Crypto-Backed Loans Explained: Get Cash Without Selling Your Bitcoin

Imagine you own Bitcoin but need cash — and you don't want to sell your coins because you believe they'll rise in value. A crypto-backed loan could be the answer.

What is a crypto-backed loan? It's a loan where you use your cryptocurrency (digital money like Bitcoin) as collateral (something valuable you pledge to guarantee you'll repay). If you don't repay, the lender can take that crypto. This way, you get cash while still keeping ownership of your coins.

One company offering this is Figure Lending. Here are the key numbers from their example:

• Interest rate: 8.91% to 11.50%, depending on how much you borrow against your crypto.
• APR (Annual Percentage Rate — the yearly cost of the loan including fees): up to 12.62%.
• Origination fee (a one-time upfront charge for setting up the loan): 1% of the loan.
• Loan term: 12 months.

A quick example: Borrow $10,000 at a 50% LTV (Loan-to-Value ratio — how big the loan is compared to your crypto's value). You'd pay a $100 fee and make 12 monthly payments of about $74.25.

Watch out for these risks:

• If your crypto's value drops too much, the lender may liquidate (sell) your coins to protect their money. This is called a margin call.
• Some states offer "liquidation protection," but it doesn't cover missed payments.
• Taxes: Borrowing usually isn't taxed, but if your crypto gets liquidated, the IRS treats it as a sale — which can create a tax bill.

This product isn't available everywhere. In the U.S., it's blocked in states like Texas, Illinois, and Maryland, plus many countries worldwide.

Bottom line: Crypto-backed loans let you unlock cash while holding onto your Bitcoin, but they carry real risks — especially if crypto prices fall. Always read the fine print and consider talking to a financial advisor first.

This is an AI-generated summary. Read the original article at: https://decrypt.co/375428/crypto-backed-loans-explained-how-to-unlock-cash-without-selling-your-bitcoin