Unlock Cash Using Your Bitcoin with Coinbase Loans: What You Need to Know

Essential Highlights

• Coinbase users can now leverage their bitcoin as collateral to borrow up to $100,000 in USDC stablecoins through an innovative new service.
• Loans are accessible via the Coinbase app but are managed by the decentralized finance platform Morpho, operating on Coinbase's Base blockchain.
• This method provides a way to access funds without selling bitcoin, potentially deferring taxable events, but it carries risks tied to bitcoin's price volatility.
• If bitcoin's value drops and the loan-to-value ratio surpasses 86%, borrowers must add more collateral or face liquidation of their bitcoin assets.

If you hold bitcoin on Coinbase, you can now tap into its value without selling by using it as collateral for a loan. This new feature, launched recently, enables users to borrow USDC stablecoins against their bitcoin holdings.

Coinbase highlights that USDC can be converted to USD at a 1:1 rate without fees, making it practical for significant expenses like vehicle purchases or mortgage down payments.

While the loan process is integrated within the Coinbase app, the actual lending service is provided by Morpho, a DeFi platform built on Coinbase's Base blockchain, ensuring decentralized management.

How Does Borrowing Against Bitcoin on Coinbase Work?

Eligible U.S. Coinbase users (excluding New York residents) can pledge bitcoin as collateral to secure loans up to $100,000 in USDC through the Coinbase app. Unlike traditional loans, approval depends on your bitcoin collateral, not credit scores.

Interest rates reflect current market conditions and are transparently shown during the loan application. There are no fixed repayment schedules—you can repay in full or partially at your convenience.

When initiating a loan, your bitcoin is converted into Coinbase Wrapped BTC (cbBTC), a token backed by bitcoin, which is then locked into a Morpho smart contract on the Base blockchain.

Is Borrowing Against Bitcoin Right for You?

Using bitcoin as loan collateral has become a popular financial tool in crypto, offering liquidity without selling assets. However, it involves risks like price volatility and uncertain tax implications, especially regarding the conversion of bitcoin to cbBTC.

One main advantage is avoiding immediate taxation that comes with selling bitcoin for cash. Yet, if bitcoin's price drops sharply, borrowers risk liquidation of their collateral to cover the loan and penalty fees.

Benefits of Bitcoin-Backed Loans

• Access funds quickly without selling your bitcoin, preserving your position in the cryptocurrency market.

Potential Risks to Consider

• Collateral liquidation risk if the loan-to-value ratio exceeds 86%, which can happen due to interest accrual or bitcoin price decline.
• Exposure to smart contract vulnerabilities inherent in DeFi platforms like Morpho, despite increased transparency compared to traditional crypto lenders.

While crypto lending offers new financial flexibility, it’s essential to weigh these risks against your financial goals and market conditions before borrowing against your bitcoin.

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