I need to be brutally honest with you. I use crypto-backed loans. I have open positions right now. And I'm writing this article because over the past few weeks, I've been watching people get liquidated, and it's breaking my heart. I'm not here to promote any platform, I won't even mention which ones I use. This is just me, sitting here, feeling a bit sad about what I'm seeing, and wanting to make sure you understand both sides of this before you jump in.
Look, I'm not going to pretend I'm some guru who never takes risks. I do. I've taken out loans against my crypto. Sometimes it worked out beautifully. Other times I've had sleepless nights watching my LTV creep up, wondering if I'm about to lose everything.
But what I'm seeing right now in this market is making me question everything, and I think you deserve to know the full picture, not just the success stories, but the ugly reality that most people don't talk about.
Why I Started Using Crypto-Backed Loans (And Why I'm Questioning It Now)
I got into lending platforms a couple of years ago. Not because I was greedy, or at least, that's what I told myself (?) but because it seemed logical. I had Bitcoin. I believed in it long-term. But I also needed liquidity sometimes. Why sell and trigger taxes when I could just borrow against it?
The first time I took out a loan, I was conservative. 25% LTV. Plenty of room for the market to drop. It felt safe. I used the money for a business opportunity, paid it back in three months, kept my Bitcoin. It worked perfectly.
So I did it again. And again. Each time a little more confident. Each time pushing the LTV slightly higher. Not reckless, but definitely more comfortable with the risk.
And then this recent downturn started.
I'm lucky. My positions are still safe. I kept my LTV conservative enough that I'm not in immediate danger. But I'm watching people I know, people in Discord servers, Telegram groups, Twitter threads, getting liquidated. Entire stacks gone. Years of accumulation wiped out overnight. And it's making me feel genuinely sad.
These aren't just numbers on a screen. These are real people who believed in Bitcoin as much as I do, who made the same logical calculations I made, who just got unlucky with timing or pushed their leverage a bit too far.
That's why I'm writing this. Not to scare you away from lending completely, but to make sure you know what you're really signing up for.
What Are Crypto-Backed Loans and Why Do People Love Them?
A crypto-backed loan is simple in concept: you lock up your Bitcoin or other cryptocurrencies as collateral and borrow cash or stablecoins against that value. Platforms like Celsius (before it imploded), Nexo, and others built entire business models around this.
The appeal is obvious:
You don't have to sell your crypto. If you believe Bitcoin is going to $100k or $500k, why would you sell at $40k? Take a loan instead, keep your position, and use the borrowed funds for whatever you need.
Tax efficiency. Selling crypto triggers capital gains taxes. Borrowing doesn't. You get liquidity without the tax hit.
Leverage in bull markets. Borrow against your BTC, buy more BTC, repeat. When the price goes up, you're laughing. I know traders who turned 2 BTC into almost 4 BTC doing exactly this between 2018 and 2021. The market was perfect.
It feels like magic. Free money. A hack. Until it isn't.
The Dark Side: Bear Markets and Liquidation Hell
Here's where things get ugly, and this is what most lending platforms won't tell you upfront (or they'll bury it in the fine print).
When you take out a crypto-backed loan, you typically need to maintain a certain loan-to-value (LTV) ratio. Let's say you put up $10,000 worth of Bitcoin and borrow $5,000 in stablecoins. Your LTV is 50%. Most platforms set liquidation thresholds between 65-80% LTV.
Now imagine Bitcoin drops 40% overnight. It's happened before. Multiple times. Your $10,000 in collateral is now worth $6,000. Your $5,000 loan hasn't changed. Your LTV just jumped to 83%. You're getting liquidated.
Liquidation means the platform automatically sells your crypto to repay the loan. You lose your Bitcoin. You lose your position. I'am sorry but you're out. Broke.
And here's the kicker: during bear markets, these liquidation cascades happen fast. Bitcoin drops, liquidations trigger, those sales push the price down further, more liquidations trigger. It's a death spiral. I've seen people wake up to emails telling them their entire stack, years of accumulation, was sold at the absolute worst possible price.
What It Actually Feels Like Watching Liquidations Happen
This is the part that's hard to write, because it makes me confront my own choices.
I'm in a few crypto communities, nothing fancy, just groups of people who've been in this space for a while. Over the past few weeks, I've seen message after message that all start the same way: "I got liquidated."
Some of these people are angry. Some are in shock. Some are just... quiet. That quiet is the worst. You can feel the weight of it through the screen. These are people who just lost 0,5 BTC, 2 BTC, sometimes more. Not because they were idiots, but because they thought they had more cushion than they did.
And here's what gets me: I understand exactly how they got there. I've had loans at 40% LTV thinking "Bitcoin would have to drop 50% from here to liquidate me, that's not going to happen." Except it did happen. It has happened multiple times in Bitcoin's history.
I got lucky. I closed some positions before this downturn. The ones I still have open are conservative enough to survive. But it could have easily been me posting that "I got liquidated" message. That realization is humbling and terrifying in equal measure.
The difference between me keeping my Bitcoin and losing it wasn't skill. It was mostly luck and maybe a bit of paranoia that made me more conservative than I needed to be.
So when I see these liquidations happening, I don't feel superior. I feel sad. Because that could be any of us. These platforms make it so easy to borrow, the rates seem reasonable, and during bull markets it feels like you're leaving money on the table if you don't use leverage. Until everything flips.
When Backed Loans Make Sense (Yes, There Are Times)
I'm not here to say never take a crypto-backed loan. That would be dishonest. There are scenarios where they make sense:
Low LTV in strong bull markets. If you borrow at 20-30% LTV during a confirmed uptrend and you're disciplined about monitoring your position, the risk is manageable. You have a huge buffer before liquidation.
Short-term liquidity needs. Maybe you need cash for an emergency but don't want to sell your long-term position. A small, conservative loan could work. Just be prepared to repay it fast.
Hedged positions. Some sophisticated traders use loans as part of delta-neutral strategies or arbitrage plays. But if you have to Google what delta-neutral means, you probably shouldn't be doing this.
The key is this: if you take out a loan, you need to be able to either repay it immediately or add more collateral when (not if) the market drops. If you can't do that, you're gambling, not investing.
The Platforms Aren't Your Friends. Oops
Here's something else nobody talks about enough: counterparty risk.
When you deposit your crypto with a lending platform, you no longer own it. Not really. You're an unsecured creditor. If the platform goes bankrupt and we've seen this happen repeatedly your funds are locked up in legal proceedings for years. Celsius users still haven't recovered their money. BlockFi customers are in the same boat.
These platforms operate in regulatory gray zones. They're not banks. They don't have FDIC insurance. When things go wrong, there's no safety net. You're just another line item in bankruptcy court.
"Not your keys, not your coins" isn't just a catchy phrase. It's the fundamental principle of cryptocurrency. The moment you hand over your crypto to someone else's custody, you're trusting them not to lose it, steal it, or go bankrupt. That's a lot of trust to place in a company you've never met, operating out of jurisdiction X with unclear regulatory oversight.
The Greed Trap: When Enough Is Never Enough
The biggest risk with crypto-backed loans isn't even the market volatility or the platform risk. It's psychological.
When you make money using leverage, it feels incredible. You're a genius. You cracked the code. Why not borrow more? Why not push the LTV higher? Why not take out multiple loans across different platforms?
This is how people blow up. Not because they didn't understand the risks initially, but because success breeds overconfidence. The first loan works out, so they take a bigger second loan. That works out, so they go for a third. Then the market turns, and suddenly they're overleveraged with no way out.
Greed is the silent killer in crypto. It convinces you that this time is different, that you've got it figured out, that more leverage equals more gains. Until it doesn't.
The best investors I know have one thing in common: they know when to stop. They set limits and stick to them. They don't chase every opportunity. They understand that surviving bear markets is more important than maximizing gains in bull markets.
Where I Am Now (And Why I'm Still Conflicted)
So what's the verdict on crypto-backed loans?
I honestly don't know anymore.
I still have open positions. I'm still using these platforms. But watching people lose their stacks has made me question whether the extra liquidity is worth the risk. Because that's what it is a risk. Not a hack, not free money, just a calculated gamble that the market won't move against you before you can react.
What I know for sure is this: if you're going to use crypto-backed loans, you need to be honest with yourself about what could go wrong. Not in a theoretical way, but in a visceral, "I could wake up tomorrow to a liquidation email" way.
Here's what I've learned from actually using these platforms:
• Keep your LTV so low it feels stupid. I thought 50% was conservative. Now I don't go above 40%. Ever.
• Have cash reserves to add collateral IMMEDIATELY. Not "I'll sell some stocks," but cash you can deposit within an hour.
• Set alerts at multiple levels below your liquidation point. Don't rely on the platform's warnings.
• Accept that you might still get liquidated. If you can't handle that possibility, don't borrow.
• Never borrow in a bear market. Never. I don't care how good the opportunity looks.
• Question whether you actually need the loan. Most of the time, you don't.
The people getting liquidated right now aren't stupid. They're not reckless degenerates. They're regular people who made reasonable-seeming decisions that turned out badly because crypto is volatile as hell and timing is everything.
I'm writing this article not because I have all the answers, but because I don't. I'm conflicted. I've benefited from these loans, but I'm also watching the carnage they can cause. And I think if you're considering taking out a crypto-backed loan, you deserve to hear from someone who's actually in the trenches, not someone trying to sell you on how amazing leverage is.
At Bitcoin-Builder, we're not here to tell you what to do. What I can tell you is what I'm seeing, what I'm feeling, and what I wish someone had told me before I started.
Maybe you'll read this and decide the risk is worth it. Maybe you'll stay away entirely. Either way, at least you'll know what you're getting into.
Stay safe. Protect your stack. And remember: no loan is worth losing your peace of mind or your Bitcoin.
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Disclaimer: This article is for informational purposes only and does not constitute financial advice. Bitcoin-Builder is not affiliated with any lending platform mentioned. Always do your own research and consult with a financial advisor before making investment decisions.
