Bitcoin-backed loans are getting increasingly mainstream. On Firefish, we are seeing growing adoption, reflected by a growth in collateralised Bitcoin and user base. These loans revolutionise how cryptocurrency holders access liquidity and investors earn yield. By using Bitcoin as collateral, borrowers can unlock funds without selling their assets, while lenders benefit from secure, high-yield opportunities.

This comprehensive guide answers the 10 most common questions about Bitcoin loans. Let’s dive in.

1. What are Bitcoin loans or Bitcoin-backed loans?

Bitcoin-backed loans allow users to borrow fiat (e.g., EUR, USD) or stablecoins (e.g., USDC, USDT) by pledging Bitcoin as collateral.

Unlike traditional loans, in most cases, these don’t require credit checks. The loan is secured by Bitcoin as collateral. On non-custodial platforms like Firefish, borrowers retain ownership of their Bitcoin, held in escrow, and can reclaim it upon repayment of the loan.

Lenders earn interest up to 15% annually, with minimal risk due to overcollateralization.

Bitcoin loans bridge the gap with traditional finance, offering easy access to liquidity without forcing Bitcoin sales that could trigger capital gains taxes.

2. Why use Bitcoin as collateral?

Bitcoin’s properties make it ideal for collateral:

• Liquidity: Traded 24/7 on global markets, ensuring quick liquidation if needed.

• Security: Bitcoin’s digital nature requires top-tier security. Multisig wallets, requiring multiple private keys to authorise transactions, make Bitcoin untouchable when used as collateral.

• Digital in nature: Enables fast, borderless transactions without physical assets.

• Hardcoded scarcity: Bitcoin’s 21 million supply cap is immutable, ensuring scarcity unmatched by gold (new deposits possible) or fiat (endlessly printed).

Check out our book "Bitcoin: The Ultimate Collateral” to learn more on it.

3. What are the benefits of Bitcoin-backed loans?

Bitcoin loans offer unique advantages:

• For borrowers:

  • Access liquidity without selling Bitcoin, avoiding capital gains taxes.

  • Retain exposure to Bitcoin’s price appreciation.

  • No credit checks or dependence on credit scores or past credit history.

• For lenders:

  • Earn fixed interest rates.

  • Low risk due to overcollateralization.

  • Diversify portfolios with Bitcoin-backed assets.

• For both:

  • Non-custodial platforms like Firefish.io eliminate counterparty risk.

  • Peer-to-peer lending reduces fees and intermediaries.

  • Flexible terms.

4. What are the risks of Bitcoin loans?

While secure, Bitcoin loans carry risks:

• Liquidation: If Bitcoin’s price drops significantly, collateral may be sold to cover the loan.

• Market volatility: Bitcoin’s price fluctuations can increase LTV, triggering margin calls.

• Platform risk: Custodial platforms may misuse collateral, including rehypothecating it. Firefish mitigates this with non-custodial multisig escrow.

Firefish has opted for a conservative 50% LTV to ensure double-collateralization. Also, a “zombie apocalypse” recovery feature minimize the risk in case of platform collapse, ensuring robust protection for all parties.

5. Are Bitcoin loans non-custodial? Or, do I need to give up custody of my Bitcoin?

There are broadly two kinds of models - Custodial and Non-Custodial.

Custodial platforms hold your Bitcoin, introducing risks like rehypothecation or mismanagement.

Non-custodial platforms, like Firefish, use on-chain multisig escrow, ensuring your Bitcoin remains on the blockchain and under your control. This aligns with Bitcoin’s trustless ethos, reducing reliance on third parties.

6. What currencies can I borrow or lend in?

Bitcoin loans support various currencies. On Firefish, you can avail of liquidity in:

• Fiat: EUR, CHF, or CZK.

• Stablecoins: USDC, available in the US and worldwide.

Stablecoin loans can be disbursed in as little as 15 minutes, ideal for urgent needs.

7. What are typical interest rates for Bitcoin loans?

Interest rates vary depending on the platform. Firefish is a peer-to-peer platform connecting borrowers with investors. On the marketplace, interest rates are driven by supply and demand from the platform members. Rates on loans start from 6%.

There is also the option for Instant Loans that come at a fixed rate of interest.

8. Who can benefit from Bitcoin-backed loans?

Bitcoin loans are growing in popularity, and currently serve diverse users - retail and institutional. Here's a look at some:

• HODLers: Access cash for personal or business needs without selling Bitcoin.

• Investors: Earn high yields with low risk, diversifying income streams.

• Institutions: Deploy capital efficiently.

• Businesses: Use loans for operational expenses, leveraging Bitcoin holdings. (Learn more here)

Firefish.io supports retail users with loans as low as €800. Getting started is simple with a basic KYC, requiring a valid ID.

9. How do I get started with Bitcoin loans?

It's easy. Follow these steps:

1. Choose a platform: Select a reputable platform. There are many. Consider factors like custodial Vs non-custodial. While some platforms may offer enticing interest rates, do not ignore the hidden details.

2. Sign up: Once you've identified a platform, create an account and complete KYC verification, if needed.

3. For Borrowers: A platform like ours lets you set loan terms (amount, currency, duration). Once you are matched with an investor, deposit Bitcoin into multisig escrow, and receive funds.

4. Monitor the loan health: Use tools like Firefish's CHI to keep a track of loan health.

5. Repay on time: Borrowers repay with interest upon maturity and have their Bitcoin returned.

Of course, as always, DYOR. Always consult tax and legal advisors to comply with local regulations.

Check out our how-to videos to learn more.

10. How do Bitcoin loans compare to traditional bank loans?

Bitcoin-backed loans differ significantly from traditional loans:

• Collateral vs. Credit: Traditional loans rely on credit scores, past credit history and income verification, while Bitcoin loans use collateral, enabling faster approvals without credit checks.

• Speed and accessibility: Bitcoin loans can be disbursed quickly in a matter of a few days, compared to, in most instances, weeks for bank loans.

• More control on the loan terms, including interest rates: A peer-to-peer platform like Firefish lets borrowers specify the terms of the loan, including the interest rate they wish to pay.

• Global reach: Bitcoin loans are borderless, ideal for users in underbanked regions, unlike traditional loans tied to local banks. With loans in stablecoins, Bitcoin loans offer a compelling alternative to traditional finance.

Why Firefish stands out for Bitcoin loans

Firefish has been Bitcoin-native since Day 1. It offers a non-custodial, peer-to-peer model uses multisig escrow for security, and its flexible marketplace supports both retail and institutional clients.

Features like real-time watchdog notifications, CHI (Collateral Health Indicator), over-collateralization, pre-set margin calls, are aimed at ensuring security for the borrower. By prioritizing transparency and user control, Firefish aligns with Bitcoin’s decentralized ethos.

Ready to unlock liquidity or earn yield with Bitcoin loans? Sign up now to get started.