Using Bitcoin to Earn Interest or Receive a Loan

Date Published
June 27, 2022
Written by
Deniz Saat
Reviewed by
Jonathan Hamel

For most Bitcoiners who have been in the space for a while, there is an easy answer. The majority of them will probably advise you not to use these services unless there are incredibly favorable solutions for storing the lent bitcoin. In any business, there are no guarantees and one should be weary of promised returns, especially in the bitcoin space. Everyone has a different set of unique circumstances, risk tolerance, and emotional attachment to their bitcoin. The same rules apply to lending your bitcoin as they would regarding leaving your funds on an exchange. If you do not hold the private keys for that bitcoin, then you do not own or control that bitcoin. In this article we will cover the various pros, cons, risks, and scenarios for lending bitcoin to a third party.

Should I use my bitcoin to take out a loan or earn interest?

Using your bitcoin as collateral to borrow USD is becoming more and more popular as the space develops. Most may not find it necessary to borrow funds, but it is important to be aware of the financial products being offered in the space. Taking out a loan is dependent on one’s need for the extra funds. Please do your own due diligence for understanding how the process works while educating yourself about all of the various outcomes that may transpire.

When using bitcoin as collateral for taking out a loan, one will encounter many of the same pros, cons, and risks as they would when receiving interest payments. Keep in mind that every individual is in a unique situation and may receive different minimums and rates for borrowing.

Bitcoin-Backed Dollar Loan APR

  • BlockFi: As low as 4.5%
  • Nexo: As low as 0% but will depend on which tier you are in. To qualify for 0% APR, you must be in the platinum tier and your loan-to-value ratio must be below or equal to 20%.
  • 8% - 12% p.a.
  • Ledn: 50% Loan-to-Value, 7.90% Annual Interest, 9.90% APR

Average Secured Bank Loan APR (will vary with traditional banks)

  • Mortgage 30-Year: 5.4% - 5.46%
  • Car Loan: 4.86% (36-month used car), 4.55% (48-month new car), 4.58% (60-month new car)
  • Credit Line: 7% - 20% depending on your credit score in the US. 6% - 9% for Canadian citizens.

Crypto Interest Rates

  • BlockFi: Interest rates for BlockFi are lowered the more that is held in an interest earning account. Bitcoin: 3% for tier 1 (0 - 0.10 BTC), 1% for tier 2 (0.10 - 0.35 BTC), 0.1% for tier 3 (> 0.35 BTC). Stablecoins: 7% for tier 1 (0 - 20,000 USD), 5% for tier 2 (20,000 - 2,000,000 USD), 4% for tier 3 (> 2,000,000 USD).
  • Nexo: 12% on stablecoins and an account holder will need to stake NEXO Tokens worth 10% of the total value of assets within the account to be eligible for higher interest rates.
  • 3% - 14.5% on supported cryptocurrencies and up to 10% on stablecoins. Up to 6% p.a. for BTC.
  • Ledn: 5.25% on Bitcoin and 7.5% on USDC

Average Traditional Bank Interest Rates

  • 0.03% - 0.06%


  • Ability to use the borrowed funds for other ventures or payments without having to sell any of your bitcoin.
  • Avoid paying taxes. Exchanging bitcoin for dollars is a taxable event while taking a loan is not. Interest expenses for the loan may even be tax deductible.
  • Custodial custody of bitcoin: The responsibility of storing bitcoin is left up to the company. Some platforms use multisig solutions for storage.
  • Convenience and ease of use for those who do not wish to store their own bitcoin.
  • Earn yield on your cryptocurrency (2% - 12% depending on which service you choose).
  • Access to support staff (service quality may vary).


  • In the event of Bitcoin airdrops or hard forks, the user will be unable to participate in claiming these crypto “dividends”. Ironically, this prevents one from participating in other forms of interest that may be earned with their bitcoin.
  • Promised rate of return for custodied bitcoin is subject to change at the discretion of the company you choose.
  • Interest rate payment on custodied bitcoin is subject to change at the discretion of the company you choose.
  • Fees for transactions.


  • No control over the bitcoin you lend or earn interest on. Users are unable to send bitcoin when it is most convenient for them.
  • Possibility of accounts being hacked or the private keys to the company’s bitcoin holdings being compromised.
  • No guarantee that funds will be reimbursed in a timely manner, if at all, in the event of a security breach where the company funds are lost, or if the company must file for bankruptcy.
  • The company may also freeze customer accounts and have no obligation to reimburse any funds.
  • Rehypothecation of funds (depending on the platform). This is when the lending platform lends out your collateralized bitcoin so they may earn interest. This becomes an issue when more claims are made to the lending platform’s bitcoin than what they hold in reserves. If this scenario were to play out, then the lending platform itself would become insolvent.

Scenarios where it may make sense to earn interest on your bitcoin

  1. If you value diversification and need another platform to hold a portion of your total bitcoin funds.
  2. You want the ability to allocate a specific percentage (manageable for your situation) of your bitcoin holdings to gain access to “passive” income. Keep in mind that this should be a percentage that you are comfortable losing or having tied up if the company goes bankrupt or if their funds are stolen.
  3. You want to consider companies that offer interest on the bitcoin you receive for free. Fold App is a good example.

Scenarios where it may make sense to take out a loan against your bitcoin

  1. Purchasing a home.
  2. Diversifying your investment portfolio with the borrowed funds.
  3. Paying off travel or other expenses.
  4. Funding a business.
  5. Purchasing more bitcoin.

Tips for selecting a service to earn interest or take out a loan against your bitcoin

Many platforms will offer both interest options and loans for bitcoin. Please be aware that these tips are merely a guide for recognizing a reliable company, and your experiences may differ from the scenarios presented below.

  • Research - Make sure you set aside enough time to research the company that you are considering leaving your bitcoin with. There is no need to rush or act quickly to transfer your funds to a service. With all financial decisions, they should be made objectively with the pros and cons weighed without the interference of emotions.
  • Reviews - The first place one may begin their research is by seeking out those with firsthand experience in using the service. One may find reviews on the platform they are considering but be sure to visit other forums and review sites to find similar anecdotes.
  • Credibility - Another way to vet the reliability of a service is to find out if there are credible individuals endorsing the platform or if they are actively involved in the day-to-day operations. If the platform is a startup created by unknown individuals, try to find out if they have an online presence to get a sense of who they are. They may have accounts with LinkedIn, Facebook, Twitter, personal websites, and other platforms where you can familiarize yourself with the individual’s credibility.
  • Company history - The Bitcoin ecosystem is fairly new (about 12 years old as of this writing). If the company, subsidiary, or the founders have been involved in the space longer than 5 years, their experience is more likely to help provide the best experience for their users.
  • Support - Be sure to not only research customer interactions with the company’s support team, but to also experience the customer support firsthand before signing up. Many overlook the customer support experience when signing up with a new service. Send a question or two through email and then have a few follow-up questions on hand when calling the support number. You may try this a few times and it will quickly give you a good idea of what support will be like in the future.

Always read the terms of agreement

Be sure to read the terms of agreement with the company you are signing up with. This simple action is easy to overlook and ignore, and most people often quickly sign documents without reading them to save time. Whenever money is involved in an agreement, it is always worth putting in the time and effort to read through everything. This will save you an enormous amount of time and money in the future. If any portion of the agreement seems too dense or the verbage does not make sense, reach out to the support staff or a representative for more clarification. Ask plenty of questions and address all concerns before transferring any funds.

  • Your place of residence may disqualify you from earning interest or taking out loans on your bitcoin. The platform may offer you certain services but not include other features.
  • Services have the right to change the terms of agreement at any time that is convenient for them. This includes changing the interest rate that they initially promised. Check back on their terms and conditions periodically.
  • They have the right to terminate your account for any reason and are not required to share that reason.
  • They store all of your personal data (name, email, phone number, home address, social security, date of birth, tax forms, etc.) and like all services, there is the possibility of your information being stolen.
  • They are required to share your information with the government of your country.
  • They may share your information with third-party websites (this depends on the platform you sign up with).

It is absolutely necessary to have a deep understanding of all the clauses and scenarios that the platform is willing to cover in the event that their systems are hacked or compromised. Reaching out to support or the representatives involved will also give you a good indication of whether or not the service will be helpful and responsive if something goes wrong. Bitcoin acts like a savings account that can be passed on to your heirs. Be sure to take any and all decisions involved with your bitcoin seriously.

As the space matures and develops, the future risks involved will be mitigated to benefit the company and especially the user. Methods for using one party’s bitcoin as collateral will be the main use for certain organizations in the future. Most people may never need to use these services, but it is important to be aware of what is offered in the space. If you are still interested in earning interest or taking on a loan while using your bitcoin as collateral, be sure to take the necessary steps to execute the process properly. The simplest and easiest solution for most is to store their own bitcoin. If you choose to participate in anything more complicated than that, be sure to stay informed with new developments and regulations for your specific situation.

Need Bitcoin support? Book a 1:1 video call with a Bitcoin Pro!

Consult with one of our thought leaders and learn about mining, security, Lightning network, DeFi, taxes and many other topics. Be prepared for the financial revolution and get the knowledge you need.

Connect with a Pro

Sign up for more

Stay curious. Bitcoin education featuring blogs, learning tools and reviews to help you navigate down the rabbit hole.

Thank you! Your submission has been received!
Oops! Something went wrong while submitting the form.
Deniz Saat
Deniz Saat is an IT services specialist and technical writer.
Jonathan Hamel
CEO and Founder of Académie Bitcoin

Latest Articles