Bitcoin-Backed Loans Reintroduced by Cryptocurrency Exchange Coinbase in the United States

The new product line allows US account holders, excluding residents of New York, to borrow up to $100,000 in USD Coin (USDC) using their Bitcoin BTCUSD holdings as collateral.

Coinbase has reintroduced Bitcoin-backed loans in the United States, allowing users to borrow against their digital asset holdings.

The new product line enables US account holders, except for residents of New York, to borrow up to $100,000 in USD Coin (USDC) by using their Bitcoin BTCUSD holdings as collateral. Only BTC held on Coinbase qualifies for the loan.

Coinbase has partnered with decentralized finance protocol Morpho Labs to facilitate the lending process, which will take place entirely on Base, the exchange's Ethereum layer-2 network.

"This new product showcases Coinbase's commitment to economic freedom. Crypto-backed loans allow our customers to do more with their Bitcoin, and we're making it happen onchain," Max Branzburg, an executive at Coinbase, told Cointelegraph.

A Coinbase communications representative clarified to Cointelegraph that the exchange "provides a simple way to access this loan market and is not directly involved with the loans."

"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," the representative added.

This new product marks Coinbase's second venture into the Bitcoin lending market. In May 2023, the exchange announced that it would be discontinuing its Borrow program, which enabled users to obtain cash loans backed by their BTC holdings. The program was officially shut down on Nov. 20, 2023.

Bitcoin-backed loans provide holders with the ability to access capital without having to sell their underlying holdings, which is particularly valuable for those who wish to maintain their wealth and avoid substantial tax bills.

"Borrowing against assets is a common practice that has been used by wealthy households for generations. This strategy, also known as 'borrow, borrow, die,' enables the wealthy to take out asset-leveraged loans indefinitely," the report explains.

The rising value of Bitcoin has resulted in many early holders accumulating significant wealth. Consequently, the market for Bitcoin-backed loans is expected to flourish in the coming years.

According to HFT Market Intelligence, the market value of Bitcoin-backed loans is projected to increase from $8.5 billion in 2024 to $45 billion by 2030.

Moreover, the increasing adoption of Bitcoin has prompted more financial institutions to enter the crypto lending market. Bitcoin-backed lending protocol Ledn told Cointelegraph that major institutions are venturing beyond exchange-traded funds and entering the crypto lending business.