Coinbase Now Offers Fixed-Rate Bitcoin-Backed Loans. Here's What Crypto Investors Need to Know.

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Key takeaways

Coinbase launched fixed-rate Bitcoin-backed loans using Morpho Midnight on Base.
These short-term loans mature by the end of the current or following month.
Interest rates for the fixed-rate loans are determined by on-chain supply and demand.

Coinbase (COIN +0.37%), one of the most popular crypto exchanges, has offered on-chain Bitcoin (BTC +0.13%)-backed loans since January 2025. These loans allow you to borrow USDC against your Bitcoin, but until recently, only variable-rate loans were available.

On Sept. 22, Coinbase announced fixed-rate Bitcoin-backed loans through Morpho Midnight. While this could be a useful option in certain situations, investors should understand the terms first.

How Coinbase's fixed-rate Bitcoin-backed loans work

Coinbase offers loans through its Coinbase Borrow service. Morpho Midnight is a lending protocol that operates on Base, an Ethereum Layer-2 blockchain. When you borrow this way, your Bitcoin is converted to Coinbase Wrapped BTC and locked in a smart contract on Base.

These are short-term loans, with payment due in full by maturity. Loans mature on either the last Friday of the current month or the next month, so you can't use them for long-term financing. If you don't repay the loan before maturity, the lender has a claim on your collateral. You can repay your loan early if you want, but you owe the same amount of interest.

Coinbase hasn't shared available interest rates. A spokesperson for the crypto company disclosed that rates are determined by supply and demand, with borrowers and lenders posting offers on an on-chain order book.

Fixed vs. variable loans on Coinbase

The new fixed-rate loans are another borrowing option on Coinbase, which already offered variable-rate loans. Variable-rate loans allow users to borrow up to $5 million in USDC against their Bitcoin. This type of loan has no set term length, minimum payment requirements, or due dates, making it a much more flexible borrowing option, but you risk your loan rate increasing.

Coinbase's variable-rate loans have an initial loan-to-value (LTV) limit of 75%. If you have $100,000 in Bitcoin, you could borrow up to $75,000. The liquidation threshold is an LTV of 86%. Given Bitcoin's often significant price fluctuations, LTV can change quickly.

If you take out a loan for the full 75% limit against your collateral, Bitcoin only needs to drop about 13% to hit that 86% liquidation threshold. Coinbase hasn't clarified whether fixed-rate loans are subject to the same LTV limit and liquidation threshold.

Bitcoin-backed loans are useful, but risky

Being able to borrow against your Bitcoin is convenient. You can get a loan while holding your crypto, similar to how investors with margin accounts can borrow against their stock holdings.

However, the short terms on Coinbase's fixed-rate loans limit what you can do with them. They're really only useful in situations where you need some quick cash, like an emergency expense, and you know you'll be able to repay the loan in full within one to two months. The volatility of the crypto market also makes Bitcoin-backed loans much riskier than loans backed by other types of collateral.

If you borrow against your crypto, keep your LTV ratio low to protect against a sudden margin call.

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