Rates, Limits and Liquidation: Crypto Lending in the UK

How crypto-backed lending actually works in the UK

You pledge bitcoin, ether or a stablecoin to a lender, receive cash or a stablecoin advance, and keep ownership of the asset on paper. Most of the market is run by offshore platforms — Nexo, LedgerFi-style services and a handful of FCA-registered firms — because no UK high-street bank will lend against crypto. That matters: the loan is unsecured from your point of view in the sense that no UK compensation scheme protects it, and if the platform fails you are an unsecured creditor.

Loan-to-value is the number that governs everything. Expect 40–50% LTV on bitcoin, somewhat lower on large-cap altcoins, and nothing at all on small tokens. Interest rates typically sit between 6% and 12% APR depending on the asset, the LTV and whether you borrow in sterling or in stablecoins. A £20,000 loan against £45,000 of bitcoin is a common starting point; the lender will not go above roughly half the collateral value for anything volatile.

You can also borrow money for crypto in the other direction — taking out a personal loan or using a credit card to buy coins. UK lenders treat this as unsecured borrowing and most prohibit it in their terms. If you buy bitcoin on a 22% APR credit card and the price falls 30%, you owe the same amount regardless. It is the single most expensive way to enter the market.

The liquidation trap and the tax you may forget

Collateralised loans are margined daily, sometimes hourly. If bitcoin drops enough that your LTV breaches the maintenance threshold — often 80% — the platform sells your coins automatically, at the worst possible moment. A borrower in Manchester who put up £60,000 of ether at 50% LTV in 2022 discovered that a 40% drawdown wiped out the buffer and closed the loan at a loss, with a £400 fee attached.

Over-collateralise deliberately. If you want £10,000, pledge closer to £30,000 and set a price alert at the level where you would need to add collateral. Keep a stablecoin reserve on the same platform so you can top up within minutes rather than waiting for a bank transfer, which can take hours and is precisely when liquidations happen.

HMRC treats the loan as a disposal only in limited circumstances — borrowing is generally not a disposal, but the collateral you lose in a liquidation is. That forced sale can crystalise a capital gain or loss, and it is reportable on your self assessment return. Keep the platform's statements; a liquidation in March is easy to forget by the following January deadline.

Rates, fees and what to compare

Look beyond the headline APR. Origination fees of 1–2%, a monthly custody or admin charge, and a spread on the stablecoin you borrow all add to the real cost. Ask whether the rate is fixed for the term or variable and whether the platform can change the LTV threshold mid-loan — several did in 2022, triggering margin calls overnight.

Alternatives worth checking before you pledge coins

If you need liquidity and hold coins at a gain, borrowing can defer capital gains tax in a way selling cannot. But compare the full picture. A £15,000 loan at 9% APR over twelve months costs roughly £740 in interest; selling the same value of bitcoin might trigger a 20% capital gains charge on the gain, which could be more or less depending on your base cost and your annual exempt amount.

For smaller sums, an authorised overdraft or a 0% purchase card is usually cheaper and comes with UK consumer protection. For business owners, a business crypto account held with an FCA-registered e-money firm can hold stablecoin balances while you decide, without pledging anything.

Finally, consider whether you need the cash at all. A loan against a volatile asset is a leveraged bet that the price will not fall far enough, fast enough, to trigger a forced sale. If you would not buy more bitcoin with borrowed money, pledging the bitcoin you already own is the same trade with extra steps.

Practical checks before you sign

Confirm the lender's regulatory status on the FCA register and read the section on custody: are your coins held in a segregated wallet, and who controls the keys? Ask what happens if the platform becomes insolvent and whether your collateral sits inside or outside the estate. Check the jurisdiction of the contract — many are governed by Cypriot, Estonian or Seychelles law, which makes any dispute expensive.

Model a 60% drawdown before you borrow. If that scenario would force a liquidation you cannot afford, reduce the loan size or do not borrow. Keep records of every transfer, interest payment and top-up in one place. And check the terms on early repayment: some platforms charge the full term's interest regardless of when you close, which can turn a three-month bridge into a twelve-month cost.