Cryptocurrency exchange Coinbase has reintroduced Bitcoin-backed loans for U.S. users, enabling them to borrow up to $100,000 in USD Coin (USDC) by using Bitcoin (BTC) as collateral. This innovative service leverages the decentralized finance (DeFi) protocol Morpho to facilitate seamless, efficient transactions, reinforcing Coinbase's commitment to integrating cutting-edge blockchain technologies.
This move reflects Coinbase's broader efforts to diversify its services while responding to the evolving regulatory landscape for cryptocurrencies in the U.S.
How Coinbase’s Bitcoin-Backed Loans Work
Eligible U.S. customers, with the exception of residents in New York, can now unlock liquidity through Bitcoin-backed loans. However, only Bitcoin holdings stored directly on Coinbase qualify for this service.
The process involves converting Bitcoin into cbBTC, a wrapped Bitcoin token developed by Coinbase specifically for use within decentralized finance ecosystems. Once the conversion is complete, the cbBTC is deposited into Morpho, an advanced on-chain lending protocol running on Base, Coinbase’s Ethereum-based layer-2 network.
From this point, users can access loans in USDC. These loans can serve a variety of purposes, including funding personal expenses, conducting international transfers, or converting USDC into traditional U.S. dollars.
One of the standout features of these loans is their flexible repayment structure, which removes the constraints of fixed schedules. Borrowers are free to repay at their own pace as long as their collateral maintains sufficient value.
However, there is a significant caveat: if the price of Bitcoin experiences a sharp decline, borrowers risk collateral liquidation to maintain the loan’s security. In such cases, any remaining Bitcoin after liquidation is returned to the borrower’s Coinbase account.
Importantly, Coinbase acts as a gateway to Morpho's lending protocol but does not directly manage the loans or liquidations. This hands-off approach means borrowers must proactively monitor their loan-to-collateral ratio to prevent unintended liquidations.
Context: Coinbase’s Suspension of Crypto Loans in 2023
This reintroduction comes after Coinbase suspended its crypto loan program in November 2023, marking a shift in its strategic priorities. Previously, Coinbase had allowed users to borrow up to $1 million by using 30% of their Bitcoin holdings as collateral. The service gained popularity as it enabled crypto holders to access liquidity without the need to sell their Bitcoin, thereby avoiding potential capital gains taxes.
However, regulatory pressures significantly influenced the program's suspension. In March 2023, Coinbase received a Wells Notice from the U.S. Securities and Exchange Commission (SEC), indicating potential enforcement actions related to its lending and borrowing services. The SEC raised concerns about potential violations of securities laws, forcing Coinbase to reassess its offerings and temporarily halt its loan program.
Coinbase criticized the SEC for its lack of clear regulatory guidance, arguing that the absence of transparent rules created unnecessary uncertainty for crypto businesses. The shutdown was a direct response to this regulatory environment, underscoring the tension between innovation and compliance within the crypto industry.
Why Bitcoin-Backed Loans Are Poised for Growth in 2025
The reintroduction of Bitcoin-backed loans in 2025 signals Coinbase’s ability to adapt to a more favorable regulatory climate. By addressing earlier challenges, the company has positioned itself to take advantage of the growing demand for crypto-collateralized lending.
For Bitcoin holders, these loans offer a unique way to access liquidity while retaining ownership of their assets. This strategy not only avoids triggering taxable events, such as capital gains, but also preserves exposure to Bitcoin’s potential price appreciation.
The broader market for Bitcoin-backed loans is rapidly expanding. According to HFT Market Intelligence, the sector was valued at $8.5 billion in 2024 and is projected to grow to a staggering $45 billion by 2030. Coinbase’s revamped offering places it at the forefront of this burgeoning sector, positioning the company to capture significant market share.
A Strategic Step Toward the Future
Coinbase’s Bitcoin-backed loans represent more than just a new product—they signal the company’s strategic evolution in the face of shifting regulatory dynamics. By leveraging its expertise in blockchain technology and DeFi protocols like Morpho, Coinbase is offering a robust alternative to traditional financial services.
As the demand for crypto-based financial solutions continues to grow, Coinbase is well-equipped to meet the needs of a market that increasingly values decentralization, flexibility, and innovation.