Coinbase Launches Bitcoin-backed Loan Services for U.S. Users

Cryptocurrency exchange Coinbase relaunched Bitcoin-backed loans in the United States on Thursday, providing users with the ability to borrow against their Bitcoin holdings.

This offering is part of Coinbase’s effort to expand its services while responding to changes in the crypto regulatory environment.

Coinbase Launches Bitcoin-Backed Loans: Here’s What You Need to Know

According to the announcement, eligible U.S. customers, excluding residents of New York, can now borrow up to $100,000 in USD Coin (USDC) using their Bitcoin (BTC) as collateral. However, only BTC held on Coinbase qualifies for this service.

Bitcoin-backed loans are here.

Borrow USDC against bitcoin, without selling it. Rolling out to US users (ex. NY) starting now. More collateral assets and regions to come. Powered by @MorphoLabs and built on @Base.

The future of finance is onchain.

Learn more:… pic.twitter.com/PoLdWLz6aV

— Coinbase 🛡️ (@coinbase) January 16, 2025

The process begins with users converting their Bitcoin into cbBTC, a Coinbase-developed wrapped Bitcoin token. This token allows Bitcoin to be used within decentralized finance (DeFi) ecosystems.

Once converted, the cbBTC is deposited into Morpho, an on-chain lending protocol built on Coinbase’s Ethereum layer-2 network, Base.

Users then receive USDC loans, which can be used for various purposes, including paying expenses, conducting global transfers, or converting into U.S. dollars.

Unlike traditional loans, Bitcoin-backed loans do not have fixed repayment schedules. Borrowers can repay at their own pace, provided the loan value remains adequately covered by the Bitcoin collateral.

However, if Bitcoin’s price drops substantially, liquidations may occur to maintain the loan’s security. Any remaining Bitcoin after liquidation is returned to the borrower’s Coinbase account.

While Coinbase provides the interface to access Morpho’s lending protocol, it does not directly manage the loans.

Customers must regularly monitor their loans to prevent collateral liquidation, as Coinbase cannot intervene in this process.

Why Coinbase Pulled the Plug on Crypto Loans in 2023

Coinbase’s decision to discontinue its crypto loan offerings in 2023 marked a notable change in the company’s strategy.

Coinbase to Cease New Loan Issuance Through Bitcoin Borrow Service 🧐💰

Global crypto giant @coinbase has announced plans to shutter its loan services. Effective May 10, #Bitcoin-backed loans will cease to be available to customers.#CryptoNews #BTChttps://t.co/q6U1peYtFA

— Cryptonews.com (@cryptonews) May 4, 2023

Before the shutdown, users could borrow up to $1 million by using 30% of their Bitcoin holdings as collateral. This service allowed crypto holders to access liquidity without selling their assets.

The program’s closure in November 2023 coincided with increased scrutiny from the U.S. Securities and Exchange Commission (SEC).

In March 2023, Coinbase received a Wells notice from the SEC, signaling potential enforcement action related to its lending and borrowing services.

The notice outlined concerns about possible securities law violations, pressuring Coinbase to reassess its offerings.

In response, Coinbase publicly criticized the SEC for its lack of clear regulatory guidelines surrounding crypto lending. The company called for more transparent rules to provide legal certainty for crypto firms.

This was not Coinbase’s first encounter with the SEC. The regulatory body had been closely monitoring the exchange’s operations, leading to an ongoing lawsuit alleging securities law violations.

Why Bitcoin-backed Loans are Gaining Traction in 2025

Fast forward to 2025, and Coinbase’s reintroduction of Bitcoin-backed loans reflects its adaptation to a more crypto-friendly regulatory environment

These loans offer an alternative method for holders to access liquidity without selling their assets, which can have potential tax benefits.

The market for Bitcoin-backed loans, valued at $8.5 billion in 2024, is projected to grow to $45 billion by 2030, according to HFT Market Intelligence.

Coinbase’s renewed focus on this offering positions it to cater to the expanding demand within this growing sector.