In 2025, Bitcoin’s value continues to soar, with adoption growing among individuals, institutions, and even regulators. For Bitcoin holders — whether you’re a seasoned HODLer, a tech-savvy early adopter, or a miner — selling your BTC to access liquidity often feels like a betrayal of the "never sell" mantra. But what if you could leverage your Bitcoin without giving up ownership?

Enter Bitcoin-backed loans: a game-changing financial tool that lets you borrow fiat or stablecoins against your BTC while keeping your stack intact. Bitcoin-backed lending is becoming a preferred financial solution for HODLers, investors, and miners alike.

This guide will walk you through everything you need to know about Bitcoin-backed loans—what they are, how they work, their benefits, risks, and how platforms like Firefish are making them accessible, secure, and user-friendly. Whether you’re looking to fund real-life expenses, diversify your portfolio, or simply HODL smarter, this article will help you understand why Bitcoin-backed lending is becoming a cornerstone of decentralized finance (DeFi).

What are Bitcoin loans and how do they work?

A Bitcoin-backed loan allows you to use your Bitcoin as collateral to borrow fiat currency (like EUR, CZK or CHF) or stablecoins (like USDC) without selling your BTC. Think of it as a bridge between HODLing and real-world utility. Here’s how it typically works:

1. Deposit Bitcoin as collateral: You lock your BTC on a platform like Firefish, which holds it securely as collateral.

2. Borrow funds: Based on the value of your BTC, you borrow a percentage of that value. At Firefish, for the loan to be safe for both you and the investor, it's important that the value of the collateral always exceeds the value of the loan. The required initial Loan-To-Value ratio is 50%, which means the value of collateral is 2x the size of the loan.

3. Repay the loan: You repay the loan plus interest over a set term, and once repaid, your Bitcoin is returned to you.

Unlike traditional loans, Bitcoin-backed loans don’t rely on credit scores or lengthy approval processes. Instead, your BTC serves as the collateral, making the process fast and accessible. Firefish, for example, can process a loan in just 15 minutes and 23 seconds — no seed phrase or complex transactions required.

Why choose a Bitcoin loan? Key benefits of Bitcoin-backed lending

Bitcoin-backed loans offer a range of advantages, especially for Bitcoiners who want to maintain exposure to BTC’s upside potential. Here’s why they’re gaining popularity:

1. HODL while you borrow Selling Bitcoin to cover expenses means missing out on future gains — and potentially triggering taxable events. With a Bitcoin-backed loan, you keep your BTC and access liquidity for real-life needs, like buying a house, paying bills or taxes, or funding a business. Firefish’s philosophy, “Never sell your Bitcoin, live off it,” resonates with HODLers who want to stay 100% exposed to BTC’s growth.

2. Tax efficiency Selling Bitcoin often incurs capital gains tax, depending on your jurisdiction. Borrowing against your BTC avoids this taxable event, allowing you to access funds tax-free while retaining ownership (PAGE 5: Secondary Target Group - "usecases why it makes sense").

3. No credit checks, No bureaucracy Traditional banks often reject borrowers due to credit scores or lengthy processes. Bitcoin-backed loans, like the ones you can avail of on Firefish, bypass these hurdles. Your BTC is the only requirement. Firefish offers a seamless process with no middlemen, delivering real cash directly to your bank.

4. Security and control Custodial platforms run the risks of rehypothecation, a practice common in traditional finance — where your collateral is reused, leading to potential losses. Firefish is non-custodial, meaning your Bitcoin stays locked on-chain, under your control, with no rehypothecation. Built by Bitcoiners for Bitcoiners, Firefish uses open-source, publicly available protocols for maximum transparency.

5. Competitive rates via a P2P marketplace Firefish operates as a peer-to-peer (P2P) marketplace, where rates are determined by supply and demand (how it ought to be!), not a centralized authority. This results in competitive rates for borrowers, often lower than custodial lenders.

How Bitcoin-backed loans work: A step-by-step guide

Let’s break down the process using Firefish as an example. Our platform is simple, fast, and extends a secure lending model.

1. Sign up and KYC: Create an account on Firefish in a matter of minutes.

   
   

   

   
   

   In order to provide a complete borrowing and investing experience involving banking money, Firefish is required to comply with standard KYC/AML regulations. On top of that, Firefish aims to ensure security and prevention of fraudulent activities for both Borrowers and Investors in the P2P relationship, while safeguarding the integrity of the platform's transactions and operations. The identity verification through a KYC process is required to ensure regulatory compliance and secure financial transactions. Our verification partner is Idenfy.

2. Choose your loan terms: Select your loan amount (from €800 to €150,000), term (e.g., 3, 6, 12, or 18 months), and currency (fiat or USDC).

   
   

   

   
   

   Firefish’s marketplace lets you see rates driven by supply and demand. It offers insights into current lending rates, showcasing active and completed loan requests from other users.

3. Loan request reaches the marketplace: Your loan request is then posted in the marketplace and sent to relevant investors for matching. Investors who submitted an investment interest matching your loan preferences (i.e. amount, interest rate and tenor) will receive an email notification and have the option to accept the deal and your request also appears in the Loan Marketplace.

You even have an option to request an Instant Loan. This enables you to borrow cash immediately at a fixed interest rate, without the need to wait for an investor match.

4. Accept or Reject, it's your choice: Once you are matched with an Investor, you will be asked to ‘Accept’ or ‘Reject’ the deal.

Assuming you accept the deal, you will proceed to confirming the details of the deal and accepting the Terms of Service and Loan and Security Agreement.

5. Deposit Bitcoin collateral: Lock your BTC on Firefish’s non-custodial platform. You don’t need to share your seed phrase or private keys—just a simple transaction.

6. Receive funds: After the process is completed, the investor will receive a notification to proceed with the bank transfer and confirm the payment.

Here's a video tutorial:

Note: Monitor your loan’s health with Firefish’s Collateral Health Indicator (CHI). If BTC’s price dips, you can top up collateral or repay early to avoid liquidation.

Why Bitcoin loans are a smart investment for lenders

Bitcoin-backed loans aren’t just for borrowers — they’re a lucrative opportunity for investors seeking high yields with low risk.

Here’s why:

• High yields, low risk: Firefish offers up to 13% APY on Bitcoin-backed loans, far surpassing government bonds or term deposits. Loans are over-collateralized, ensuring your investment is protected even if BTC’s price drops.

• Ease of use: As an investor, you don’t need to be crypto-native. You can invest with fiat, starting at €800, and choose terms and currencies that suit you.

• Alternative investment vehicle: For affluent investors, SMEs, or family offices, Firefish’s Invest Pro service provides a structured, passive income stream—perfect for diversifying portfolios.

Note: In the instance of a borrower not returning the money, in our current release, two liquidation options are offered:

1. Self-Liquidation: The investor directly receives the collateral—consisting of the owed amount, interest, and a 5% liquidation premium—transferred to their address.

2. Assisted Liquidation: Upon confirming the borrower's default, Firefish will sell the collateral on the market. The investor then receives their investment back in fiat currency, rather than the Bitcoin collateral.

Risks and how to mitigate them

While Bitcoin-backed loans are low-risk, they’re not risk-free. Here are the main concerns and how Firefish addresses them:

1. Market volatility and liquidation If Bitcoin’s price crashes, your collateral might fall below the required LTV, triggering liquidation. Firefish mitigates this with a very conservative 50% LTV ratio and a 7-step margin call system, giving you time to top up collateral or repay early.

2. Regulatory uncertainty Legal and compliance issues vary by region. Firefish operates with KYC to ensure compliance, though we do understand this may deter privacy-focused users.

3. Platform security Hacks are a concern in crypto. Firefish’s non-custodial, open-source design, built by a reputable team, minimizes this risk. Your BTC stays on-chain, not in Firefish’s custody.

   
   

Why Firefish stands out in Bitcoin-backed lending

We founded Firefish with the vision to create a trust-minimised and open lending marketplace that lets users borrow fiat against their Bitcoin without selling it or trusting centralised entities. Built natively on Bitcoin, our platform uses multi-signature escrow contracts, price and payment oracles, and pre-signed recovery transactions, turning Bitcoin into “super collateral” for real-world needs.

Our mission is to fill a critical gap in Bitcoin’s financial infrastructure while preserving its core values of self-custody, transparency, and trust minimisation.

As our Co-founder and CEO, Martin Matejka says:

“Most of the companies out there are centralised platforms where very large pools of liquidity are managed by one company. This is clearly problematic because it creates significant counterparty risk and also drives operational costs higher. Instead of being a traditional lending platform, Firefish acts as an open marketplace to connect borrowers and lenders, which makes us quite unique.”

Important to know:

• Non-custodial security: Unlike the centralized crypto lenders that have historically operated in the industry, Firefish does not hold user assets, which are never rehypothecated.

• P2P marketplace: Bitcoin collateral is locked in on-chain escrow using multi-signature contracts, and fiat loans are settled directly between borrowers and lenders via standard bank transfers or stablecoins.

• Security at the core: Firefish's advanced recovery feature allows for the Bitcoin collateral to still be recoverable in case of disastrous scenarios by using a pre-signed recovery transaction.

Conclusion: HODL smarter with Bitcoin-backed loans

Bitcoin-backed loans offer a powerful way to unlock liquidity without sacrificing your BTC’s upside potential. Whether you’re a borrower funding real-life needs or an investor seeking high-yield, low-risk opportunities, Firefish makes the process secure, simple, and aligned with Bitcoin’s ethos.