Common Misconceptions About Bitcoin Loans
The Bitcoin lending market is full of confusion and misinformation.
Many people assume all Bitcoin loans work the same way, carry the same risks, or are designed for the same use cases. This page addresses the most common misconceptions and clarifies how different loan structures create fundamentally different risk profiles.
In Short
- Not all loans have margin calls: BTC-to-BTC loans eliminate margin call risk entirely.
- Liquidation isn't inevitable: Some loan structures make liquidation mathematically impossible.
- Selling isn't required: You can access Bitcoin liquidity without selling your stack.
- Loans aren't just for traders: Long-term holders can use loans strategically for capital efficiency.
"All Bitcoin Loans Have Margin Calls"
This is false. Not all Bitcoin loans trigger margin calls. The structure of the loan determines whether margin calls are possible.
The Myth
All Bitcoin-backed loans work the same way: you stake Bitcoin, receive a loan, and if Bitcoin price drops, you get margin calls demanding more collateral or repayment.
The Reality
Margin calls only occur when there's an asset mismatch: Bitcoin collateral + fiat loan = margin call risk. BTC-to-BTC loans (Bitcoin collateral + Bitcoin loan) eliminate this risk because both sides are the same asset.
Why This Misconception Exists
Most Bitcoin loan providers offer fiat-denominated loans (you receive USD/USDC). These create margin call risk because:
- Your collateral is Bitcoin (volatile)
- Your loan is fiat (stable)
- When Bitcoin price drops, your collateral value decreases but your loan amount stays the same
- This worsens your LTV ratio, triggering margin calls
The BTC-to-BTC Solution
BTC-to-BTC loans eliminate margin calls because both collateral and loan are Bitcoin. If Bitcoin's price changes, both sides move together—the LTV ratio stays constant. Learn why margin calls are impossible with BTC-to-BTC lending.
"Borrowing Against BTC Is Always Risky"
This depends on the loan structure. Some Bitcoin loans are high-risk, while others eliminate the primary risks entirely.
High-Risk Structures
Fiat-denominated loans:
- Liquidation risk (forced sales at 80-85% LTV)
- Margin call risk (price drops trigger demands)
- Counterparty risk (lender holds your collateral)
- Oracle risk (price feeds can be manipulated)
Risk Score: 29-66 (Medium to High) per Zone21
Low-Risk Structures
BTC-to-BTC loans:
- No liquidation risk (mathematically impossible)
- No margin calls (same asset on both sides)
- Reduced counterparty risk (you hold borrowed BTC upfront)
- No oracle dependency (no price-based triggers)
Risk Score: 10 (Low) per Zone21
Understanding Risk Context
The risk isn't inherent to "borrowing against Bitcoin"—it's inherent to specific loan structures. Learn how Bitcoin loans fail and compare different loan alternatives to understand which structures eliminate which risks.
"You Must Sell BTC to Access Liquidity"
This is false. You can access Bitcoin's value without selling your original stack through BTC-to-BTC lending.
Traditional Approach: Selling
- Trigger capital gains tax on original stack
- Lose your Bitcoin position entirely
- Start over with higher cost basis if re-entering
- Miss future appreciation on sold coins
BTC-to-BTC Lending Approach
- Keep your original Bitcoin stack intact
- Receive borrowed BTC (95% LTV) upfront
- Sell borrowed BTC if needed (current cost basis)
- Repay in BTC after 12 months or roll annually
- Reclaim your original stack when repaid
Example: Access Liquidity Without Selling
Scenario: You have 10 BTC (bought at $10k) worth $1M at current prices. You need $950k for an investment opportunity.
Traditional approach: Sell 9.5 BTC. Trigger capital gains on $900k+ profit. Lose your original position.
BTC-to-BTC approach: Stake 10 BTC, receive 9.5 BTC loan. Sell the borrowed 9.5 BTC (current cost basis). Your original 10 BTC stack remains untouched. Repay 10 BTC later to reclaim your position.
The Key Difference
BTC-to-BTC lending lets you access liquidity by selling borrowed Bitcoin (current cost basis) instead of low-cost-basis Bitcoin from your original stack. Learn how to access liquidity without selling.
"Loans Are Only for Traders"
This is false. While some loan products are designed for traders, BTC-to-BTC lending is specifically designed for long-term holders seeking capital efficiency.
Not For Traders
BTC-to-BTC lending is not designed for:
- Short-term leverage or day trading
- Quick speculation on price movements
- Active trading strategies
- Margin trading or high-frequency strategies
The 5% upfront fee and 12-month minimum term don't make sense for short-term trading.
For Long-Term Holders
BTC-to-BTC lending is designed for:
- Long-term Bitcoin holders (thinking in years, not days)
- Terminal Bitcoiners who've reached accumulation limits
- Strategic investors with clear deployment plans
- Those seeking capital efficiency without selling
No margin calls or liquidation risk aligns with long-term holding philosophy.
Understanding the Fit
BTC-to-BTC lending is built for conviction Bitcoiners, not traders. See how long-term holders use this strategy and learn who this is designed for.
Frequently Asked Questions
Do all Bitcoin loans have the same risks?
No. Loan structure determines risk. Fiat-denominated loans (Bitcoin collateral + USD loan) create margin call and liquidation risk. BTC-to-BTC loans (Bitcoin collateral + Bitcoin loan) eliminate these risks because both sides are the same asset.
Can I avoid margin calls with Bitcoin loans?
Yes. BTC-to-BTC loans eliminate margin calls entirely. Since both collateral and loan are Bitcoin, price changes don't affect the LTV ratio. Margin calls are mathematically impossible with this structure.
Is liquidation risk unavoidable with Bitcoin loans?
No. Liquidation risk exists in fiat-denominated loans but is eliminated in BTC-to-BTC loans. Because both sides are Bitcoin, the LTV ratio stays constant regardless of price movements, making liquidation impossible.
Do I need to sell Bitcoin to access its value?
No. With BTC-to-BTC lending, you can access liquidity by borrowing Bitcoin and selling the borrowed amount (current cost basis) instead of selling your original low-cost-basis stack. Your original Bitcoin remains intact.
Are Bitcoin loans only for active traders?
No. While some loan products target traders, BTC-to-BTC lending is specifically designed for long-term holders seeking capital efficiency. The structure (no margin calls, no liquidations) aligns with long-term holding philosophy, not short-term trading.
Want to see how this would work for you?
Model your scenario using the calculator, or review how the structure works before deciding if it's appropriate.
Important: Loan My Coins acts solely as an introducer. All loans and agreements are entered into directly with an independent loan provider. We do not provide financial advice. This page is for educational purposes only.