Bitcoin-Backed Loans Make Comeback from Coinbase

Cryptocurrency exchange Coinbase has reintroduced Bitcoin-backed loans in the US nearly two years after discontinuing its Borrow service.

This launch comes as Bitcoin surges to new highs, offering users a way to leverage their holdings without selling.

The new offering allows US account holders—excluding New York residents—to borrow up to $100,000 in USDC using Bitcoin held on Coinbase as collateral.

Loans require a 133% collateralisation ratio, with variable interest rates determined by Morpho based on market conditions.

There are no fixed repayment schedules, provided borrowers maintain a healthy loan-to-value ratio.

To facilitate lending, Coinbase has partnered with Morpho Labs, operating entirely on Base, its Ethereum layer-2 network.

Bitcoin collateral is converted into cbBTC, a wrapped asset designed to integrate seamlessly with decentralised finance (DeFi) systems.

This ensures compatibility with Morpho's platform while enabling users to access liquidity without selling their Bitcoin.

Coinbase's VP of Product, Max Branzburg, emphasized that the initiative underscores the company's "commitment to economic freedom," stating that crypto-backed loans empower users to maximise their Bitcoin's potential in a decentralised ecosystem.'

He pointed out:

“This is a moment where we're planting a flag that Coinbase is coming on-chain, and we're bringing millions of users with their billions of dollars.”

A company spokesperson clarified that while Coinbase provides access to the loan market, it does not directly manage the loans.

The representative explained:

“Users will be able to tap into competitive interest rates with no Coinbase fees or credit checks and can pay back their loans on their own timeline with flexible repayment terms.”

Flexibility Comes with Stricter Terms

Coinbase's Bitcoin-backed loans stand out for their flexibility—borrowers can repay at their own pace, provided they maintain a safe loan-to-value (LTV) ratio.

This safeguard ensures loans remain sufficiently collateralised, minimising liquidation risks.

However, if Bitcoin's value drops and the LTV ratio becomes too high, Coinbase will liquidate the collateral to protect lenders.

Currently, the service is available only in the US, excluding New York, but Coinbase plans to expand to additional markets.

The company is also exploring other crypto-backed lending options, reinforcing its commitment to integrating digital assets into mainstream financial services.

Coinbase's Bitcoin-Backed Loans Officially Shuttered November 2023

Coinbase's latest Bitcoin-backed loan offering marks its second venture into crypto lending.

The exchange first introduced Bitcoin-collateralised loans in November 2021 but halted the program in May 2023 amidst market turbulence—just weeks after reports surfaced that the SEC was considering enforcement action against the firm.

Around the same time, Coinbase escalated its legal battle with federal regulators, and the program was officially shut down on 20 November 2023.

The company cited shifting customer demand as the reason for discontinuation.

Now, with Bitcoin surpassing a record $108,000, Coinbase is reviving its loan service, signalling renewed confidence in the market and a strategic push to integrate crypto lending into its broader financial ecosystem.

At the time of writing, Bitcoin is trading at $101,577.48, a 1.56% increase in the last 24 hours and a 9.10% increase in the last seven days, according to CoinMarketCap.

Growing Appetite for Bitcoin-Backed Loans

Borrowing against assets has long been a cornerstone of wealth management, allowing individuals to access liquidity without selling their investments.

Coinbase's entry into Bitcoin-backed lending taps into this established financial strategy, catering to crypto holders who seek capital while preserving their holdings.

Unlike traditional sales, asset-backed loans can help borrowers avoid immediate tax liabilities, making them an attractive option for those with significant unrealised gains.

The market for Bitcoin-backed loans is poised for exponential growth, projected to rise from $8.5 billion in 2024 to $45 billion by 2030, according to HFT Market Intelligence.

This expansion aligns with Bitcoin's increasing adoption and the broader integration of DeFi into traditional financial systems.

Institutions are also taking note—crypto lending protocol Ledn reports that major financial players are moving beyond ETFs and into Bitcoin-backed lending, signalling a shift toward mainstream acceptance of crypto as a collateralised asset class.