Bitcoin Downturn Tests a Changing Lending Market

Demand for borrowing against Bitcoin (BTC) appears to have held up despite the cryptocurrency's decline, according to lenders and industry executives interviewed by Sandmark, although borrowers are becoming more selective and using loans increasingly for liquidity rather than leveraged bets on further price gains. 

That shift has opened the door to financial products that cannot be liquidated solely because Bitcoin's price falls – albeit in exchange for a higher interest rate, lower initial loan-to-value ratio and shorter term. 

The changes reflect lessons from the collapse of crypto lenders including BlockFi, Voyager and Celsius in 2022, when aggressive lending, interconnected balance sheets and the reuse of customer assets exposed borrowers to risks extending well beyond movements in crypto prices. 

A recent report commissioned by crypto lender Ledn estimated the Bitcoin-backed loan market could reach $1tn within a decade, compared with about $3bn today. A Silicon Valley Bank report put total crypto-backed lending at $67bn in June, up 49% from a year earlier. 

A changing market 

Bitcoin has had a difficult year, falling 49% from its 6 Oct 2025 all-time high. 

"Yet for bitcoin lenders, the bear market served as a pressure test for products that were designed to weather volatility. As it turns out, they passed," Silicon Valley Bank's Director of Crypto Anthony Vassallo, and Josh Pherigo, principal researcher, said in a report. 

The lending market has also become more closely connected with traditional finance. In the first half of 2026, several major financial institutions introduced Bitcoin-backed lending for select clients, including JPMorgan, Wells Fargo, Citi, Charles Schwab and Morgan Stanley, according to the report. 

Alan Orwick, chief executive of blockchain development company Dominant Strategies, told Sandmark the industry was moving back towards what he called "boring, overcollateralized credit." 

"The 2022 failures showed what happens when a platform mixes lending, trading, yield products, and quiet reuse of customer collateral on one balance sheet, and borrowers now ask about custody and collateral rights before they ask about the rate," Orwick said. 

Borrower behaviour is also changing as Bitcoin's price falls. Richard Green, head of institutional at RootstockLabs, told Sandmark that during a bull market, demand is driven by leveraged investors trying to increase their position sizes. 

"In a choppy or bear market environment, however, speculation abates, but organic liquidity demand stays surprisingly sticky," he said. 

Orwick said the downturn had changed borrower behaviour more than borrowing costs. Borrowers are moving towards lower loan-to-value ratios, clearer custody arrangements and downside protection, he said, while borrowing more for liquidity than to make a larger directional bet on Bitcoin. 

Selling Bitcoin can also trigger a taxable event depending on the borrower's jurisdiction and circumstances, whereas taking out a Bitcoin-backed loan does not necessarily require selling the asset. That can make borrowing attractive to long-term holders seeking liquidity without disposing of their Bitcoin. 

New crypto lenders 

New entrants are also making the market more competitive, according to industry participants. With Bitcoin in a weaker market, demand for yield has picked up, pushing lenders to compete harder on pricing, Roy Kashi, CEO of Bitcoin treasury company Falconedge, told Sandmark. 

Kashi said demand was holding but had become more selective. "Speculative leverage is cyclical, but long-term holders, businesses and investors still want liquidity without selling their bitcoin. That demand is still there, even in a weaker market," he said. 

Strike changes liquidation terms 

Bitcoin financial company Strike, which has offered standard Bitcoin-backed loans since 2025, announced its new "volatility-proof loans" in July. CEO Jack Mallers said the product was developed in response to feedback from customers about what he described as Bitcoin borrowers' biggest pain point: being liquidated. 

Under the new loan type, no Bitcoin price movement can trigger liquidation and there are no margin calls, Mallers said in a video announcement posted on X. 

Strike's standard loan has several loan-to-value (LTV) thresholds: a warning at 65%, a margin call at 70% and partial liquidation at 85%. Borrowers have a 72-hour recovery window after a margin call. 

The new product removes those price-based thresholds, with collateral remaining untouched as long as payments are current. 

But the added protection comes at a cost. "Protection isn't free," Mallers said on X. The new loan carries a rate 2.95 percentage points higher than Strike's standard loan, which ranges from 7.75% to 11.25%. It also has a six-month term, compared with 12 months for the standard loan. 

Its maximum initial LTV is 45%, compared with 50% for the standard product. "The secret sauce is that we're taking the extra charge that we're giving you guys and we're putting it on extra hedges in the market to protect all of us," Mallers said. "If you're OK with a slightly shorter term and a little bit higher of a fee, there is no price move that can liquidate you," Mallers said. 

RootstockLabs' Green said companies offering non-liquidating or low-liquidation products, as long as cash payments stay current, are treating Bitcoin more like traditional real estate debt than a highly volatile margin asset. 

For long-term Bitcoin holders, he said, that can be attractive. "You take market liquidation risk off the table as long as you service the debt. It changes bitcoin borrowing from a high-stakes margin trade into a stable capital-allocation tool," he said. 

Other industry participants said the risk does not disappear, however, but instead shifts elsewhere. 

"No margin calls, but you pay around 14%, borrow less against your coins, and if you miss a payment, your bitcoin still gets sold," Alex Witt, founding general partner at stablecoin infrastructure and fintech firm Verda Ventures, said. "The risk doesn’t go away; it just moves from the price chart to your cash flow. And the fact that people will pay that premium tells you everything about how uncomfortable bitcoin is as collateral." 

Ledn, one of the largest players in the retail market with more than $11bn in lifetime loans originated, offers different tiers for its Bitcoin-backed products. Rates range from 9.25% to 11.49%, with lower rates available for larger loans. 

Adam Haeems, head of asset management at institutional lender Tesseract Group, said headline borrowing rates reveal little on their own about how collateral is handled, how much leverage is embedded in a structure or what happens when markets come under stress. A lower rate, he said, can come with terms that ultimately cost more. 

"Rates have also been compressing at the large end, with size-based pricing reaching the bottom of the range. Given where the price has been, that is the more notable movement," he said. 

Lessons from 2022 

Industry executives said the Bitcoin-backed lending market has become more focused on collateral management and downside protection following the failures of 2022 and amid Bitcoin's weaker performance this year. 

Jeff Anderson, managing partner at trading firm STS Digital, told Sandmark that uncollateralized lending had largely disappeared, counterparties had become more selective and the number of active lenders continued to shrink. 

Anderson said crypto lending remained a challenging business because there was often a significant gap between the yields borrowers were willing to pay and the level of underwriting risk lenders were prepared to accept. 

As a result, he said, more sophisticated financing structures were emerging, with participants prioritizing capital efficiency and downside protection rather than simply maximizing leverage. 

Orwick said the lenders best positioned to succeed would be those that made the basic terms of a loan easy for borrowers to verify "before a borrower sends a single satoshi." 

"That means knowing who holds the keys, whether the collateral can be reused, where it stands in bankruptcy, and exactly what event permits a sale," he said.