Cryptocurrency exchange Coinbase has reintroduced Bitcoin-backed loans in the United States, enabling users to leverage their Bitcoin holdings for liquidity without selling their assets. This service aligns with Coinbase's broader strategy to expand its offerings amid evolving crypto regulations.
How Coinbase’s Bitcoin-Backed Loans Work
Eligible U.S. customers (excluding New York residents) can borrow up to $100,000 in USD Coin (USDC) using Bitcoin (BTC) held on Coinbase as collateral. Here’s how it works:
- Convert BTC to cbBTC: Users first wrap their Bitcoin into cbBTC, a Coinbase-developed token compatible with decentralized finance (DeFi) ecosystems.
- Deposit into Morpho Protocol: The cbBTC is deposited into Morpho, an on-chain lending protocol built on Base, Coinbase’s Ethereum layer-2 network.
- Receive USDC Loans: Borrowers receive USDC, which can be used for expenses, global transfers, or converted to USD.
Key Features
- No Fixed Repayment Schedule: Borrowers repay at their own pace, provided the BTC collateral retains sufficient value.
- Liquidation Risk: If Bitcoin’s price drops significantly, collateral may be liquidated to secure the loan, with remaining funds returned to the borrower.
- Self-Managed Loans: Users must monitor their loans actively—Coinbase does not intervene in liquidations.
👉 Discover how Bitcoin-backed loans can unlock liquidity
Why Coinbase Discontinued Crypto Loans in 2023
In 2023, Coinbase abruptly ended its crypto loan services amid regulatory pressure. Key reasons included:
- SEC Scrutiny: The SEC issued a Wells notice, warning of potential securities law violations related to lending services.
- Lack of Clarity: Coinbase criticized the SEC for unclear crypto lending guidelines, advocating for transparent regulations.
- Ongoing Legal Challenges: The exchange faced an ongoing lawsuit alleging securities violations, prompting a strategic pivot.
The Resurgence of Bitcoin-Backed Loans in 2025
Coinbase’s relaunch reflects a shifting regulatory landscape and growing demand for crypto-backed financing. Benefits include:
- Tax Efficiency: Access liquidity without triggering taxable events from asset sales.
- Market Growth: The Bitcoin loan market, valued at $8.5 billion in 2024**, is projected to reach **$45 billion by 2030 (HFT Market Intelligence).
FAQs About Bitcoin-Backed Loans
1. Who is eligible for Coinbase’s Bitcoin loans?
U.S. users (except New York residents) with BTC holdings on Coinbase.
2. What happens if Bitcoin’s price drops?
Loans may be liquidated to maintain collateral coverage. Remaining BTC is returned.
3. Can I repay the loan early?
Yes, loans have no fixed schedule—repay anytime without penalties.
4. Are there alternatives to Coinbase’s loan service?
DeFi platforms like Aave and Compound offer similar collateralized loans.
5. How is cbBTC different from regular BTC?
cbBTC is a wrapped token enabling BTC use in DeFi; it’s 1:1 pegged to Bitcoin.
6. What are the risks?
Volatility-driven liquidations and smart contract vulnerabilities in DeFi protocols.
👉 Explore crypto-backed lending opportunities today
Disclaimer: Crypto loans involve risks, including market volatility and regulatory changes. Conduct independent research before participating.
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