.

Confirm and submit collateral

Once you've decided on a loan, lock your collateral up in Liquidium’s smart contract.

Receive your loan

After confirming, you’ll get your bitcoin loan, depending on the terms you’ve agreed.

Repay the loan and retrieve your collateral

Pay back what you owe, plus interest, and get your Ordinals, Runes, or BRC-20s back.

And there you have it! 

You’ve successfully used a bitcoin loan without selling your assets.

Access Instant Bitcoin Liquidity on Liquidium

With bitcoin loans on Liquidium, you get instant liquidity for your needs without losing your accumulated assets. 

With Liquidium, collateralized bitcoin loans are effortless and fast, both for traders looking for some quick liquidity and long-term holders of Runes, Ordinals, or BRC-20s, who are not willing to sell it.

Access Liquidium today and unlock instant BTC liquidity.

Disclaimer: This article does not constitute financial advice, and we strongly recommend conducting your own research and consulting with a professional financial advisor before making any investment decisions. We are not liable for any potential losses incurred from applying the strategies discussed. Proceed with caution and at your own risk.

FAQs

Can I get a bitcoin loan? 

If you’re looking for a collateralized bitcoin loan and have the required collateral, yes, you can get a bitcoin loan. For example, platforms like Liquidium offer bitcoin loans against Ordinals, Runes, and BRC-20 tokens, providing quick and simple access to liquidity without forcing you to get rid of these assets.

Which app can I use to borrow bitcoin?

It mostly depends on the collateral you can use for your bitcoin loans, as there are plenty of apps in this market. If you’re looking to borrow BTC against your Ordinals, Runes, or BRC-20s, then look no further than Liquidium.

What is the interest rate on a bitcoin loan?

Interest rates on bitcoin loans can vary from one platform to another and may depend on different loan terms, such as loan-to-value (LTV) ratios and collateral. In some cases, you can get a BTC loan with up to 10% interest rates but it can also be higher than that.

Which platform can I use for instant bitcoin loans?

If you’re in a hurry, Liquidium’s Instant Loans are there for you. Designed to make the borrowing process as quick as possible, it’s a great option for anyone in need of bitcoin liquidity ASAP.

Can I borrow bitcoin without collateral?

Yes. However, tracking down an uncollateralized bitcoin loan is easier said than done. While lenders in these cases do exist, they usually charge high interest rates to offset the risk. Also, they are typically tailored towards institutional lenders, not individuals. Hence, collateralized BTC loans remain the most accessible way for most users.