Xapo Bank Launches Bitcoin-Backed USD Loans for Hodlers

Xapo Bank’s new loan service allows members to borrow USD by using Bitcoin as collateral, providing an option to access cash without triggering a taxable event or missing out on potential price appreciation. This model has gained traction among crypto-friendly banks and financial service providers, as more investors seek ways to leverage their BTC holdings for liquidity needs.

According to the bank, borrowers can secure loans at competitive interest rates while retaining ownership of their Bitcoin. The collateral remains with Xapo, ensuring that users can reclaim their BTC once the loan is repaid.

“This offering is designed for Bitcoin believers who don’t want to sell their holdings but need liquidity,” said Seamus Rocca, CEO of Xapo Bank. “By using BTC as collateral, members can tap into the value of their crypto assets without the downside of selling during market volatility.”

Xapo Bank’s Bitcoin-backed loans function similarly to traditional secured loans, where an asset—Bitcoin, in this case—is pledged as collateral. Borrowers receive USD funds directly into their Xapo Bank accounts, with repayment terms that include interest charges based on market conditions.

The bank has not publicly disclosed its loan-to-value (LTV) ratio, but similar services in the market typically range from 40% to 70% LTV. This means if a customer pledges 1 BTC, they may be eligible to borrow an amount worth 40% to 70% of its market value in USD.

Loan terms will likely include margin call mechanisms, where borrowers must top up collateral if BTC’s price drops significantly. This ensures the bank’s exposure remains covered against market downturns.

Xapo Bank, which holds a banking license from the Gibraltar Financial Services Commission, has steadily positioned itself as a bridge between traditional banking and the Bitcoin economy. The institution already allows members to hold USD and BTC deposits, as well as make payments using USDC stablecoin.

With the launch of Bitcoin-backed USD loans, Xapo is expanding its suite of financial products tailored to crypto users. The move is also a response to increasing demand for crypto-backed credit solutions, as seen with firms like Ledn, Nexo, and BlockFi (before its bankruptcy).

Unlike decentralized finance lending platforms, Xapo’s solution offers a more regulated, bank-based alternative, providing users with security and institutional backing. This could appeal to individuals who seek crypto-backed financing but prefer the credibility of a licensed bank.

The introduction of Bitcoin-backed loans by a regulated institution like Xapo Bank signals further mainstream adoption of crypto-based financial products. It reflects a growing shift where Bitcoin is increasingly recognized as a valuable asset that can be leveraged within the traditional banking system.

For hodlers, this development presents an opportunity to unlock liquidity while maintaining their BTC exposure. However, borrowers must be cautious about potential liquidation risks if Bitcoin’s price declines sharply.

As the demand for crypto-backed financial services continues to grow, Xapo Bank’s move could set a precedent for other digital banks and traditional institutions looking to integrate Bitcoin into their lending frameworks.